Property Licensing: Pandemic and the Hazy Future
Author: Trisha Shreyashi
Licensing in India has never really played a major role in property law. It is governed by the Indian Easement Act, 1882 and has seldom seen any major changes in legislative, executive or judicial law making. The author discusses the impact of COVID-19 and its implications on licensing agreements in the future and analyses possible suggestions to rectify the existing legal issues.
A license is a personal right granted to a person to do something upon immovable property of the grantor without the creating an interest. It is purely a permissive right and is personal to the grantee. It situates no duties and obligations upon the persons making the grant and is, therefore, revocable except in certain circumstances expressly provided by the Act itself.
Section 52 of the Indian Easement Act, 1882 defines a License as, “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 immovable property of the grantor, something which would, in the absence of such rights, be unlawful, and such right does not amount to an easement or an interest in the property, the right is called a license.”
The earliest landmark decision of the Supreme Court was Associated Hotels of India Ltd. vs. R.N. Kapoor which defined the concept of ‘License’ as: “…if a document gives only a right to use the property in a particular way or under certain terms while it remains in the possession and control of the owner thereof, it will be a license. The legal possession, thereof, continues to be with the owner of the property, but the licensee is permitted to make use of the premises for a particular purpose. However, without permission, his occupation would be unlawful. It does not create in his favor any estate or interest in the property.”
Merits of Licensing
For the Licensor
A license agreement allows the licensor to take more measures in case the licensee needs to be evicted from the property as they are generally entered for a period of 11 months with an option to renew the agreement on its expiration.
Failure of fulfillment of obligations by licensee can result in legal action against the licensee.
Increasing property values may tempt legal disputes relating to ownership between the parties and having a license agreement helps re-claim the licensor's property.
For the Licensee
It can be used as a valid address proof anywhere in India.
The licensor cannot arbitrarily alter obligations of the license at his whims and fancies, before the expiry of the agreement without making himself vulnerable to paying damages.
The licensing agreement acts as a surety for the accepted terms between the licensor and the licensee.
Issues in Licensing
The first issue lies with the lack of uniform registration of licensing agreements. Most parties prefer to have them notarised instead as it reduces the costs. The current rates of registration differ from state to state; where a few states have hefty registration amounts from 10 to 15 per cent of the agreement value. This has led to exposure to litigation. The second issue is that of the effect of COVID-19 on existing leave and license agreements, the effect of force majeure clauses, non-payment of rent during lockdown, especially in the cases of commercial businesses and the issue of dispute resolution during the lockdown period.
Effect of Pandemic on Licensing
One of the most contemplated issues of the times is the effect of the Corona Virus on contracts with force majeure clause. Major concerns arose out the possibility that parties may choose to abruptly repudiate contracts citing the virus as valid force majeure and escape damages. This may be the case with license agreements as well. As the licensor retains ownership and possession rights and/or any other right or interest in the property, he may not face repercussions for forceful eviction in a literal sense. The start of the pandemic saw many landlords wishing to evict the tenants infected from the virus even if it was in clear violation of human rights, fundamental rights of life and the understanding of human dignity.
The Government of India on February 19, 2020 termed the pandemic, a natural calamity. The Ministry of Home Affairs (MHA) vide its order dated March 29, 2020, in exercise of its powers conferred u/S 10(2)(l) of the Disaster Management Act, 2005, directed all State and Union Territory Governments & concerned Authorities to take necessary actions and issue orders, inter alia, for waiver of rent for workers via home licenses for a period of one month. However, the Govt. hasn’t yet issued any notification w.r.t. suspension or waiver of lease rentals for commercial contracts entered into as businesses agreements.
