Difference between Lease and Licence
The term ‘lease’ and ‘license’ are defined under Section 105 of the Transfer of Property Act and Section 52 of the Indian Easements Act respectively.
Section 105 of Transfer of Property Act:
“Lease Defined. A lease of immovable property is a transfer of a right to enjoy such 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.”
Section 52 of the Easements Act, 1882:
“License, Defined. 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.”
“Lease” is a word which everyone is aware of, and hears it day in and day out while dealing the transactions related to immovable property. Lease can be defined as the right to enjoy an immovable property for a certain period of time, in consideration of a price paid by the person getting possession of the property.
Under Black’s Law dictionary, “Lease” can be defined as a conveyance of lands tenements to a person for life, for a term of years, or at will, in consideration of rent or some other recompense. Oxford Dictionary of Law defines it as “a contract under which an owner of property grants another person exclusive possession of the property for an agreed period, in return for rent and sometimes for a capital sum known as a premium.
Section 105 of Transfer of Property Act, 1882 defines lease and one would be easily able to derive some of the important characteristics of a lease such as transfer of an interest, parties to the lease, subject matter of lease etc. But, there is another provision or legal principle which at sometimes is confused with the concept of lease i.e. Licence.
Black’s Law Dictionary defines “Licence” in the context of property law as an authority to do a particular act or series of acts upon another’s land without possessing any estate therein. Oxford Dictionary of Law defines it as Permission to enter or occupy a person’s land for an agreed purpose.
Both the provisions look similar, then what make them different is a very important question, which has to be resolved, and it is abstruse to do so. Sometimes, there arise some situations, which abridge difference between them. In order to understand the difference between these two provisions and to know the situation, which they may conflict, it becomes very important to understand the basic features of both Lease and Licence.
Generally, a lease contemplates the following:
a) a demise or a transfer of a right to enjoy property;
b) for a term or in perpetuity;
c) in consideration of a price paid or promised, or of money, a share of crop or services or other things of value to be rendered periodically or on specified occasions to the transferor.
The essential characteristic of a lease are:
1. transfer of an interest;
2. parties to a lease;
3. subject matter of lease;
4. types of lease;
5. duration of lease; and
6. consideration for lease.
Transfer of Interest
A lease a transaction with respect to immovable property and creates a right to enjoy such property for a certain term and for consideration on the conditions mentioned in it. The right to possess and enjoy the property is transferred in favour of the lessee and he acquires this interest through the conveyance of the lease. After the creation of such an interest, a tenant or a sub-tenant is entitled to remain in possession thereof until the lease is duly terminated and eviction takes place in accordance to law. The relationship of landlord and tenant can come into existence only after the transfer of an interest in immovable property pursuant to a contract and creates a right in rem. Where there is no transfer of interest there is no lease.Further, if an option is given to the lessor by the lessee himself to resume the leasehold, it is a personal covenant and does not create an interest in the land.
Parties in Lease
The parties to the lease are the transferor, who is called the lessor or landloard, and the transferee, who is called the lessee or tenant. Both the parties must be competent to contract. The lessor and the lessee cannot be the same person, they have to be two different persons.A lessor can be an absolute owner of the land or a joint tenant or a lessee himselfbut above all must be competent to contract. Thus minors, or unregistered associations cannot be lessees.
Subject Matter of Lease
The subject matter of a lease is a specific immovable property such as land, houses, factories, shops, minerals, buildings etc. Usually a lease of a house and a shop includes not only the superstructure but also the site, unless the same is specifically excluded from the definition of the land in the lease deed.However, terrace and air space above a tenanted multi-storeyed building are not included in lease.
Duration of Lease
The lease need not be for fixed period but its duration should be definite. An uncertainty as to the duration of the term will be detrimental to the lease.When the lease is for specific period, its period cannot be infinite by mere provisions of renewal every year.
Consideration for Lease
There must be a consideration fixed for lease for lease that may be in the form of:
b) money’s worth such as a share in crops;
c) service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee.
Consideration may be termed as rent plus premium as well as rent alone or premium alone. Also, a lease without consideration is invalid.
