Devansh Kaushik*

This article seeks to examine the applicability of the Tamil Nadu Regulation of Rights and Responsibilities of Landlord and Tenants Act, 2017 (“TN Act”) on license agreements. It applies statutory interpretation and examines the lease-license distinction in judicial precedents, to argue the non-applicability of the act on license agreements.

Introduction

This article seeks to examine the applicability of the Tamil Nadu Regulation of Rights and Responsibilities of Landlord and Tenants Act, 2017 (“TN Act”) on license agreements. The TN Act aims to establish a framework for the regulation of rent, balancing the rights and responsibilities of landlords and tenants, and providing fast adjudication of disputes, for the state of Tamil Nadu. The TN Act, replaced the Tamil Nadu Rent Control Act, 1960. The TN Act prescribes various rights and obligations for landlords and tenants and mandates registration of tenancy agreements with the Rent Authority.

The question of the TN  Act’s applicability gains significance in light of the recent judgement of the Madras High Court, which upheld the TN Act’s constitutional validity. The court held that the Act was not repugnant to any of the existing Central laws, but proceeded to read down S.4 and 4-A of the fact to limit their application to the Act itself. The continued application of the Act, however, necessitates a determinate finding on its scope of applicability on license agreements, which while was not the issue before the Court presently, may just surface as one in the near future.

The TN Act’s broader context is that Tamil Nadu is one of the most urbanised states in India having an urban population of about 48.44 % as per the 2011 census. As the country develops, urbanisation has increased rapidly, with rental housing forming a significant chunk of the same. Simultaneously, demand for commercial real estate has also increased with expansion of the service sector. Land Owners, in particular, try to select the most appropriate and efficient legal vehicle to convey and let on premises. Particularly when seeking to use their premises for temporary occupancy, they have a choice of lease or license (also known as Leave and License Agreements). They often prefer the latter as licenses allow them to retain the maximum possible rights over their premises, with the least amount of legal red tape, as elaborated below.

With the above context in mind, it is important to analyse the TN Act and its implications for license agreements. Such an analysis may also provide a useful guide for other state statutes with similar provisions. I begin by listing the foundational differences between Lease and License in section I, then examine the scope of the Act in section II, the position of the state government in section III, and finally posit my interpretation of the act in section IV, followed by an analysis of relevant judicial precedents in section V.

I. Lease v. License

License is defined in S.52 of the Easements Act, as a mere right to do something upon the immovable property of the grantor, which does not amount to an easement or an interest in the property. As per S.56, a license is ordinarily non-transferable and as per S.59, when the grantor of the license transfers the property affected thereby, the transferee is not as such bound by the license.

License thus only confers a limited privilege to use and occupy a premises for a fixed duration. It does not transfer any lasting or ownership interest in the property to the licensee. The licensor retains control over the premises at all times. Licenses are a common method to grant short-term occupancy, and more importantly attract a lower stamp duty under state stamp acts, do not need to be registered under the Registration Act, 1908, and generally fall outside the ambit of state rent control laws, most of which are limited to tenancy agreements or leases in application.

Conversely, lease, as defined in S.105  of the Transfer of Property Act, is a right to enjoy property, granted in consideration of payment of rent. It provides more substantial rights of possession and use to the lessee. It also attracts a higher stamp duty under state stamp acts, and needs  to be compulsorily registered if it is of a duration of more than a year, under the Registration Act. Lease agreements are also regulated under various state rent control statutes such as the TN Act. State governments are often of the view that the relationship of lessor and lessee is an unequal one, and hence seek to intervene through rent control laws to regulate the monies lessors can charge, and also provide statutory rights to lessees against the lessor. However, this assumption may not hold true in all cases, and particularly in the context of commercial leases, such statutes may amount to a needless intervention in the market, restricting freedom of contract and curtailing the rights of property owners. The TN Act, for instance, limits the amount of deposit that can be charged, prescribes a special adjudication process and also grants addition rights such as inheritance of tenancy and repair of premises. Landowners in Tamil Nadu may thus attempt to take recourse to license agreements instead of lease agreements, to avoid coming under the operation of the TN Act.

II. Scope of the TN Act: Whether it applies to Licenses?

The scope of the TN Act is stated in S.4 of the act as:

“(1) Notwithstanding anything contained in this Act or any other law for the time being in force, no person shall, after the commencement of this Act, let or take on rent any premises except by an agreement in writing, which shall be informed to the Rent Authority by the landlord and tenant jointly……” (emphasis added).

While the act came into force on February 22, 2019, the act also applies retrospectively in so far as it requires tenancy agreements entered into, prior the commencement of the Act, to be reported to the Rent Authority.