The Hon’ble SC in the case of Raja Dhruv Dev Chand v. Raja Harmohinder Singh observed that the Contract Act will not apply to a lease agreement as such an agreement is governed by the Transfer of Property Act and is a completed conveyance as opposed to a contract. The same line of argumentation may also follow for license agreements and the Indian Easement Act, 1882. There may be two probable outcomes of COVID-19 on license agreements. Firstly, in case a force majeure clause exists, the provisions of the same will be applied strictly. In the absence of such a clause, the provisions of S 62(d), of The Indian Easements Act, 1882 shall apply. It talks about a ‘superior force’ which clearly applies in the case of COVID-19. However, the licensee can no longer exercise his right if the property is affected, destroyed or permanently altered in some way. This stipulation may prove to be a solution for licensees against forceful eviction. Financial obligations of the licensee, like paying rent, will continue to apply even during the lockdown as the pandemic does not affect that ability. Therefore, financial hardship is not a valid excuse to not tender the rent money. However, the interpretation will still have to be tested in a court of law.
Section 32 provides for contingent contract where the contract can be performed only on the happening or non-happening of a certain pre-decided event. In case a license agreement is in the form of a contingent contract, this section may be applicable. One common situation which applies to all is the continued permission on the payment of the rent money. This is the condition which licensors would look to exploit. Section 56 voids agreements to do an impossible act. It also covers situations of subsequent impossibility as the case may be due to COVID-19. For example, the promise of paying timely rent when the licensee has no income, etc. However, the Supreme Court has held that the pandemic cannot be a blanket force majeure clause and will not apply if the contract can be fulfilled even partially and that force majeure clauses may apply only if they mention a lockdown along with pandemic or epidemic as the lockdown is the main reason for the non-ability to perform.
Arguments for Licensors
Even during a force majeure event, it does not incapacitate or prevent Licensees from performing their obligations, i.e. paying rent unless there is a specific provision in the Agreement which gives the right to the Licensee to suspend such obligation.
Liquidity issues or pecuniary arising out of the Lockdown cannot be used a defence for refusal to pay rent. Therefore, regardless of the loss, whether actual or notional, caused to the Licensee on account of stoppage of business operations, it cannot be a reason for deferring rent payments.
Any machinery, stock in trade, equipment, furniture and fixtures nonetheless occupying the premises, even if the licensee is not occupying means that the premises continue to be 'in use', thus meriting continued rent payments.
The Lockdown cannot be equated with other Force Majeure events such as earthquakes, fires, hurricanes etc, which cause immense physical damage to the premises making it impossible to use, which is a requirement to apply Section 62(d) of the Indian Easements Act, 1882. Lockdown restrictions are characterised by temporary fittings which are now & then being lifted, hence do not affect the long-term usefulness of the property.
The Way Forward
License agreements clearly favour the landlord, i.e., the licensor rather than the licensee in numerous ways. It is becoming increasingly popular in the metropolitan cities, the smart cities & even in modern urbane. Landlords are becoming increasingly aware of its benefits. However, license law in India must always be assessed along with the rent laws of the particular state. The Model Tenancy Act, 2019 brought about many changes to the existing rent control laws and systems in India. Moreover, the current registration process for licenses is digitalized but has proven to be extremely problematic rather than convenient as state governments do not have the necessary infrastructure to function smoothly. A second advancement in leave and license laws is the prohibition of merely notarizing the agreement. The third advancement therefore, is that no police verification will be granted or those agreements which are not registered. For instance, applying for visas and passports requires a police verification or background check whereby the police issue a No Objection Certificate (NOC). There is a possibility that this will not be granted if the agreement is merely notarised and not registered. Fourthly, licensees were earlier required to visit the police station for a background check before their agreement could be registered. The Department of Registrars proposes to introduce a virtual file sharing platform with police stations so that delays are reduced and licensees no longer have to personally visit the police station as the check will be conducted online. Lastly, license agreements are becoming more popular for residential purposes whereas earlier, it was greatly for commercial purposes only. Thus, India might see this domain of property law come in spotlight in near future.
Concluding Pointers: State governments and registrars might focus on strengthening their digital infrastructure to handle the load & pressure of online registrations which had been made mandatory. Secondly, all State governments may ensure that fraudulent & malafide notarisation of license agreements is prevented.
[The author is a student of Law at the KIIT School of Law.]
