5 Sept 2015
Note on
Leave & License Agreement
OUR COMPANY is in reality business and it is letting out premises
to prospective licensee for different purpose in order to earn revenue. We are
giving our premises to IT/ITes industry which is not a commercial activity but
an industrial activity.
Similarly we are letting out various halls for short term period
for holding exhibitions and to others for providing various facilities to support the exhibition
activities. These all are covered under industrial activities.
Thus, letting out premises/space let out by OUR COMPANY is of two
kind :
I.
Leave & License basis
II.
Permissive right to operate or conduct business not amounting to
license.
In case of any dispute, the jurisdiction of the court depends on
what is the nature of contract between the parties. If the contract is based on
leave & license, only the Small
Causes Court has the jurisdiction under the various applicable Acts. We are not
putting any arbitration clause in view of section 41 of Small Causes Court Act which
provides exclusive jurisdiction to Small causes court in case of any dispute
between the Landlord/Licensor and Tenant/Licensee.
In case the contract is only for permissive right to operate or
conduct a business which is not a license, the small cause court will not have
the jurisdiction and hence we are putting an arbitration clause to exclusion of
all the courts in India. For example in our agreement for allowing to operate
counter in canteen area or for allowing to hold exhibitions in our exhibition
halls we are only granting permissive right to operate which is not even
license under section 52 of Indian Easement Act.
1.
Whether a fully owned
subsidiary of a foreign company is exempted under section 3 of Maharashtra Rent
Control Act?
Under section 3 of
Maharashtra Rent Control Act, 1999, premises let or sub-let to certain
category of entities is exempted from
the application of the Act. It reads as follows:
“3. Exemption. (1) This Act shall not apply ----
(b) to any premises let or sub-let to banks, or
any Public Sector Undertakings or any Corporation established by or under any
Central or State Act, or foreign missions, international
agencies, multinational companies,
and private limited companies and public limited companies having a paid up share
capital of more than rupee one crore or
more.”
In the agreement there should be a clause ensuring that the
Licensee will not reduce its paid up share capital from one crore and that in
case it reduces its paid up share capital from one crore, the license agreement
will stand terminated. As per supreme Court Judgment jurisdictional fact must
exist before the court proceeds to decide other issue. The court observed “In the instant case, in
our opinion, the courts below were right in holding that the date on which
tenancy was determined, the right in favour of the landlord got accrued. Such
right could not have been set at naught by the tenant by unilateral act by
passing a resolution to reduce 'paid up share capital' of the Company.” http://www.lawyersclubindia.com/judiciary/Maharashtra-Rent-Control-Act-1999-8211-Section-3-1-b--54.asp#.Ve0BtdKqqko
International
agencies & Multinational Companies have
not been defined under the Act. Generally, foreign company do their business
activities in India through their agencies or subsidiary companies. But it is
difficult to say that subsidiary company
which is 100 % owned by a foreign company will be deemed as “multinational
company” and will be exempted under
section 3(1)(b) of Maharashtra Rent Control Act,1999. There is no any such
judicial precedent on this issue.
An Indian subsidiary of a foreign company may remain
private by its own choice as far as its internal matters are concerned such as
not inviting public to subscribe in shares. But in the eyes of law, it will be
public
company. An Indian subsidiary of an Indian company may be as private company or
public company depending upon whether it invites public to subscribe in shares.
Thus a subsidiary company will be either private or public company having a
separate entity from the parent company of which it is a subsidiary and hence
to be exempted from section 3(1)(b) of
M.R. Control Act,1999, it must have paid up share capital of more than rupee
one crore or more.
Hence,
it is better to consider a subsidiary company of a both foreign Indian company not covered under section 3(1)(b) of
the Rent Act. It should be covered under section 3(1)(b) only if its paid
up share capital is more than rupee one crore. It makes no difference if it
is a subsidiary of Indian or foreign
company which is having paid up share capital of more than one crore.
2.
Other grounds for
eviction if premises let out to company having paid up share capital of less than
one crore.
If we are giving the premises on leave & license, then on
expiry or on termination of the license agreement, the licensee is required to
vacate the premises. If the licensee do not vacate, the remedy available with
us is to file eviction suit under section 41 of Small Causes Act.
In our dispute with City Group now TCS-eServe, at the advise of
our advocate Ms. Priti Ramani and confirmed by
Sr. advocate Mr. Mulraj Shah OUR COMPANY had chosen to file eviction
suit on the ground of expiry of Leave & License Agreement and not on the
ground that TCS is having more than one crore of paid up share capital.
Two cases filed against us by Princes Estates and Mewar on the
ground that our company is having more than one crore of paid up share capital
is still pending and no final success has been achieved by the respective
landlords even after passing of 14 years.