The question that arises then is whether the statute, and its obligations, in light of its phrasing would apply to license agreements.

III. The Position of the State Government

Before we delve into the above question, it is important to highlight the position taken by the state government, as discernible from FAQs of the website of the Tamil Nadu Housing and Urban Affairs Department –

“Registration under this Act is mandated for tenancy/lease agreements. Even if the agreement is titled ‘license’ or ‘leave & license’ and if the terms of the agreement creates any right in the immovable property, then such agreement has to be registered under this Act. The ‘terms’ of the contract will determine the nature of the agreement not the ‘title’ given to such contract.”

The State Government has, thus, sought to apply the act to Licenses even in the absence of express statutory backing. In contrast, S. 24 of the Maharashtra Rent Control Act of 1999 expressly covers License agreements, and hence its application to Licenses is undisputed.

However, the above clarification by the Tamil Nadu Government remains only a non-binding opinion. It is also not in the form of a gazetted notification or official circular. Such an extension of the scope of the TN Act must be borne out by the language of the statute and needs to be supported by precedents in order to be binding. It is also a given principle of administrative law that the executive cannot exceed the power delegated to it by the legislature.[1]

IV. Interpreting the TN Act

It is pertinent to note that the term “license” is completely absent in the TN Act and its accompanying rules and regulations. There is no explicit clause or rule that can be made out to extent the application of the Act to such agreements.

It is then necessary to examine key words and phrasing of the TN Act, in order to decipher the legislative intention and determine if the same would apply to a license.

The key phrase in S.4 is “let or take on rent”. The terms “landlord” or “tenant” are also similarly defined in S.2 in the context of giving and collecting of rent. Prima facie, such phrasing would not apply in case of a pure license agreement as such agreements do not involve transfer of possession of the premises on rent, but only a limited permission of use granted on basis of a license fees.

The objective of the Act, which is reflective of legislative intent, is stated as – “to establish a framework for the regulation of rent and to balance the rights and responsibilities of landlords and tenants and to provide fast adjudication process for resolution of disputes……” A similar emphasis is placed on rental relationships between landlords and tenants, without any indication of an intent to cover licenses.

Another guide of statutory interpretation is to regard the statute in its entirety. For instance, S.6 of the TN Act allows for inheritability of tenancy for residential and non-residential premises to the successors of the tenant, and Ch.5 covers re-possession of premises by the landlord. These provisions would violate the core feature of a license being a personal and non-transferable right, which does not convey possession. Hence, the presence of such provisions would indicate against such statute being applicable to license. It would be an absurd interpretation of the statute to apply its provisions selectively on licenses, in the absence of any explicit exception.

It is also pertinent to note that extending the TN Act to licenses would go contrary to a number of Supreme Court judgements (as elaborated below), where the court has distinguished between lease and license. It would also be contrary to the express provisions of the Easements Act (S.52, 56 and 59), which also being a central enactment, carries greater authority then a state enactment.

V. The Judicial Position

An exhaustive case law search yields no conclusive judgement of the Madras High Court or the Supreme Court, giving an opinion on the applicability of the TN Act on licenses.

We can then turn to examining other judicial pronouncements on the applicability of similar rent control legislation. For instance, in B.M. Lall v. Dunlop Rubber Co. (India) Ltd., the Supreme Court in the context of application of the West Bengal Tenancy Act, 1967, distinguished between lease and license on the basis that license does not involve transfer of interest, license is a personal non-transferable privilege, and only lease is inheritable. This position, on transfer of interest being an essential distinction between lease and license, has remained consistent.

In Mrs M.N Clubwala And Another v. Fida Hussain Saheb And Others, the Supreme court held that whether an agreement establishes a landlord-tenant relationship or solely a licensor-licensee one, the parties’ purpose is the most important factor to be evaluated. This aim must be determined by examining all of the agreement’s relevant sections. The court did not regard even the use of the word ‘rent’ or exclusive possession to be conclusive as to the nature of the agreement.

Conclusion

It can be concluded that the Tamil Nadu Regulation of Rights and Responsibilities of Landlord and Tenants, 2017 should not be ordinarily applicable on License or Leave & License Agreements. However, appropriate care must be taken to avoid including obligations and phrasing in such licenses that may confer characteristics of a lease agreement upon such licenses. 

[1] Administrative Law by H.W.R Wade, Fifth Edition, Pages 38 & 329

*The author is a practising advocate and an alumnus of NLSIU Bengaluru. He can be reached at devanshkaushik@alumni.nls.ac.in. Views expressed are strictly personal and do not reflect the opinion of any organisation the Author is affiliated with. This article may not be construed as legal advice for any purpose. The Author is grateful to Abhilash Pillai and Harsha Sudhindra for their encouragement and comments.