Leave and Licence

I. Introduction

Leave and Licence Agreements are a popular mode of occupying immovable property (both offices and residences) especially in the city of Mumbai. 

Leave and Licence agreement is different from leases as leases create an interest in property whereas the former does not. Also, leases are transferable which is not the case in a Leave and Licence agreement.

Licensor is the person who grants the Licence and a Licensee is the person who pays for the Licence and enjoys the rights. Licences must not be confused with leases or rental agreements as they are each different in their own aspects.

Characteristics of Leave and License Agreement

A popular choice among landlords, the Leave and Licence agreement has the following properties.

• No transfer of interest is created from owner to tenant.
• No property rights are created
• The amount due as Licence fee, deposit and other charges can be contractually determined by participating individuals
• Typical duration of leave and license contract is eleven (11) months. But Commercial leases are often of long duration, sometimes running into 5-6 years as well. In case of factories, cinema halls or such other properties; leases can be multi-decades or even multi-century long.
• Owner in case of leave and licence agreement maintains higher freedom and rights when it comes to cancellation and eviction of tenant.

II. Indian Easements Act, 1882

2.1 There is no statutory definition for the term “leave and licence”. The first statute which is relevant for a leave and licence is the Indian Easements Act, 1882. S. 52 of the Act, defines a ‘licence’ as a right granted by one person to another to do something in or upon the grantor’s immovable property, which act would in the absence of such a right be unlawful. It further states that a licence must not amount to an easement or an interest in the property. Thus, a licence is only a permission or a right to do something upon an immovable property. It is solely a personal right or privilege granted to the licensee by the licensor. A licence does not confer any interest in the immovable property.

2.2 S.56 of the Act provides that a licence cannot be transferred by a licensee or his agent unless the terms of the licence so provide. A licence cannot be assigned by the licensee.

2.3 A leave and licence of an immovable property is different from a lease of the same as the lease creates an interest in the property which the licence does not. Over a period of time the Supreme Court and various High Courts have laid down several tests for determining a licence from a lease but none of them are conclusive. The most famous being that of Associated Hotels of India Ltd. v. R.N. Kapoor, AIR 1959 SC 1262 and the latest decision on this issue is of ICICI, (1999) 5 SCC 708 (SC).

2.4 A wide scale misconception among many people is that a leave and licence can only be for 11 months.

How to make a legally valid Leave And Licence Agreement?

• Prepare Contents of Deed
• Print it on stamp paper of required value.
• The licensor and the licensee must then place their signatures in the designated places along with the signatures of two (2) witnesses

Differences Between Lease And Leave And Licence Agreement

Advantages of the Leave and Licence Agreement

Let’s take a look at some of the advantages-

• makes eviction and in general, getting the tenant to vacate the house easier.
• no property rights are created in the favour of the lessee.
• no transfer of interest occurs.
• keeps the Rent Control Acts away as this cannot be considered as tenancy. It falls under the Indian Contract Act.

III. Rent Act

3.1 The Maharashtra Rent Control Act, 1999 now covers within its ambit all leave and licence arrangements. 

3.2 The landlord is responsible for getting the leave and licence agreement registered under the Registration Act. Any landlord who contravenes these provisions shall on conviction be punished with imprisonment up to 3 months and/or fine up to ₹ 5,000.

IV. Stamp Duty

4.1 According to Art.36A of the Bombay Stamp Act, the stamp duty on a leave and licence agreement varies according to the location of the property and the tenure of the agreement.

4.2 Please refer to the Topic on Stamp Duties – Schedule 1, Art.36A for the levy of stamp duty.

The Leave and Licence agreement sets up a relaxed owner-tenant relationship.