Kerala High Court advises examining intentions and agreement to distinguish license and lease

Kerala High Court advises examining intentions and agreement to distinguish license and lease

The respondent sought eviction of the petitioner under the Kerala Buildings (Lease and Rent Control) Act

The Kerala High Court has reiterated that to distinguish between a lease and a license, one must consider the agreement between the parties. The matter should rest on the intentions of the entities rather than the nomenclature used in the document and reading a few isolated provisions.

A Division Bench of Justice Anil K Narendran and Justice PG Ajithkumar observed that there was no single litmus test to decide the nature of a document.

It stated, "It is thus 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 isolation, but by interpreting the document as a whole. Going by the principles laid down by the Supreme Court as well as this Court, there cannot be a single litmus test to decide whether the transaction in Ext.P1 is a lease or a licence."

The respondent had sought eviction of the petitioner under Sections 11(2)(b) and 11(3) of the Kerala Buildings (Lease and Rent Control) Act, claiming unpaid rent and a failed sale agreement.

On the other hand, the petitioner argued that he was a licensee and not a tenant, and the document was a license deed. He stressed that he handed over the advance sale consideration and deposit to the respondent. Therefore, he had no liability to pay the alleged rent.

The Rent Control Court (Additional Munsif) considered various documents and concluded that the agreement was predominantly a rent agreement and ruled in favor of the respondent. It directed the petitioner to deposit the outstanding rent amount within four weeks.

The aggrieved petitioner approached the High Court against the order.

Appearing for the petitioner, Advocates S. Easwaran, K.V Rajeswari and P Muraleedharan argued that the premises were handed over to the petitioner to specifically run a car showroom and parking facilities, even though the description on the license deed suggested otherwise. The lawyers maintained that along with other restrictions imposed to the occupation of the premises, it makes the transaction a licence.

While appearing for the respondents, Advocates G. Rajeev, Ajith Kumar S, Aswani P.S, Naveen Radhakrishnan, Jyothsna G.J, and Ardra Mini Satish countered that although the nomenclature of the agreement was of a license agreement, the terms in which possession of the premises was handed over constituted a rental arrangement. They added that clauses specifying the payment of monthly license fee/rent and granting the petitioner the right to uninterrupted access to the premises indicated unhindered possession.

It supported the contention that the arrangement was a lease and not a license.

While examining certain precedents set by the Apex Court, the Judges clarified that the substance of the document and the intention of the parties was crucial in determining whether it was a lease or a license.

The bench analyzed the nature of the agreement and the intentions of the parties and noted that while it referred to a "monthly license fee/rent," the complete document indicated that the premises were given for a specific purpose (running a car showroom) and exclusive possession was not handed over to the petitioner.

"In clause (6) it was written “monthly license fee/rent”. The usage of such a word by itself would not distinguish the arrangement between lease and license. It may be true that the petitioner has been using the premises without any physical interference. However, by virtue of the provisions of Ext.P1, it is not able to say that exclusive possession of the premises, so as to constitute the transaction a valid lease, has been given to the petitioner."

The Court held that the relationship between the parties was that of a licensee and not a lessee. The finding that the transaction was a lease was deemed incorrect and upheld that it was a license. Thus, the petitioner was not liable for the alleged rent and eviction claim.

The bench also noted that both parties were knowledgeable individuals, and considering the clauses in the agreement, their intention was to create a license, not a lease.

The Judges remarked, "The petitioner is a seasoned businessman and the respondent is the owner of a premises having such a vast extent. They have sufficient ability to understand the difference between a lease and a license as can be gathered from the clauses included in Ext.P1. When such persons with open eyes enter into a transaction by executing a document fixing the period as 10 years in a stamp paper worth Rs.100, it can only be said that their intention was to create a license and not a lease."

Thus, setting aside the Rent Control Court's order, the bench allowed the petition.