Difference between lease and licence under the Transfer of Property Act
When it comes to real estate transactions, everyone is familiar with and hears the phrase “lease” on a regular basis. A lease is the right to use an immovable property for a certain period of time in exchange for a fee paid by the person who purchases the property.
Lease is defined under Section 105 of the Transfer of Property Act of 1882, and from this definition, one can easily derive several essential features of a lease, such as the transfer of an interest, the parties to the lease, and the subject matter of the lease, among others. However, another provision or legal principle is known as the license is sometimes confused with the concept of the lease.
Understanding the fundamental features of both the Lease and the License is essential to understanding the distinctions between these two arrangements and the scenarios in which they may conflict.
A lease arrangement has two primary parties, and every financial expert must understand how to distinguish between the lessor and the lessee. A lease is a contractual agreement in which one party, known as the lessor, delivers an asset for use by the other party, known as the lessee, in exchange for periodic payments over an agreed-upon time. The lessee is responsible for paying the lessor for the use of the asset or property.
The lessor is the legal owner of the property grants the lessee the right to use or occupy it for a specified length of time. The lessor retains control of the asset during the contract and is subject to periodic payments from the lessee based on their initial agreement. He must also be reimbursed for any losses incurred throughout the contract as a result of the asset’s damage or abuse. If the asset is sold, the lessor must approve the sale and is entitled to any financial profits made as a consequence of the sale.
The lessee is the person who is granted the right to use an asset for a defined length of time in exchange for making periodic payments to the lessor in accordance with their original agreement. The length of a lease is frequently determined, at least in part, by the type of asset or property.
In most cases, a lease entails the following:
a) for a set period of time or indefinitely;
b) in exchange for a price paid or pledged, or for money, a portion of the harvest, services, or other valuable items to be provided to the transferor on a regular or specific basis.
c) the death of a person or the transfer of a right to use property;
The essential characteristic of a lease are:
- transfer of interest;
- parties to a lease;
- the subject matter of lease;
- types of lease;
- duration of the lease; and
- consideration for a lease.
Transfer of Interest
A lease is a legal agreement that grants you the right to utilise the immovable property for a set length of time. A tenant or subtenant who has formed such an interest has the right to remain in possession of the property until the lease is legally terminated and eviction takes place. If the lessee provides the lessor with the ability to resume the leasehold, it is a personal covenant and does not represent an interest in the land.
Parties in Lease
The parties to the lease are the transferor, also known as the lessor or landlord, and the transferee, generally known as the lessee or tenant. A contract may only be entered into if both parties are legally competent in doing so. It is impossible for the lessor and lessee to be the same person; they must be two distinct people. A lessor can be the property’s sole owner, a joint tenant, or a lessee, but he must have the ability to contract. As a result, lessees who are minors or unregistered organisations are not authorised.
Subject Matter of Lease
Land, houses, industries, stores, minerals, buildings, and other immovable property are all examples of leases. Most leases of a home or a store include not just the superstructure but also the site unless the site is expressly excluded from the description of the property in the lease contract. The lease, on the other hand, does not include terraces or air space above a rented multi-story structure.
Duration of Lease
The lease does not have to be for a certain amount of time, but it should be for a specific amount of time. The lease will suffer if the duration of the term is uncertain. When a lease is for a specific length of time, it cannot be renewed year after year forever.
Consideration for Lease
A lease for lease, there must be a set consideration, which can be in the form of:
b) money’s worth, such as a share in crops; or c) money’s worth, such as a share inland.
c) a service or other valuable item to be provided by the transferee to the transferor on a regular basis or on specified dates.
Rent plus premium, rent alone, or premium alone are all terms that can be used to describe the consideration. A lease with no consideration is also void.
How is a lease executed?
The way a lease is established is outlined in Section 107. This section is divided into three parts:
When there is a lease of immovable property for a period of one year or longer, only a registered deed can be used.
All other leases of moveable property — Can be formed by a registered deed, an oral agreement, or a settlement, as well as the transfer of possession of the property.
When the lease covers several properties and various deeds are required, both parties to the lease will sign the deeds.
In Punjab National Bank v. Ganga Narain Kapur (1.), the court concluded that if a lease is entered into through an oral arrangement, Section 106 will apply.
A licence is the right to do or continue to do anything in or on the grantor’s immovable property that would be prohibited if the grantor had such a right, and it does not imply an easement or an interest in the property. It also refers to the capacity to do a certain act or set of acts on someone else’s property without owning it.
The licence defines “A licence is a personal right granted to a person to do something upon immovable property of the grantor and does not amount to the creation of interest in the property itself. It is purely a permissive right and is personal to the grantee. It creates no duties and obligations upon the persons making the grant and is, therefore, revocable except in certain circumstances expressly provided for in the Indian Easements Act, 1882 itself.”
The definition of licence makes it clear that a licence granted by the owner enables a licensee a right to do or continue to do certain specified things in or upon the immovable property.
Rights and Liabilities of a Lessor
Because we already know who a lessor is, we may assume that he or she has certain legal rights and obligations. Section 108A discusses a lessor’s rights and responsibilities, so let’s take a closer look at those rights and obligations.
