July 24, 2023: There is no single litmus test to differentiate between a lease and a licence agreement, the Kerala High Court has said. The intentions of the parties involved and the surrounding circumstances determine the nature of the arrangement, and not the nomenclature used in the document or reading of a few isolated provisions, it added.
According to Section 105, a lease ‘is a transfer of a right to enjoy a 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’.
“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,” reads Section 52 of the Indian Easements Act.
“It is the settled law that the nature of a document has to be understood not by its nomenclature or by interpreting one or two clauses in it in isolation, but by interpreting the document as a whole. Going by the principles laid down by the apex court as well as this court, there cannot be a single litmus test to decide whether the transaction is a lease or licence,” a Division Bench of Justice Anil K Narendran and Justice PG Ajithkumar said in an order dated July 14, 2023.
“Generally speaking, the difference between a lease and licence is to be determined by finding out the real intention of the parties as decipherable from a complete reading of the document, executed between the parties and the surrounding circumstances,” it added while setting aside an order by the rent control court in the Ashok Harry Pothen versus Premlal case.
In this case, the landlord had sought eviction of the tenants under Sections 11(2)(b) and 11(3) of the Kerala Buildings (Lease and Rent Control) Act over unpaid rent and a failed sale agreement. While arguing that the document in question was a license deed and he a licensee, the tenant said that he had handed over advance sale money to the landlord, and had no liability to pay the alleged rent. The Rent Control Court ruled in favour of the landlord, saying the agreement in question was predominantly a rent agreement. Following the order, the tenant moved the HC. In its order, the HC ruled that the relationship between the parties was that of a licensee and not a lessee. Consequently, the tenant was not liable for the alleged rent and eviction claim.