A licence is 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 is unlawful, and such right does not amount to an easement or an interest in the property. Further, it is an authority to do a particular act or series of acts upon another’s land without possessing any estate therein.
Thus, the primary distinction between a lease and a licence is that the lease is a transfer of a right in a specific immovable property, whereas, licence is a bare permission and a licencee is not entitled to notice to quit before evidence.
Primary distinctions between Lease and Licence:
1. A lease is a transfer of an interest in a specific immovable property, while licence is a bare permission, without any transfer of an interest.
2. A lease creates an interest in favour of the leassee with respect of the property, but a licence does not create such an interest.
3. A lease is both transferable and heritable, a sub tenancy can be created by the tenant and on the death of the tenant, the tenancy can be inherited by his/her legal heir, whereas, licence is neither transferable nor heritable.
4. A licence comes to an end with the death of either the grantor or the garantee, since it is a personal contract, but a lease does not comes to an end on either the death of the grantor or grantee.
5. A licence can be withdrawn at any time at the pleasure of the grantor but the lease can come to an end only in accordance with the terms and condition stipulated in the contract of tenancy agreement.
6. A lease is unaffected by the transfer of the property by sale in favour of a third party. It continues and the purchaser has to wait till the time period for which the tenancy was created is over before he can get the possession, whereas, in case of a licence, if the property is sold to a third party, it comes to n end immediately.
7. A lessee has a right to protect the possession in his own right. Whereas, a licencee cannot defend his possession in his own name as he does not have any proprietary right in the property.
8. A lessee in possession of the property is entitled to any improvements or accessions made to the property, while a licencee is not.
Whether a Lease of a Licence
A finding on the question whether the person in possession is a tenant or a licencee is a finding of fact. To ascertain if a document creates a lease or a licence, the substance of the document should be preferred to its form. Where it creates an interest in the property, it is a lease; but, if it only permits another to make use of the property, of which legal possession and control continues with the owner, it is a licence. A licence does not create any estate or interest in the property to which it relates.Thus, whether an instrument operates as a lease or licence is not a matter of words contained in the instrument creating it, but of its substance. The decisive consideration is the intention of the parties, but the intention must be gathered on a true construction of the agreement and not merely from the description given by the parties.
Where, on point of intention the document is ambiguous, the question is to decide in the context of the surrounding antecedent and consequent circumstances, and parole evidence. A document, which expresses the intention of both parties or of one party to create license will nevertheless create tenancy if the rights and obligations enjoyed and imposed satisfy the legal requirements of tenancy.
The mere use of words appropriate to a lease will not preclude its being held a license; so even a document referring to ‘rent’ maybe a license. Transfer of exclusive possession generally indicates an intention to create a lease even though the sum is described as a ‘license fee’, but it is no longer a conclusive test and there maybe cases where transferee in excusive position is a licensee. Where, after the expiry of the original period of lease, the lessee continues in possession and the lessor accepts from him premium for the subsequent period, it is a lease and the lessee could not be ejected without the termination of the freshly created lease.
From the above discussion it would not be difficult to understand the various points relating to lease and licence. Ann now, it would not be much difficult to understand the difference between these two concepts. Lease is much extensive than that of licence, and it confers a great amount of right to the transferee which cannot be extinguished so easily. A person entering into lease deed cannot invalidate it unilaterally, but in the case of a licence transferor would be able to end the licence. It would be easier to understand this after looking at some of the decision/case laws of Supreme Court.
Real intention of the parties forms the basis to interpret whether the agreement which has been made between the parties is a lease or not. This was held by the Supreme Court in C.M. Beena v P.N. Ramachandra Rao, stating that “the difference between a lease and a licence is to be determined by finding out the real intention of the parties as decipherable from a complete reading of the document, if any, executed between the parties and the surrounding circumstances”. And it was further held by the court that the conduct of the parties of the parties before and after the creation of relationship is of relevance for finding out their intention. Similar view was also held by the Supreme Court in Achintya Kumar Saha v Nanee Printers, where an issue relating to tenancy and licence was sorted out by the court referring to the intention of the parties, and it was held by the court that intention of the parties who are forming an agreement becomes the deciding factor to conclude the real nature of the agreement made. Moreover, court opined that the surrounding circumstances should also be taken into account while determining the real intention of the parties. This view was also held by the Supreme Court in case of Rajbir Kaur v S. Chokosiri and Co.
