Un­der­stand the dif­fer­ence

Doc­u­ments for trans­fer of im­move­able prop­erty should be clearly de­fined as ‘lease’ or ‘li­cense’ deeds to avoid con­fu­sion in a dis­pute

HT Estates - - HTESTATES - Su­nil Tyagi

Par t i e s e xe­cute l e ase deeds and li­cense deeds to un­der­take any ac­tion per t ain­ing t o t r ans­fer of im­move­able prop­erty. The gen­eral be­lief is that the na­ture of the doc­u­ment is de­ter­mined by what the doc­u­ment is called. In a num­ber of sit­u­a­tions, a land­lord trans­fer­ring his prop­erty on rent un­der a lease ti­tles the doc­u­ment ( ex­e­cuted for the pur­pose) as ‘li­cense deed’. He is ob­vi­ously un­der the mis­con­cep­tion that (be­cause the doc­u­ment is ti­tled li­cense deed) he can forcibly evict the ten­ant any time. It is, there­fore, es­sen­tial to un­der­stand t he dif f er­ence be­tween l icense and l ease. The con­cept of li­cense has been de­fined un­der the In­dian Ease­ments Act, 1882. A li­cense is a per­sonal right granted by one per­son to an­other to do some­thing upon im­move­able prop­erty of the grantor and does not cre­ate any in­ter­est in the prop­erty it­self. A lease is de­fined un­der the Trans­fer of Prop­erty Act, 1882. Though there is a marked dis­tinc­tion be­tween a lease and a li­cense, iden­ti­fy­ing whether a trans­ac­tion is a lease or li­cense of a spe­cific prop­erty may not al­ways be clear.

One of the main dif­fer­ences be­tween li­cense and lease is that in case of a li­cense, the pos­ses­sion of the prop­erty re­mains with the owner but the li­censee is per­mit­ted to use the premises for a par­tic­u­lar pur­pose. No in­ter­est is cre­ated in favour of the li­censee and he or she can use the prop­erty only in the man­ner as per­mit­ted by the grantor. In the lease of an im­move­able prop­erty, the lessee is en­ti­tled to be en­trusted the pos­ses­sion of prop­erty and is en­ti­tled to the en­joy­ment of the prop­erty to the ex­clu­sion of the lessor. Thus, a lease is a trans­fer of an in­ter­est in the im­move­able prop­erty. If in a trans­ac­tion, the per­son has only a re­stricted or limited right to use the prop­erty, while the prop­erty re­mains in pos­ses­sion and con­trol of the owner, such a trans­ac­tion is con­sid­ered to be a li­cense.

A lease is a trans­fer of right to en­joy such prop­erty, in con­sid­er­a­tion of a price, ie the rent, whereas in a li­cense, the grantor gets a li­cense fee as con­sid­er­a­tion. When the grantor sells his prop­erty in which he has a li­cense, the pur­chaser may not be bound by such li­cense un­less ex­plitly agreed. How­ever, when the lessor trans­fers the leased prop­erty, t he buyer of t he prop­erty will be re­spon­si­ble to un­der­take all the li­a­bil­i­ties of the lessor.

The courts in cer­tain cases have de­cided whether the trans­ac­tion was a lease or a li­cense based on dif­fer­ent fac­tors --- largely sub­ject to the facts and cir­cum­stances of each in­di­vid­ual case. For in­stance, where the lessee had been granted the right to ex­clu­sive pos­ses­sion of the prop­erty, the in­stru­ment in ques­tion was held to be a lease deed by the courts. On the other hand, where the de­fen­dant was given ex­clu­sive pos­ses­sion of the dis­puted premises for a par­tic­u­lar pur­pose but was not given the permission to sub-lease the prop­erty, the trans­ac­tion was held to be a li­cense. In some cases, where the keys of the premises were taken by the grantor in the morn­ing and re­turned in the evening, the court has held the trans­ac­tion to be a li­cense.

Thus, the ti­tle of the doc­u­ment is not con­clu­sive enough to de­ter­mine whether a trans­ac­tion is a lease or a li­cense. In order to avoid dis­putes, it is for the par­ties to clearly set out their in­ten­tion whether it’s a lease or a li­cense in their doc­u­men­ta­tion. For avoid­ing any dis­pute, the fac­tors that should be kept in mind while draft­ing the lease deed or the li­cense deed in­clude, the terms with re­spect to rent/li­cense fee, which party is en­ti­tled to pos­ses­sion of the prop­erty, the terms of us­age of the prop­erty, etc. Courts have, time and again, held that for as­cer­tain­ing the na­ture of the doc­u­ment it is nec­es­sary to look into the real in­ten­tion of the par­ties, ie whether they in­tended to cre­ate a lease or a li­cence. Courts take into ac­count the lan­guage of the doc­u­ment and the facts and cir­cum­stances, ir­re­spec­tive of the name of the doc­u­ment ex­e­cuted by the par­ties.

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