Lease Vs Leave and License : Which is better?

Leave and Licence Agreements are preferred by the parties to get out of the rigours of landlord-tenant relationship. Many types of agreements are made for the occupation  of  property  like  lease  deeds,  lease  or  tenancy  agreements,  rental agreements  etc.  Despite  these  agreements,  most  owners  prefer  to  give  their premises on leave and license basis rather than tenancy or lease basis. The process of eviction of tenants is generally difficult. The law is tilted in favour of the tenant for various purposes. Generally it is being witnessed that a person having a vacant apartment will never rent it out fearing what if the tenant decides not to vacate and makes the apartment his own. That is why tenancy has been put on the backburner and Leave and Licence is now the most popular option.

The word “leave” has many meanings. In Leave and Licence Agreements, it is used to indicate “permission”. The occupancy is in essence a permission granted by the landlord or owner to use and occupy the property concerned. 

Mention should be made that the practice of entering into “Leave and Licence Agreements” was adopted in Mumbai. In Mumbai, the provisions contained under the then Bombay Rents Hotel and Lodging House Rates Control Act, 1947, popularly known as the “Bombay Rent Act” were considerably in favour of the tenants. Further, Tenancy or  Lease  Agreement had to  be stamped and registered.  Even if the Agreements were duly stamped and registered, the eviction of tenants was still a very tough and time consuming procedure.

With the hope of getting over the stamp duty and registration requirements and also with the view of not creating any tenancy, that will be covered by the said Act, a practice of entering into “Leave and Licence Agreements” was adopted. 

Lease, Licence and Rental Agreements

The licence is not a lease. The lease and the license both are different. The word “licence” under Section 523 of the Indian Easement Act, 1882 is a grant by one person to another or to a definite number of persons, a right to do, or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful. If the right granted as licence does not amount to an easement or an interest in the property, then it would be a licence.

A lease of immovable property as per Section 105 of the Transfer of Property Act is a transfer of a right to enjoy such property. It may be for a specified period, express or implied. The price or payment of money is usually referred to as the “rent”.

In a Leave and Licence Agreement, the juridical possession of the premises is deemed to remain with the licensor and the licensee is said to be in constructive possession of the said premises. Thus a leave and licence does not create any interest in the premises in favour of the licensee but gives the licensee the mere right to use and occupy the premises for a temporary period.

A Rental Agreement between the landlord and tenant sets down the terms which will be followed while the tenant lives in the rental unit. Month-to-Month Agreement is commonly called a "Rental Agreement". This agreement is for an indefinite  period  of  time,  with  rent  usually  payable  on  a  monthly  basis.  The agreement itself can be in writing or oral, but if any type of fee or refundable deposit is being paid, the agreement must be in writing.

Lease and Licence: Distinction

The cardinal distinction between a lease and a licence is that in a lease there is a transfer of interest in the premises, whereas in the case of a licence there is no transfer of interest, although the licensee acquires a right to occupy the premises. When premises are given out on lease or tenancy basis the legal possession of the premises in these cases is also deemed to be transferred to the lessee and tenant 

respectively.

Whether an agreement to occupy the premises between the landlord and tenant is allowed to occupy was an agreement to lease or an agreement of leave and license has been a subject of many Supreme Court & High Court rulings. In a number of judgements various High Courts as well as the Apex Court have distinguished the lease and the license. 

Factors to be Considered While giving out Premises on Leave & Licence Basis 

In deciding whether to give out premises on leave & licence basis some of the factors to be considered are as follows:

—   Possession: In a leave and licence agreement, the owner is deemed to be in
       legal or judicial possession of the premises and the licensee is in constructive
       possession of the premises.

—   Income Tax: In a leave and license agreement the owner has to pay the
       applicable rate of tax.

—   Municipal Tax: In a leave and license agreement the Municipal Authorities may charge taxes as applicable in the area and if there is a security deposit amount sometimes the Municipal Authorities may calculate a notional interest on the   securities deposit amount and charge tax thereon.