October 2, 2022

Differences between license and lease with Illustration

Meaning of License

Section 52 of the Easements Act defines a “License”

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 licence.

Meaning of Lease

Section 105 of the Transfer of Property Act defines “lease”

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 transfer or by the transferee, who accepts the transfer on such terms.

Difference

  • A licence confers a right to do or continue to do something in or upon immovable property of grantor which but for the grant of the right may be unlawful, but it creates no estate or interest in the immovable property of the grantor.

A lease on the other hand creates an interest in the property demised.

  • 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 the intention 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 the agreement creates a lease or a licence the test of exclusive possession, though not decisive, is of significance.

Case Illustration

In a case[1], the defendant was occupying a loft 19′ x 15′ on the upper floor of a building under an agreement of licence, the licence had been duly terminated and withdrawn but the defendant had failed and neglected to vacate the loft notwithstanding the demand.

The defendant contended that he was a tenant of the loft, that the tenancy had not be duly terminated as required by law, that he was entitled to the protection of the Bombay Rents Hotel & Lodging House Rates Contract Act 1947.

The Trial Court dismissed the suit holding that the defendant was a tenant of the plaintiff and not his licensee. The decree was confirmed in appeal, by the High Court of Bombay. The High Court held that on the terms of the agreement and in the light of the surrounding circumstances the relationship between the parties was that of landlord and tenant.

The plaintiff appealed to Supreme Court. The Supreme court observed that-

The plaintiff was the lessee of a shop and the loft of that shop was the subject matter of that agreement. It was stated in the agreement that the loft “was given on leave and licence basis for use and occupation” of the defendant on the terms and conditions mentioned therein.

The relevant conditions were-

“1. The owner (the plaintiff) has agreed to grant the leave the licence for use and occupation of the said loft of the said shop for a period one year commencing.

2. The Licensee (the defendant) shall pay to the Owner monthly compensation or Licensee fee at the rate of Rs. 250/- per month, and the Licensee has paid Rs. 3000/- (Rupee three thousand) only to the Owner as compensation or licence fee for the said period in advance on or before the execution of this agreement.

3 The Licensee shall have no right as a tenant or sub-tenant in respect of the said loft of the said shop. The Licensee shall not sub-let, allow to use, transfer or assign in any way the said loft of the shop to anyone else.

4. The Owner shall bear and pay the rent of the said shop.

5. The Licensee shall use and occupy the said loft of the said shop as a cloth merchant only and shall not be entitled to carry on any other business.

6. The parties hereto shall give one month’s clear notice of their intention to terminate this agreement in writing.

8. If the Licensee commits breach of any of the terms of this agreement in that case the Owner shall be entitled to terminate and revoke the leave and licence hereby granted without giving notice to the Licensee.”

The defendant was put in exclusive possession of the loft. The plaintiff did not reserve possession of any part of the loft or a right of entry therein. The loft had a separate entrance. The plaintiff and defendant were both cloth merchants, and the only consideration for granting the licence was the payment of Rs. 250/- per month. There is no evidence that the loft was given to the defendant out of sympathy or because of friendship, or relationship, or any similar motive. It was stipulated that the plaintiff may terminate the agreement by giving one month’s clear notice, the agreement could not be terminated by notice of a shorter duration.

The Honourable court further noticed that an attempt was deliberately made to camouflage the true nature of the agreement, by reciting in several clauses that the agreement was for leave and licence, and to emphasise the presence it was also recited that the defendant was not to have any right as tenant or sub-tenant in respect of the loft.

At the trial the elder brother of the defendant was examined as a witness. He stated that the agreement was intended to be an agreement of lease, but the plaintiff insisted that the agreement be drafted with the conditions set out therein.

In this case, the High Court had considered all the covenants and the attendant circumstances and reached the conclusion that having regard to the exclusive possession given to the defendant it was intended to confer an interest in the loft and on that account the agreement operated as a lease and not as a licence.

The supreme court agreed with the view taken by the high Court and dismissed the appeal with cost.


[1] Sohan Lal Naraindas vs Laxmidas Raghunath Gadit (1971)