Renting in Mumbai? Know Your Rights Before It’s Too Late

Before I begin with this article, I must indicate that this article does not explicitly deal with the tenancy rights in its broader sense but is rather limited to the rights acquired under the Maharashtra Rent Control Act 1999 (hereinafter referred to as “the said act”) pertaining to licensors and licensees. This article essentially encompasses the city of Mumbai as the financial capital of India in the sense of a hub of opportunities for people across various sectors and draws a focus to one particular aspect that’s common to all i.e. place of residence. I hail from this very city of Mumbai and hence, implications of the said act does have a direct impact on me, however, there are many peers of mine who come here, from beyond the city and state limits, in search of opportunities that await them in distant and near further. Through this article, I aim to assist all such like me and my peers to navigate the simple yet complex relationship of a licensor and licensee pertaining to residential premises.

Understanding the basics:

-        Applicability

            The said act sets out the tone by specifically limiting its application by virtue of Section 2, thereby limiting its implications to premises let for the purposes of residence, education, business, trade or storage in the areas specified in schedule I and Schedule II. The act also lays down a non-obstante clause with respect to premises let out in the areas to which the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, or the Central Provinces and Berar Letting of Houses and Rent Control Order, 1949, issued under the Central Provinces and Berar Regulation of Letting of Accommodation Act, 1946 and Hyderabad Houses (Rent, Eviction and Lease) Control Act, 1954 that were extended and applied before the date of commencement of this Act and such premises or houses that continue to be so let on that date in such areas which are specified in Schedule I to the said act, however, dealing with the same may not be possible in this article and doing so would divert us from the focal point of this article.

            It is also pertinent to note where the said act shall not apply, Section 3 of the Act provides that it does not apply to premises belonging to the Government or a local authority, nor to tenancies, licences, or similar arrangements created by the Government in respect of premises requisitioned, leased, or licensed by it (including those taken in the name of authorized officers); however, the Act does apply to premises let or licensed to the Government or a local authority, and further extends to such premises when they are sub-let to entities such as banks, public sector undertakings, statutory corporations, foreign missions, international agencies, multinational companies, and private or public limited companies with a paid-up share capital of ₹1 crore or more.

-        Key Definitions under the Said Act:

i.  Landlord: Any person who is currently receiving or entitled to receive rent for premises, whether for themselves or on behalf of another (including as a trustee, guardian, or receiver), and also includes anyone who would be entitled to receive rent if the premises were let; it further covers persons deriving title from a landlord, tenants who have sub-let premises (in relation to sub-tenants), licensors in cases where licensees are deemed tenants, and in certain cases involving Government allotments, the person who was entitled to receive rent immediately prior to 7^th  December 1996.

ii. Legal Representative: means a legal representative as defined in the Code of Civil Procedure, 1908, and in the case of joint family property, also includes, the joint family of which the deceased person was a member.

iii.  Licensee: A person who occupies premises under a valid license agreement in return for a license fee or charge, including those in premises belonging to or leased by a co-operative housing society; however, it excludes categories such as paying guests, family members living together, employees of the licensor, persons running the licensor’s business, individuals using premises for medical or similar services near institutions, occupants of hotels, hostels, hospitals, or similar establishments, persons temporarily letting out employee-allotted premises within permitted rent limits, and those using premises for amenities like canteens or crèches, with related terms like “licence” and “licensor” construed accordingly.

iv.  Paying Guest:  A person, not being a member of the family, who is given a part of the premises, in which the licensor resides, on license.

v.   Premises: Any building or part of a building separately let or given on license (excluding farm buildings), and includes attached areas such as gardens, grounds, garages, outhouses, and any fittings affixed for better enjoyment of the property, but does not include rooms or accommodation in a hotel or lodging house.

vi.  Tenant: The definition of a tenant is perhaps the most elaborative and crucial text forming part of the said act and thus the same ought to be reproduced in its verbatim, hence:

 “tenant” means any person by whom or on whose account rent is payable for any premises and includes—

(a) such person—

(i) who is a tenant, or

(ii) who is a deemed tenant, or

(iii) who is a sub-tenant as permitted under a contract or by the permission or consent of the landlord, or

(iv) who has derived title under a tenant, or

(v) to whom interest in premises has been assigned or transferred as permitted,

by virtue of, or under the provisions of, any of the repealed Acts;

(b) a person who is deemed to be a tenant under Section 25;

(c) a person to whom interest in premises has been assigned or transferred as permitted under Section 26;

(d) in relation to any premises, when the tenant dies, whether the death occurred before or after the commencement of this Act, any member of the tenant's family, who—

(i) where they are let for residence, is residing, or

(ii) where they are let for education, business, trade or storage, is using the premises for any such purpose, with the tenant at the time of his death, or, in the absence of such member, any heir of the deceased tenant, as may be decided, in the absence of agreement by, the court.