In the case of Delta International Ltd v Syam Sundar Ganeriwalla, a dispute arose between the parties as to whether the agreement between them was a lease or that of “leave and licence”. Document nowhere mentioned any provision which can make it evaded from the provisions mentioned under W.B. Premises Tenancy Act, 1956. It was held by the Supreme Court that “where it was nowhere pleaded that the deed executed between the parties was a camouflage to evade the rigours of the provisions of the Rent Act nor was it stated that a sham document was executed for achieving some other purpose the intention of the parties would be required to be gathered from the express words of various terms provided by them in the deed.” Court held it to be an licence agreement.
In case of Vayallakath Muhammodkutty v Illikkal Moosakutty, it was held by the court that simply an embargo put against subletting in the document doesn’t make it a lease agreement. Court was of the opinion that usually question of subletting does not arise in case of a licence agreement.
It was further held by the Supreme Court in Khalil Ahmed basher Ahmed v Tufelhussein Samasbhai Sarangpurwala, that if an interest is created in an immovable property which entitles a transferee to enjoy it without any interference, the document should be construed as that of a lease agreement. This point has been discussed earlier in this article that a lessee or the person who gets the possession of the leased property enjoys in exclusively unlike in case of a licence agreement. That means, if an owner of a land grants permission to use the land without any exclusive, the document should be construed as that of a licence.
One of the most famous case in this regard is Associated Hotels of India v RN Kapoor, which provided a clear cut idea between the difference between these two concepts. It was held by the Supreme Court in this case that “if a document gives only a right to use the property in a particular way under certain terms while it remains in possession and control of the owner thereof, it will be a licence.” Court opined that there exist a very thin line of difference between these two concepts which can be determined on the facts and circumstances of each case. When a person gets possessory right and the right to enjoy the property, it would be a lease unlike a licence.
In the case of Mrs. M.N. Clubwala v. Fida Hussain Saheb, the Supreme Court dealt with the question that whether an agreement creates between the parties the relationship of landlord and tenant or merely that of licensor and licensee and held that the decisive consideration is the intention of the parties. This intention has to be ascertained on a consideration of all the relevant provisions in the agreement.
In the case of Municipal Corporation of Delhi vs. Pradip Oil Corporation and Anr. the Delhi High Court, made an important observation that a mere license does not create interest in the property to which it relates. Lease on the other hand, would amount to transfer of property. License may be personal or contractual. A licensee without the grant creates a right in the licensor to enter into a land and enjoy it. Because of a license, no estate or interest in the property is created. A license, inter alia, (a) is not assignable; (b) does not entitle the licensee to sue the stranger in his own name; (c) it is revocable and (d) it is determined when the grantor makes subsequent assignment.
The important recent judgment of the hon’ble Supreme Court on the distinction between lease and licence is Bharat Petroleum Corp. Ltd. v. Chembur Service Stationwherein the court observed that Licences can be of different kinds. Some licences with reference to use of immovable property may be very wide, virtually bordering upon leases. Some licences can be very-very narrow, giving a mere right enabling a person to visit a premises - say a museum or a lecture hall or an exhibition. In between are the licences of different hues and degrees. All licences cannot be treated on the same footing.
