Understanding lease and licence
by: Guest
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| A lease is considered a transfer of right in an immovable property in the agreed term, whereas a licence is a grant by one person to another, of a right to do or continue to do in or upon the immovable property owned by the grantor |
Let us assume that you are planning a long holiday. You book a suite or room in a hotel or a resort for a long time. You like the place so much that at the conclusion of the holiday, you would like to settle down in the place. Can you claim tenancy rights in respect of the suite or the room taken by you? Certainly not. If, instead of taking a room, you have taken a property on rent, can you claim tenancy rights? Maybe. If you have occupied a space in the hotel like shop, b eauty parlor, etc in a hotel, is it possible to claim tenancy? Maybe. You would notice that your occupation of the suite or room is part of the hotel’s business. On the other hand, shops and other properties could have been leased. As such, in respect of the same building, different kinds of relationships may arise.
Take the case of a serviced apartment. You would be clear that you cannot claim tenancy rights. You may find similar situations like occupancy in a business centre for commercial purposes. It would also be clear that this occupancy does not create a tenancy. So, what are the underlying features of a lease? How does this differ from licence? If there is clarity in this position, it will help us to understand the difference between the lease and licence, particularly, in the context of many documents being executed today as license agreements, leave and licence, etc.
A lease is considered as a transfer of right in an immovable property in the agreed term. This is in consideration of a price or money usually termed as “premium” or “rent”. Rent is usually payable on a periodical basis. The transferor is called the “lessor” and the transferee is called the “lessee”. There is also a security deposit.
If there is no contract, local law or usage to the contrary and no term is defined between the parties in respect of lease of immovable property relating to agricultural or manufacturing purposes, the duration of the lease shall be treated as year to year basis. In respect of other leases, it is to be treated as month to month basis. The former is terminable at a notice of six months and the latter by a notice of 15 days. If the lease of immovable property is year to year or term exceeding one year or if it reserves the yearly rent, the same can be made only by a registered document.
On the other hand, a licence is a grant by one person to another or more persons, of a right to do or continue to do in or upon the immovable property owned by the grantor. In the absence of such a grant of right, the thing to be done or continued to be done would be unlawful. A licence is not an easement or an interest in the property. When a licence is granted, all accessory rights for the enjoyment of that licence are also implied by the grant.
Reverting to the lease, it may be noted that the lessor is bound to disclose to the lessee any material defect in the property and also put the lessee in possession of the property. There is also an assurance that if the lessee pays the rents without default, the lessee can hold the property during the term of the lease without interruption from the lessor. The benefit of the lessee’s interest can also be enforced by any person with whom such benefit is vested. If the property is wholly destroyed or rendered unfit for the purpose of lease, then at the option of the lessee, the lease would be void. However, the damage, injury or destruction to the property should not have been caused owing to any act or negligence of the lessee.
If there is any necessity to repair the property and the lessor neglects to repair the same, the lessee can repair the property and deduct the expenses out of the rent.
If the lessor neglects to make any payment which the lessor is bound to make and that the same is by law recoverable from the lessee or if the property can be proceeded with for recovery of such payment, then the lessee may make payment and deduct the expenses of such repairs from the rent and also recover the same from the lessor. At the determination of the lease, the lessee may remove all things installed by the lessee, but the lessee has to restore the property to its original condition. If authorised in writing, the lessee may grant sublease, transfer of lease or mortgage of leasehold rights. The lessee has to pay the rent and other payments promptly as agreed. The lessee has to restore the property to its original condition on termination of lease subject to reasonable wear and tear and also allow the lessor or his agents at all reasonable times during the term of lease to enter upon the property, inspect the condition of the property and give or leave a notice of any defect in condition of the property. If the defect has been caused by any act or default on the part of the lessee, his servants or agents, he is bound to make it good within three months after the notice has been left.
The lessee has to bring to the notice of the lessor any proceeding relating to the property or any encroachment in respect of the property or any interference with the lessor’s right at earliest practicable time.
The lessee should use the property for the purpose for which it has been let and in a reasonable manner. The same should not be used in a manner which cause injury or damage to the buildings or in a destructive manner. The property should not be used to fell or sell timber, which will damage building, when the lease was granted. The lessee should not put up any permanent structure and should hand over possession of the property to the lessor on the termination of the lease.
One of the main differences between the lease and licence is that while a transfer of the property will result in the property being transferred with the lease as per the original terms and conditions a transfer of property subject to a licence does not create any interest in the occupancy to require the transferee to continue the licence.
Further, a licence is usually revocable unless grant is coupled with transfer of property or the licensee has executed a work of permanent character and incurred expenses for the same. The revocation of the licence may be expressed or implied. When revoked, the licensee is entitled to a reasonable time to leave the property and remove the goods which he has been allowed to place in such property. The licensor also has a right of re-entry.
In respect of leases in Tamil Nadu, if the age of the building is five years or more, then a statutory tenancy would be created in favour of the lessee. In such cases, the lessee can be evicted only on certain grounds like wilful default of payment of rents; subletting without authorisation; use of building for purpose other than for which it was leased; tenant committing act of waste or act which is likely to impair the value of the building; tenant being convicted for an offence of using the building or allow the building to be used for immoral or illegal purposes; tenant committing nuisance to occupiers of other portions of the building or buildings in the neighbourhood; tenant ceasing to occupy the building for a continuous period of four months without reasonable cause; tenant denying the title of the landlord; the landlord requiring the building for his own use under certain conditions and the building being in such a stage that it requires demolition and reconstruction. This does not apply to buildings owned by the Government and public trust.
The licence does not create any right in the property itself unlike a lease. However, in ascertaining whether a particular transaction is a lease or a licence, the terminology used in the document or the title of the document is not the factor which will determine whether the actual transaction is a lease or a licence.
About the Author
R.L. NARAYANAN
The author is partner, RANK Associates, Advocates, Chennai
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