Explanation.—The provisions of this clause for transmission of tenancy shall not be restricted to the death of the original tenant, but shall apply even on the death of any subsequent tenant, who becomes tenant under these provisions on the death of the last preceding tenant.

Lease and License:

Section 105 of the Transfer of Property Act 1882 defines lease as a transfer of right to enjoy such property, made for a certain time or in perpetuity for a consideration to be rendered periodically or on specified occasions to the transferor by the transferee who accepts the transfer on such terms. Whereas, section 52 of the Easements Act 1882 defines a license as a transaction where one person grants one or more (but definite) person/s 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. Simply put, Leave and License Agreements, differ from leases as leases create an interest in the property whereas the former does not. To give a perspective, lease essentially gives exclusive rights and interest in the premises to the tenant, whereas, a leave and license agreement, in its plain English meaning entails a license to use a certain premises for a particular period of time. In view of the elaborate rights obtained under a lease, landlords often opt for a leave and license agreement in order to ensure that their rights on the property are not diluted or diminished. Since this article does not elaborate more upon the aspect of a lease, it would be best to summarize the difference between a lease and license by way of a tabular depiction and leave it at rest.

	Lease	License
Agreement	Transfers an interest in the property to the lessee (creates an estate).	No interest is transferred, it is only a personal permission to do an act.
Interest in Property	Confers exclusive possession. The lessee can exclude everyone, including the owner.	Does not confer exclusive possession. The owner retains legal possession.
Transferability	Transferable and often assignable/subletable.	Non-transferable; it is a personal contract.
Revocability	Cannot be revoked at will. Terminated according to the contract or law.	Generally revocable at any time by the owner/grantor.
Inheritability	Heritable and does not end with the death of the lessor/lessee.	Not heritable; terminates with the death of either party.
Effects of Sale	Unaffected by the sale of the property; new owner must honor the lease.	Comes to an end immediately if the property is sold.
Rights/Suits	A lessee has a right to protect the possession as his own right	A Licensee cannot defend his possession in his own name as he does not have any proprietary right in the property.

Legal Requirements and Process of a Leave and License Agreement:

The real estate industry in India is in my candid opinion is a brutal environment in a way that one cannot anticipate. Legal complexities arise from the most unfathomable possibilities and at the same time get resolved in manners that sometimes astonish legal professionals practicing for decades. In any case, nobody should ever let uncertainties govern their business, let alone their place of residence being bought by their hard earned money. Entering into a leave and license agreement is comparatively easy but some checks must be in place by whoever intends to get into one:

-        Verification:

Prior to entering into any sort of leave and license agreement, it is essential to check the title documents and ensure there is a clear title to the property, especially encumbrances. In an unfortunate case that I was dealing with, a family of 5 was compelled to run from pillar to post to ensure their possession was safeguarded because one fine day, employees of a certain NBFC showed onto their doorstep with a notice under section 13(2) of the Sarfesi Act 2002. It was only then that they became aware of the fact that the licensor defaulted on multiple payments and the flat they were residing in was mortgaged.

-        Check requites approvals of the property:

A lot of newly developed buildings have come up in Mumbai, however, not all of them possess the requite permissions. It is very pertinent to ensure that the flat that is to be licensed is in a building that has an Occupation Certificate (OC). In any case, it is still important to do some due diligence as the property may also be subjected to tax dispute, encumbrances as to land revenue and so on and so forth.

-        Background check on the Agent:

This may not seem to be a legal aspect but certainly is something that ought to be considered by both the parties before entering into an agreement if either of the parties are introduced by a 3^rd party unknown agent. I certainly am not prejudiced towards any agent as they too like us are earning their livelihood but its better safe than sorry, and an honest agent would certainly not be hesitant to reveal their references, client history or any questions for that matter, pertaining to the property.