Notes and References
 Definition of ‘License’, Refer, <http://lawtimesjournal.in/license-is-a-personal-right/>, accessed 14 July 2020.  Associated Hotels of India Ltd. vs. R.N. Kapoor, 1959 AIR 1262.  Id.  COVID – 19, Chaos & Commercial leases, Arun Mohan & Keerthikiran Murali, Bar & Bench. Available at <https://www.barandbench.com/columns/covid-19-chaos-and-commercial-leases>, accessed 14 July 2020.  As reported in various columns. See, <https://bengaluru.citizenmatters.in/bangalore-landlords-cannot-evict-or-demand-rent-43862>; See also, <https://www.indialegallive.com/special/covid-19-tenancy-pacts-on-a-tight-leash-99589>; See generally, <https://www.indialegallive.com/special/covid-19-tenancy-pacts-on-a-tight-leash-99589>, accessed 5 July 2020.  Refer, <https://www.99acres.com/articles/covid-19-impact-the-concerns-of-commercial-real-estate-owners-and-tenants.html>, accessed 3 July 2020.  For the orders, Refer <https://www.mha.gov.in/sites/default/files/MHA%20Order%20restricting%20movement%20of%20migrants%20and%20strict%20enforement%20of%20lockdown%20measures%20-%2029.03.2020.pdf>, accessed 14 July 2020.  Reported and observed in news articles & columns. See, <https://www.ilntoday.com/2020/04/possibility-of-non-payment-of-lease-rent-due-to-covid-19/>; See also, <https://www.mondaq.com/india/litigation-contracts-and-force-majeure/918736/possibility-of-non-payment-of-lease-rent-due-to-covid-19>; See generally, <http://vinodkothari.com/2020/05/impact-of-covid-19-on-financial-contracts/>, accessed 14 July 2020.  Raja Dhruv Dev Chand v. Raja Harmohinder Singh, 1968 AIR 1024.  The Transfer of Property Act, 1882.  Deep, ‘Can a lessee/licensee suspend paying rent till lockdown subsists in case of commercial lease or license?’ (Bulwark Solicitors, 10 May 2020). Available at, <http://www.bulwarksolicitors.com/real-estate-conveyancing/covid-19-can-a-lessee-licensee-suspend-paying-rent-till-lockdown-subsists-in-case-of-commercial-lease-license/; accessed 14 July 2020.  The Indian Contract Act, 1872.  The Indian Contract Act, 1872.  LexCounsel Law Offices, ‘Possibility of Non-Payment of Lease Rent Due to COVID-19’ (International Law Network, 8 April 2020). Available at, <https://www.ilntoday.com/2020/04/possibility-of-non-payment-of-lease-rent-due-to-covid-19/>, accessed 14 July 2020.  For detailed data wise analysis. Refer, <https://www.lawyered.in/legal-disrupt/>; See generally, <http://www.bulwarksolicitors.com/real-estate-conveyancing/covid-19-can-a-lessee-licensee-suspend-paying-rent-till-lockdown-subsists-in-case-of-commercial-lease-license/>, accessed 3 July 2020.  Id.  Idem.  Id.  Supra note 1.  The Modern Tenancy Act, 2019. Available at <http://mohua.gov.in/upload/uploadfiles/files/Draft%20Model%20Tenancy%20Act%2C%202019(1).pdf>; accessed 5 July 2020. As Reported in News Articles & Blog sites. See, <https://timesofindia.indiatimes.com/city/pune/tech-glitch-hits-registration-of-leave-licence-agreements/articleshow/73531704.cms>; See generally, <https://legaldesk.com/property/registration-of-leave-and-license-agreement-in-maharashtra>, accessed 3 July 2020.  Abhishek Sharmaet al, ‘Real Estate’s ride through Covid-19 and way forward’ (India Corporate Law: A Cyril AmarchandMangaldas Blog, 13 April 2020), Available at <https://corporate.cyrilamarchandblogs.com/2020/04/real-estates-ride-through-covid-19-and-way-forward/>, accessed 14 July 2020.  DivyaMalcomm, (Covid-19: Forcing Force Majeure – and Resisting [decoding the if and buts of leases], 11 April 2020) <https://www.lawyered.in/legal-disrupt/articles/covid-19-forcing-force-majeure-and-resisting-decoding-the-if-and-buts-of-leases/ >, accessed 14 July 2020.