Property tax on land under construction

Supreme Court says that land under construction for the purpose of rating, should be treated as vacant land.

Read full judgment

Saturday, 17 January 2009

Difference between Lease and Leave & License

1) Definition of Licence - The word ‘licence’ has been defined in section 52 of the Indian Easement Act, 1882 "where one person grants to another, or to a definite number of other persons, a right do or continue to do in or upon the immovable property of the grantor, something which would, in the absence of such a right, be unlawful, and such right does not amount to an easement or interest in the property, the right is called a licence.

2) Definition of Tenant - A tenant is defined in section 7(13) of the Maharashtra Rent Control Act, 1999, and means any person by whom or on whose account rent is payable for any premises.

3. Definition of Lease - A lease is defined in section 105 of the Transfer of Property Act, which provides that "A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time expressed or implied or in perpetuity in consideration of a price paid or promised, or of money, a share of crops, service or any other things of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms."

4) Main Difference between Lease and a licence
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.

5) Possession- In a leave and licence agreement the juridical possession of the licensed premises is deemed to remain with the licensor and the licensee is said to be in constructive possession of the licensed premises. Thus a leave and licence does not create any interest in the licensed premises in favour of the licensee but gives the licensee the mere permissive right to use and occupy the licensed premises for a temporary period. A lease creates an interest in the property while a license passes no interest in the property and merely makes an action lawful, which without it would have been unlawful.

6) Supreme Court Judgment - In Khalil Ahmed Bashir Ahmed v. Tufelhussain Samasbhai, AIR 1988 SC 185, Honble Supreme Court of India laid down the following propositions as well established:

(a) to ascertain whether document creates a license or lease, the substance of the document must be preferred to the form;
(b) the real test is the intention of the parties whether they intended to create a lease or a license;
(c) if the document creates an interest in the property, it is lease; but, if it only permits another to make use of the property of which the legal possession continues with the owner, it is a license; and
(d) if under the document a party gets exclusive possession of the property, prima facie he is considered to be a lessee.
(5) A lease gives the tenant a right to exclusive possession while a license confers no such right on the licensee.
7. Other distinguishing Features - Apart from this there are following other differences :
i) A lease is assignable, but a license is generally non-transferable.

ii) A lease unlike a license is not revocable.
iii) A leasehold creates a heritable right but not the license
iv) A license is determined by the death of the grantor, while a lease is not.
v) If the landlord allow the licensee to make structural changes/addition/alteration amounting to permanent nature in the premises then it is construed as lease.
vi) In a lease right to enjoyment of the property is assigned whereas in license only right to permissive use of the property is allowed.
v) In case of a lease, the question of Wealth-tax would have to be considered. One property is exempted from Wealth-tax. However, if we have any other property, this implication would have to be considered.

8) Different Stamp Duty on Lease and Leave & License Agreement: In case of leave & license agreement for a period less than 60 months with or without renewal clause, the maximum stamp duty payable is Rs.50,000/- where as if it is lease agreement, the stamp duty will be 5% of the total rent for the lease period including security deposit. In case Leave & License Agreement is more than 60 months, only stamp duty payable on lease agreement will be applicable but the Agreement will remain a leave & license agreement.

9). Remedy for Eviction of Licensee & Tennant(In case of Lease Agreement) –
(a) Summary ejection of Licensee on expiry of Agreement - Section 24 of the Maharashtra Rent Control Act, 1999 provides that the Competent Authority on being satisfied that the period of licence has expired shall pass an order for the eviction of the licensee as opposed to the existing Court System. This facilitates speedy disposal and relief to the aggrieved party. In case there is a lease agreement or tenancy agreement, then eviction proceeding will be governed by section 15 of Maharashtra Rent Control Act and disposal of which generally takes much longer time.
(b) Section 24 also provides that the licensee shall be liable to pay damages at double the rate of the licence fee or charge fixed under the agreement of the license from the day of default till the date of disposition. However, in case there is a tenancy agreement or lease agreement the aggrieved party can claim mesne profit from the date of expiry or from the date of valid termination of Agreement.