-        Validity of the Agreement:

Section 55 of the said Act makes it mandatory for any leave and license agreement entered between the landlord and licensee to be in writing and registered under the Registration Act 1908 and it certainly is advisable to do so especially in view of the rising litigations between licensors and licensees. It goes without saying that an agreement which is not in writing would not be valid and no rights can be asserted thereto. In fact, the Act puts an onus on the landlord to get the agreement registered and in absence thereto, he/she shall be liable to be convicted and punished with imprisonment which can extend upto 3 months or with a fine not exceeding Rs. 2,500. In any case, the agreement must be evenly dated and signed by the parties and must be attested by two witnesses. Further, the agreement must be on a stamp papers and registered if the period of license exceeds more than 11 months.

Rights of a Tenant under the said Act:

I cannot be more candid of my opinion with respect to this section of the article but to mention that essentially the rights of a licensee as against a licensor with respect to the said Act are more pre-emptive in nature. Simply put, prevention is better than cure. The act has by far stronger safeguards for the rights of the Landlords than of licensees (not tenants particularly as tenants have higher degree of rights) and thus, it would be best for prospective licensees to thoroughly vet their Agreements before hand and carry out a proper due diligence as mentioned above. However, it act does provide some measure of safety to the licensees being:

-        Protection against unfair eviction:

The verbatim of the act is such that section 24 essentially entitles the Landlord to recover possession of the premises given on license on property. In any case, upon expiry of the agreement, the act does not enable him to physically take possession in his/her personal capacity but mandates an order from the competent authority. This give a sense of relief to the licensees as irrespective of termination, the licensee cannot be evicted unless due process of law has been followed. However, the onus still lies on the licensee to vacate the premises the moment an agreement is terminated since not doing do would expose him/her to pay damages at double the rate of the license fee or charge under the agreement of license. Additionally, the act does not, by any stretch allows a licensee to approach the Competent Authority to settle disputes with the landlord but merely grants an opportunity to defend an application for eviction preferred by the Licensor. In fact, in cases where the security deposit is not returned or forfeited by the licensor for the reason best known to then, the only remedy remains is a summary civil suit for recovery of money under Order XXXVII of the Civil Procedure Code 1908, unless there exists an Arbitration Clause in the Leave and License agreement.

-        Right to Fair Rent

The said act, as iterated earlier, makes a very staunch distinction between as tenant and a licensee. Whilst Section 8 and section 9 provide for a standard rent and remedies to obtain it, the said remedies unfortunately lie either with the landlord or the tenant as described in the Act. Thus, so far as a licensee is concerned, the arrangement between a licensor and a licensee is purely governed by the contract between them and a licensee cannot seek fixation of standard rent from the Competent Authority as prescribed by the Act.

-        Right to essential services:

Section 29 of the said act limits the application of the aforesaid right to tenants alone, however, in the broader spectrum of rights, a right to essential services forms part of right to life under Article 21 and measures can to take to protect the same in line with section 29 of the Act. In any case, what remains at the face of it is the fact that the act does not explicitly mention it as a right of the licensee but that of a tenant. Hence, as iterated herein above, its best to do a due diligence of the premises before entering into a contract and ensuring sufficient safeguarding mechanisms are incorporated in the contract.

The Licensee however, has one remedy that perhaps assists him/her to safeguard their rights with respect to a Leave and License Agreement from an invalid termination and that is by virtue of Section 41 of the Presidency Small Causes Courts Act 1882, wherein a licencee can approach the Small Causes Court within the limits of Greater Mumbai for securing its possession in the event the licensor attempts to terminate the agreement unilaterally or the license can also approach a civil court by filing a suit seeking appropriate reliefs, inter alia, seeking protection from dispossession without due process of law.

Rights of a Landlord under the Rent Control Act

The Act provides a broad spectrum of rights to the landlord including both, substantial and procedural rights:

- Section 8 & 9: The Act enables the landlord to fix standard rent and permitted increases. In case of any dispute or recovery of the same, the act further enables to landlord to approach the competent authority.

-  Section 14: The onus is on the landlord to keep the structure in good shape and thus in the event where the landlord has carried out structural alterations of improvements, they are entitled to increase rent in accordance with the provisions of the Act.