Section 3(1)(b) M. Rent Act, 1999 seems to be only an effective
ground in case there is a tenancy agreement or lease agreement and the premises let out to the Company is
having more than one crore of paid up capital.
But if the company is having more than one crore paid up share
capital then we will have an additional ground for filing eviction suit.
Hence, in case a company having less than one crore paid up share
capital approaches us, we can concede to give them the premises on the
basis Leave & License Agreement ,
provided they also agree to pay some premium charge. We can make a point for
negotiation for obtaining a little higher license fee than what they agreeable
to pay to us.
3.
Legal implication if Agreement of License if it exceeds the period
of 60 months
It is general practice that Leave &
License Agreement now a day is executed only for 60 months. It is a common
apprehension that if Leave & License Agreement exceeds for more than 60
months, it will amount to Lease. As our policy is not to give any premises on
lease, we should have a better understanding of the term License, Lease and
Tenancy agreement from these perspectives.
Under Section
52 of the Easement Act, the term "License" is defined as follows: -
52. "License" defined. - Where one person grants to another, or to a definite number of
other 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 and such right does not amount to an easement or an interest in the
property, the right is called a license.
Thus License is not defined in terms of period for which it is
letting out. However, it must be for a fixed period otherwise it will amount to
perpetual license.
Under Section
105 of the Transfer of Property Act the term Lease is define as follows: -
105. Lease defined. - A lease of
immovable property is a transfer of a right to enjoy such property, made for a
certain time, express or implied, or in perpetuity, in consideration of a price
paid or promised, or of money, a share of crops, service or any other thing of
value, to be rendered periodically or on specified occasions to the transferor
by the transferee, who accepts the transfer on such terms.
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.
Difference between License & Lease
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; It means that even if the
title of the agreement is Leave & License, the agreement may amount to
lease if it can be concluded from the body of the agreement.
(b) the real test is the intention of
the parties whether they intended to create a lease or a license; it is
therefore it is necessary to make such statement/averment in the agreement
clarifying the intention of the parties.
(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;
(d) if under the document a party gets exclusive possession of the property, prima
facie he is considered to be a lessee.
7. Other distinguishing Features
- Apart from this there are following other differences:
i) A lease is assignable, but a license
is generally non-transferable. Section 56 of the Indian Easement Act describes the circumstances
only in which the License is transferable.
ii) A lease unlike a license is not
revocable.
Section 60 of the Easement Act mentions that the License is generally
terminable at the option of the Licensor except in the case of the two exceptions
carved out therein. One very important is the case where Licensor allow
the licensee to make structural
changes/addition/alteration amounting to permanent nature in the premises. In
our dispute with TCS-eserve, they had claimed that the nature of agreement with
OUR COMPANY was that of Lease as OUR COMPANY had allowed them to construct
mezzanine floor at their own cost.
Licensee has the only right to
demand damages in case of
premature revocation of license by the Licensor. Sections 63 and 64 of
Easement Act prescribes the rights of the licensee upon revocation and/or
premature high handed eviction by the Licensor.
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.
vii) Sections 63 and 64 of Easement Act prescribes the rights of
the licensee upon revocation and/or premature high handed eviction by the
Licensor.
viii) Different Stamp Duty on Lease and
Leave & License Agreement : As per Maharashtra Stamp Act 1958 Stamp duty
on leave and license agreement as
per Article 36A (a) of the Schedule I of the Bombay Stamp Act, 1958.
W.E.F. 01/05/2013
Stamp Duty payable on the License agreement for a period upto 60 months, including
renewal period, if any is at the rate of 0.25% on the Total Sum. Total Sum
means the total of all license fees or rent payable for full duration of license
period plus amount of non-refundable deposit or advance or premium; plus
interest calculated @ 10% per annum on refundable security deposit. There is no
distinction between residential or commercial property.
In case of the period
of a Leave and License Agreement exceeds sixty months, it has to be stamped at
the rate applicable to a ‘Lease
Agreement’ under Article 36 of Bombay Stamp Act as follows
|
For the period more than five years
but less than 10 years
|
As per conveyance (5%) on 25% of
the market value of the property
|
Eg. If
market value is Rs. 1 lacs than 25% of
1lacs is rs.25,000/- and 5% on 25000/- will be 1250/-
Thus if the Leave & License
Agreement is for a fixed period of more than 60 months it will be treated as
Lease only from the point of view of
Maharashtra Stamp Act, 1958 and not from the point of view of Indian Easement
Act or Transfer of Property Act. If the intention of the parties is to create a
license, the agreement will not amount to lease merely on the ground that it is
for a fixed period of more than 6 moths.