Rights of a lessor
Right to accretions- If any further accretion, accumulation, or addition is created in the property during the tenancy term or throughout the length of the lease, the lessor is entitled to such property. The addition might be natural or at the lessee’s expense, but the lessee must transfer the title to the lessor at the end of the tenancy time.
Right to collect rent- The lessor has the right to collect rent or any other kind of compensation from the tenant as specified in the contract’s terms and conditions without interruption.
Liabilities of a lessor
The lessor has a legal obligation to disclose any type of substantial problem in the property. Defects can be divided into two categories:
Latent Defect – A latent defect is one that cannot be detected rationally or via a lessor’s examination.
Apparent defect– An apparent flaw can be easily identified with little scrutiny.
So, in general, a lessor must disclose any obvious flaw to the lessee, and it is critical to do so since such deficiencies interfere with the lessee’s enjoyment of the property.
The lessor must transfer up control of the property to the lessee at the lessee’s request. On the other hand, this responsibility only arises when the lessee makes a request.
The lessee enjoys complete ownership of the property and has the right to enjoy it in peace. During the tenancy time, it is the lessor’s responsibility to ensure that there are no disruptions.
Rights and liabilities of a lessee
A lessee, like a lessor, has certain rights and obligations provided to him under the Transfer of Property Act. So now we’ll look at a lessee’s rights and obligations.
Rights of a lessee
To charge for repair– If the lessor fails to make any repairs to the property that the lessor is required to do, the lessee may fix the property at his own expense. If a lessee undertakes such repairs on his own dime, the lessee has the option of deducting the cost of the repairs from the rent or just charging the lessor for the repair.
Right to remove fixtures– During the lease period, the lessee has the right to remove any fixture in the property; however, when the lease deed is terminated, the lessee must leave the property in the same condition as when he got it. The lessor has the right to sue the lessee if the lessee fails to do so.
Right to assign his interest– The lessee has the option of subleasing the property or completely transferring his interests. However, if the lease deed prohibits a lessee from assigning his interest, the lessee is barred from doing so, and even after the transfer of his rights, the lessee remains liable for all lease deed obligations.
Right to have benefits of crops– When a lease is for an indefinite period of time, the lessee or his or her legal agent is given the right to reap the advantages of all crops cultivated by them.
Liabilities of a lessee
Duty to disclose material facts– Any substantial matter about which the lessee is aware but the lessor is not is required to be disclosed by the lessee to the lessor. If the lessee fails to disclose this information and the lessor suffers a loss, the lessee is obligated to pay the lessor.
Duty to pay rent– The lessee is obligated to pay the rent or premium to the lessor or his agent at the time and location specified in the lease deed. If the lessee fails to pay his or her rent, the lessor has the option to evict the lessee for non-payment of rent or to bring a lawsuit for rent arrears.
Duty to maintain the property– The lessee is responsible for keeping the property in the same condition as when he took ownership of it. The lessor or his representative has the right to inspect the property on reasonable grounds. Only modifications brought about by irresistible forces are exempt from this responsibility.
Duty to give notice- If the lessee gets aware that someone has attempted or is attempting to harm the lessor’s rights or that the lessor’s title is in jeopardy, the lessee must notify the lessor.
Duty to use the property in a reasonable manner– The lessee is required to treat the property as if it were his or her own.
Duty not to erect any permanent structure– Except in the case of agriculture, a lessee cannot construct any permanent structures without the permission of the lessor.
Duty to restore possession- Following the determination of the lease, the lessee must return the property to the lessor. If the lessee does not quit the premises after the notice has expired, the lessee will be liable for the damages.
Forfeiture of the lease under Transfer of property act
If the lessee pays or tenders to the lessor the rent in arrear, including with interest and his full costs of the suit, or gives such security as the Court thinks sufficient for making such payment within fifteen days, the Court may eject the lessee.
- The tenant is protected from forfeiture under Section 114. While the tenant is protected against eviction for non-payment of rent, the landlord receives the advantage of collection, even if the arrears are not legally recoverable. Shyam Bhagwan Dubey v. Shaikh Nizam, AIR 1994 MP 52; such an equitable provision as is engrafted in section 114 of the Transfer of Property Act must prevail only to the extent that it does not run contrary to any particular legislative requirements.
- The landlord’s ability to evict the tenant is limited under the Rent Act. Because the legislation restricts the landlord’s ability to evict a tenant unless, in line with the terms of Section 114 of the Rent Act, it is not attractive. Once the conditions of the Rent Act are met, the renter is no longer entitled to the double protection afforded by the Transfer of Property Act. S.Y. Shinde v. Prithivichand Ramchand Sablok, AIR 1993 SC 1929
We looked at the notion of lease and how it differs from a licence in this article. We also talked about the rights and responsibilities of both the lessor and the lessee, who are both essential components of a lease document.
It is apparent from the rights and obligations that a lessor is required to disclose information and avoid disruptions while the lessee is leasing the property. A lessee, on the other hand, is responsible for taking appropriate care of the property while also paying his or her rent. A property lease is distinct from a property sale, and this article defines that distinction in property law.
Author: Shreyas Nair,
Symbiosis Law School, Nagpur / First Year / Law