-  Section 15: The act further enables the landlord to seek eviction of a licensee on the grounds of eviction in the event of default of payment of rent, subject to compliance with statutory notice requirements and conditions.

-  Section 16: Provides for general rights to recovery of possession on specific grounds such as bona fide requirement, unlawful subletting, nuisance, change of user or dilapidated condition of premises.

- Section 17: A landlord is entitled to evict tenants where premises require immediate demolition, repairs or reconstruction, subject to conditions like re-accommodation where applicable.

-  Section 22: A landlord can recover possession of premises let to a company where the employee for whom the premises were given ceases to be in service.

-  Section 23: Where alternate accommodation is provided temporarily, the landlord can evict if the tenant fails to vacate.

-  Section 24: A landlord/licensor has a strong right to recover possession from a licensee upon expiry of license through a summary procedure before the Competent Authority as iterated hereinabove.

-  Section 29: While this section protects tenants/licensees from disconnection, it implicitly allows landlords to regulate services where there is just or sufficient cause.

-  Arbitrability of Disputes:

While a full bench of the Bombay High Court has categorically laid down that so far as properties are situated within the limits of Greater Mumbai, arbitration clause in the Leave and License Agreement cannot oust the jurisdiction of the Small Causes Court under the Presidency Small Causes Court Act 1882 in view of the fact that when a stuatue gives exclusive jurisdiction to a particular forum to try certain disputes. The bench primarily took the view that the non-obstante clause in section 41 (1) of the Presidency Small Causes Court Act 1882, by virtue of which, exclusive jurisdiction vested on the Court for Small Causes for adjudication of disputes between a landlord – tenant or licensor – licensee[1].

However, the Bombay High Court in 2012, had also ruled that a suit for recovery of security deposit does not constitute a suit for recovery of “licence fee or charges or rent” as contemplated under section 41(1) of the 1882 Act and thus held that a claim for recovery of security deposit and damages/compensation would not fall within the exclusive jurisdiction of the court of small causes[2]. On similar lines, the Bombay High Court again in 2022 referred a dispute to arbitration on the lines that the claim raised with respect to withholding of security deposit on the ground that one party was unable to pay damages did not fall within the exclusive jurisdiction of the Court of Small Causes[3].

-  Test of determining if an Agreement creates a lease or a license:

The Hon’ble Supreme Court in Sohan Lal Naraindas v. Laxmidas Raghunath Gadit[4] laid down the test of determining the nature of the agreement based on intention of the parties and not just bare verbatim in the following words: "Intention of the parties to an instrument must be gathered from the terms of the agreement examined in the light of the surrounding circumstances. The description given by the parties may be evidence of their intentions but is not decisive. Mere use of the words appropriate to the creation of a lease will not preclude the agreement operating as a licence. A recital that the agreement does not create a tenancy is also not decisive. The crucial test in each case is whether the instrument is intended to create or not to create an interest in the property the subject-matter of the agreement. If it is in fact intended to create an interest in the property, it is a lease. If it does not it is a licence. In determining whether an agreement creates a lease or a licence the test of exclusive possession though not decisive is of significance."

In conclusion, the legal framework that governs licensor-licensee relationships in Mumbai seems to be well-organized. However, in practice, it shows that clear contracts and prior diligence are very important. The Maharashtra Rent Control Act, 1999, while extensive, favors landlords regarding leave and license agreements, compelling licensees to depend heavily on the terms they negotiate and accept. So, the most important thing to remember is that a leave and license agreement is not just a formality. Before signing, carefully look over, negotiate, and write down every important term. A well-written contract, along with proper verification and compliance, is often the best way to avoid future problems.

If this piece resonated with you or you’re someone interested in collaborating on similar legal writing, feel free to reach out—my contact details are available on the home page.

[1] Central Warehousing Corporation v. Messrs. Fortpoint Automotive Private Limited [2010 (1) All MR 497]

[2] Brainvisa Technologies Private Limited v. Subhash Gaikwad (HUF), [Arbitration Application NO. 195 of 2010, dated September 14, 2012]

[3] Bafna Motors Private Limited v. Amanulla Khan [Arbitration Petition No. 340 of 2019 dated May 5, 2022]

[4] Sohan Lal Naraindas v. Laxmidas Raghunath Gadit (1971) 1 SCC 276