License and lease are two extremely essential terms and concepts when it comes to property laws. When one actually tries to distinguish between the two, it might pose difficulties because, in either situation, the person passes on his/her right to another in return for some compensation. This article deals with the difference between a license and a lease… Read More »

License and lease are two extremely essential terms and concepts when it comes to property laws. When one actually tries to distinguish between the two, it might pose difficulties because, in either situation, the person passes on his/her right to another in return for some compensation. This article deals with the difference between a license and a lease in the context of Indian property laws. I. Introduction Though the expressions, lease and license may sound similar, they have...

License and lease are two extremely essential terms and concepts when it comes to property laws. When one actually tries to distinguish between the two, it might pose difficulties because, in either situation, the person passes on his/her right to another in return for some compensation.

This article deals with the difference between a license and a lease in the context of Indian property laws.

I. Introduction

Though the expressions, lease and license may sound similar, they have numerous differences to set one completely apart from the other. Both lease and license come into existence through a contractual agreement between two or more parties. Due to the formation of such a contract, the parties jot down certain rights and duties that each of them follows and owes to the other. Lease and license differ from each other in the context that the rights and duties arising from both are completely different and distinguishable.

Let us understand the concepts through a simple example. ‘A’ is the owner of a flat (apartment) situated in New Delhi, India and he lets out his land to ‘B’, a student in search of rented apartments. In this transaction, a contract is entered between the two parties whereby ‘A’’s property will be used by ‘B’ and all the interest in the property is transferred to ‘B’ till he possesses the property.

On the other hand, ‘X’ lives in a duplex (two-storey house) which has a basement. ‘Y’ runs a photocopy shop immediately beside ‘X’s’ house and because of the basement, it is difficult for ‘Y’ to construct his warehouse. ‘X’ and ‘Y’ enter into an agreement to allow ‘Y’ to use X’s basement for a period of 1 year after which, Y can construct his own basement.

Thus, a lease means a contractual agreement through which the owner of a property allows another person to occupy his property and vests all the interest in him. In case of a license, the owner of a property allows another person to use his property for a particular purpose and for a particular period of time after which, any activity will be unlicensed.

II. Definitions of License and Lease

In general, a license means permission to do something on the property of another person which would be unlawful without the permission. On the contrary, lease means the authority to occupy and use the property of another person. According to Section 52 of the Indian Easement Act, a license means the right to do or continue to do any lawful act on the premise of another person with the permission of that person. The test to determine a license, according to the provision is that the act done by the license holder should be unlawful if the license was not granted.

Thus, in our example above where X allowed Y to use X’s basement if the permission was not granted, Y’s use of the basement would amount to trespass which is unlawful. Hence, the right to use the basement is a license under the Easement Act.

Section 105 of the Transfer of Property Act, 1882 defines a lease as a “transfer of a right to enjoy an immovable property”. According to the provision, the essential ingredients to form a valid lease are:

  1. Agreement between the transferor and transferee.
  2. The property in question must be immovable property.
  3. The transferee must put the property to use for the enjoyment of the property and not unlawful purposes.
  4. There must be some consideration payable regularly, once or in a deferred payment system by the transferee to the transferor.

III. The Difference between Lease and License

As aforementioned, the two concepts may be surmised as the transfer of right to use the property of another person in a lawful manner. However, the concepts are not as simple as they sound. Both the concepts are completely different on several grounds and the most essential distinction has been brought out and explained below:

Basis of Distinction Lease License
Agreement between the Parties It is essential to have a written or verbal agreement between the transferor and transferee of the immovable property in case of a lease. The agreement lays down the relevant terms establishing the rights and duties of the parties. This agreement is called the ‘lease deed’.

 

Case Law: In M/s Raptakos Brett & Co. Ltd. v. Ganesh Properties[1], the apex court held that when a lessee comes to an end by efflux of time stipulated in the lease deed, he is bound to hand over the vacant property to the lessor.

There is no requirement of a specific agreement between the owner or transferor and the transferee to execute a license in favour of the latter. The license can be provided by any authorised person without the presence or involvement of the actual owner of the property.

 

Illustration: When you go to a movie theatre to watch a movie, you are provided a ticket which is your license to enter the hall and watch the movie. The ticket is not provided by the owner of the hall or theatre but by another authorised person.

Interest in the Property By execution of an agreement of lease, the lessor transfers all the interest in the property to the lessee including the right to occupy and live in the property.

 

Case Law: In Associated Hotels of India Ltd. v. R.N. Kapoor[2], the court held that a contract of the lease creates an interest in the property which is eventually transferred to the lessee when he occupies the property.

A license provides limited rights to the license holder. It is granted only for a specific purpose, for a certain period of time after which the license automatically expires.

 

Case Law: In the same judgment, the court concluded that a license is only right over a property for a certain purpose. It does not entitle the license holder to possess or occupy the property.

Revocability A lease deed once created for a specific period of time in favour of a person cannot be revoked before the expiry of that tenure.

 

Illustration: If a lease has been taken by A from B for B’s property, for 5 years. B cannot revoke the lease agreement unilaterally before the completion of 5 years.

A license can be revoked by another person who is authorized to grant and revoke it.

 

Case Law: In MCD v. Pradip Oil Corporation and Anr.[3] the apex court held that even when a license is granted to a license holder, it can be revoked by some other person not being the owner of the property.

The Intention of the Parties The intention of the transferor and transferee is of extreme relevance when it comes to a lease or license. For instance, while allowing someone to enter a movie theatre, it is implied that the person will leave as soon as the purpose is complete. In such a case, the person cannot claim to occupy the theatre for a longer period. The intention of such a situation is clear.

 

Case Law: In C.M. Beena v. P.N. Ramachandra Rao [4], the court observed that the intention of the parties to a contract can be determined by reading the terms of the agreement.

The intention is equally relevant in the license as well because the intention is the only criterion that can distinguish clearly between a lease and a license.

 

Case Law: In Rajbir Kaur v. S. Chokosiri and Co. [5], the court said that the terms of the agreement, the environment circumventing the formulation of the agreement, i.e. the situation and purpose for which agreement was drafted, should be considered to determine whether it is a lease or a license.

 


References

  1. Poonam Pradhan, Property Law (2nd Lexis Nexis)
  2. Avtar Singh, Textbook on the Transfer of Property Act (2nd 2009)

[1] (1998) 7 SCC 184.

[2] [1960] 1 SCR 368.

[3] 100 (2002) DLT 442.

[4] AIR 2004 SC 2103.

[5] AIR 1988 SC 1845.


Property Law; Notes, Case Laws And Study Material

Updated On 1 Dec 2020 5:25 AM GMT
Ashish Agarwal

Ashish Agarwal

Advocate | School of Law, Christ University Alumnus

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