While drafting a Leave & License
Agreement, we need to ensure that clear
statement is regarding the intention of
the parties, specific statement that the agreement does not create any interest; does not assign right to enjoyment; does not give exclusive possession; does not allow licensee to make structural changes/addition/alteration
amounting to permanent nature; the
period of license should be for a fixed period preferably for not more than 5
years with our without renewal clause.
In case the Licensee insists for more
than 5 years, we can give side letter for renewal of the agreement for other
terms of 5 years. Even if licensee insists for agreement for period more than 5
years in a single document, we may concede only up to 9 years with or without
renewal clause provided Licensee is ready to give premium charge and there paid
up share capital is more than one crore.
4. Termination
Clause - Trespasser & Damages
Whether after the expiry of the Leave & License agreement, the
status of the Licensee will be that of a trespasser?
In case of Akapati
Bhaskar Patro vs Trinath Sahu And Anr decided on
17/1/2002 the court differentiated between a statutory tenant,
lessee on the one hand and licensee on the other hand after the expiry of the
agreement and held that section 441 (offence of trespass) will be applicable in
case of not handing over the possession of the premises by licensee after
expiry of the License agreement. The relevant paragraph is as follows:
“5. On the basis
of the discussions made in the preceding paragraphs, we are of the opinion that
the rigors of Section 441, I.P.C. (i.e. offence of trespasser) as amended by
the Orissa Act 22 of 1986 shall not be applicable to the following cases:
(i) Statutory
tenants whose tenancy is governed by any statute.
(They are
protected by tenancy laws like, Public Premises Eviction Act, etc.)
(ii) Tenant who
has entered into possession by virtue of a lease.
Rights of such
tenant are governed under the provisions of the Transfer of Property Act and
the Specific Relief Act and he acquires a right of possession. After
determination of tenancy by notice, he would become 'Tenant holding over",
'Tenant on sufferance" or Tenant at will" as the case may be. His
possession being Juridical, is protected. He can be evicted only in due process
of law. The possession of such tenant cannot be equated with that of
trespassers.)
(iii) Person who
has entered into possession by virtue of some covenant like, agreement to sell,
will etc. and/or put forth a genuine right over the property possessed.
If a person
claims a right of title coupled with possession, till the dispute is
adjudicated, his possession cannot be conclusively said to be that of a
trespasser and his right to possess would be subject to the result of the suit
or legal proceeding.)
However, the said section shall be applicable to
the following category of persons:
(i) Person who
was permitted to possess a property for a particular period and after lapse of
the said period, he was called upon to handover possession by issuance of quit
notice.
ii) Person, who was put in possession by means
of a 'licence' and who fails to handover possession after expiry of the term of
licence and/or after receiving quit notice from the landlord.
(iii) Person who
was in "permissive possession" and who fails to handover possession
even after receiving a notice to quit.”
As per section 441 of IPC as applicable
in Maharashtra, even notice to quiet is
not required to be given.
In Karnataka State Road Transport Corporation vs Nagaraj
Hatwar the court in its order passed on 6/3/2000 while referring the
Supreme Court Judgment clarified that a Licensor has every right to prevent the
licensee from entering into premises
after the expiry of the agreement if they do not vacate. The relevant
paragraph is as follows:
“5.
……………... In fact, the Supreme Court has clarified that in respect of a
licensee, the lawful way of taking possession is just to walk into the premises
and take possession, as is always the case of a licensee, that possession and
control of possession is kept with the licensor. A licensee is after all
occupying the premises under the permission and control of the licensor. So the
due process of law has also been interpreted as to mean that on the expiration
of the licence, the licensor is entitled to occupy the premises and prevent the
licensee from entering into the premises.”
However, the above judgment is in contradiction of the settled law
by the Supreme Court that even a trespasser can not be evicted without
following the process of law and hence it is not advisable to take such
recourse by taking law in hand as it may give an opportunity to file criminal
proceeding under section (wrongful restraint) 339 & 341 of IPC as it
happened in the case of Schlumberger matter. In place of taking such recourse
we may consider of filing criminal proceeding against the Licensee if after
expiry of the License agreement they do not vacate.
Hence, even if there is no specific clause that after the expiry
of the license agreement, the status of the licensee will be that of trespasser
and will an offence under section 441 of IPC, Licensee can be booked for
criminal trespassing in case they do not vacate the premises after expiry of
license period.
Mesne profit,
Damages & Penalty-
(a) Summary ejection of Licensee on
expiry of Agreement under Section 24 of
the Maharashtra Rent Control Act, 1999. However, this provision
facilitating speedy disposal and
relief to the aggrieved party only if the premises is let out for residential purpose and not for
non-residential purpose. Also provision relating to 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 is not
applicable in case the agreement is for non-residential purpose.
(b)
L.D./compensation cannot be granted as per clause of the Agreement but
reasonable compensation which will be
around market rate as per section 73 and 74 of Indian Contract Act.