From the above discussion the following differences becomes clearly recognized between lease and licence-
|transfer of an interest
||mere permission to do something without any transfer of interest
|both transferable and heritable
||neither transferable nor heritable
|Comes to an end only in accordance with the terms and conditions stipulated in the contract
||can be withdrawn at any time at the pleasure of the grantor
|entitled to any improvement or accession made to the property
||no such entitlement
|unaffected by the transfer of the property by sale in favour of third party and continues
||comes to an end immediately if the property is sold to a third party
|lessee has the right to protect the possession in his own right
||licensee cannot defend his possession in his own name as he does not have any propriety right in the property
|does not come to an end either by death of the grantor or the grantee
||comes to an end with the death of either grantor or the grantee
# Byranjee Jeejeebhoy Pvt. Ltd. v. State of Maharashtra, AIR1965SC590
# Minerals Dev Pvt. Ltd. v. UOI, AIR19060SC1373
# Jaswantsingh Mathurasingh v. Ahmedabad Municipal Corporation, (1992)SuppI SCC5, 12
# Jacob v. Subromonia, AIR1960Ker212
# Rikhy v. New Delhi Municipality, AIR1962SC554
# Anwarali v. Jamini Lal, AIR1940Cal89
# Tola Ram v. Bombay, AIR1954SC158
# R Kemparaj v. Burton Son, AIR1970SC1872
# Narayan Gosain v. The Collector Cuttack, AIR1986Ori46, 51
# Life Insurance Corporation of India v. India Automobiles & Co., (1990)4SCC286
# Manimohan Pat v. Gour Chandra Das, AIR1934Cal71
# Minerals Development Ltd. v. UOI, AIR1960SC1373
# Govinda Kurup v. Chowakkaram, AIR1931Mad147
# Kunj Behari Lal v. Shivji Maharaj, AIR1973All217
# Govinda Kurup v. Chowakkaram, AIR1931Mad147
# T Lakshmipathi v. P Nithyananda Reddy, 2003(3)RCR(Civil)306(SC)
# Vakalpakam Amma v. Muthurama Iyer Muthukrishna Iyer, AIR1995Ker99
# Peter George v. Janak Gandhi, (1996)36DRJ248
# Ramchand v. Lal, AIR1936Lah890
# Municipal Corpn Bombay v. Secretary of State, (1905)ILR29Bom580
# P S Bedi v. Project and Equipment Corp of India, (1994)28DRJ680
# Section 52, Indian Easement Act, 1882
Black’s Law dictionary
# Lall v. Dunlop Rubber Co., AIR1968SC175
# Megh Raj v. DCM Ltd., AIR2000Del332
# Associated Hotels of India v. R N Kapoor, AIR1959SC1269
# Ajab Singh v. Shital Puri, AIR1993All138
# Lall v. Dunlop Rubber Co., AIR1968SC175
# Associated Hotels of India v. R N Kapoor, AIR1959SC1269
# Puran Singh Sahni v. Sundari Bhagwandas Kripalani, (1991) 2 SCC 180
# A.G. Securities v. Vaughan,  3 AllER 1058
# H.S. Ricky v. New Delhi Municipality, AIR 1962 SC 554
# Thakur Prasad v. State Iron and Steel Co. Ltd., AIR 1976 Pat 156
# Peter Alex d’ Souza v. Prithi Paul Singh, AIR 2002 Bom 471
# Rig v. Morris, (1863) 32 LJ (MC) 245
# Raam Nivas v. Municipal Board Nawabganj, AIR 1976 All 241
# C.M. Beena v P.N. Ramachandra Rao, AIR 2004 SC 2103
# Achintya Kumar Saha v Nanee Printers, AIR 2004 SC 1591
# Rajbir Kaur v S. Chokosiri and Co., AIR 1988 SC 1845
# Delta International Ltd v Syam Sundar Ganeriwalla, AIR 1999 SC 2607
# Vayallakath Muhammodkutty v Illikkal Moosakutty, AIR 1996 SC 3288
# Khalil Ahmed basher Ahmed v Tufelhussein Samasbhai Sarangpurwala, AIR 1988 SC 184
# Associated Hotels of India v RN Kapoor, AIR 1959 SC 1262
# Mrs. M.N. Clubwala v. Fida Hussain Saheb,  6 SCR 642
# Municipal Corporation of Delhi vs. Pradip Oil Corporation and Anr., 100 (2002) DLT 442
# Bharat Petroleum Corp.Ltd vs Chembur Service Station, (2011) 3 SCC 710