In the case of Associated Hotels of India Ltd. v. R.N. Kapoor, [1960] 1 SCR 368  the minority judgment rendered by Subba Rao, J, the Court held that there is a clear distinction between lease and license: the dividing line is clear, though sometimes it becomes very thin or even blurred and observed that for such determination following propositions may be taken as well established;

(1) To ascertain whether a document creates a licence or lease, the substance of the document must be preferred to the form;

(2) The real test is the intention of the parties-Whether they intended to create a lease of a licence;

(3) If the document creates an interest in the property, it is a lease; but if it only permits another to make use of the property, of which the legal possession continues with the owner, it is a licence; and

(4) if under the document a party gets exclusive possession of the property, prima facie, he is considered to be a tenant; but circumstances may be established which negatived the intention to create a lease.”

Before laying down the aforesaid proposition, the Court held as under-

“At one time it was thought that the test of exclusive possession was infallible and if a person was given exclusive possession of a premises, it would conclusively establish that he was a lessee. But there was a change and recent trend of judicial opinion is reflected in Errington v. Errington, wherein Lord Denying reviewing the case law on the subject summarizes the result of his discussion thus at p. 155;

“The result of all these cases is that, although a person who is let into exclusive possession is, prima facie, to be considered to be tenant, nevertheless he will not be held to be so if the circumstances negative any intention to create a tenancy.”

The Court of Appeal again in Cobb v. Lane considered the legal position and laid down that the intention of the parties was the real test for ascertaining the character of a document. At p. 1201, Somervell, L. J., stated:

“… the solution that would seem to have been found is, as one would expect, that it must depend on the intention of the parties.”

Denning, L.J., said much to the same effect at p. 1202,

“The question in all these cases is one of intention: Did the circumstances and the conduct of the parties show that all that was intended was that the occupier should have a personal privilege with no interest in the land?”

At this stage, it would be worthwhile to quote some more instructive discussion from the case of Cobb and Another V. Lane, (1952) 1 All. E.R, 1199 rendered by three learned Judges in their judgments given separately: – Somervell, L,J, observed;

“Certainly under the old cases (and I doubt if this has been affected by the modem authorities), if all one finds is that somebody has been in occupation for an indefinite period with no special evidence of how he got there or of any arrangement being made when he went into occupation, it may be that the court will find a tenancy at will.

I am assuming that there is no document, or clear evidence as to terms. The modern cases establish that, ft there is evidence of the circumstances in which the person claiming to be a tenant at will went into occupation those circumstances must be considered in deciding what the intention of the parties was. “

The learned judge further observed:

“No doubt, in former days, except for the question of the statute, the distinction between a tenancy, whether at will or for a period, and a licence was not so important as it has become since the Rent Restrictions Acts came into operation. In many cases under those Acts it has a special importance. That fact has led to an examination of the distinction, and the solution that -would seem to have been found is, as one -would expect, that it must depend on the intention of the parties.”

Penning, L.J, further observed to the same effect as under:

“Under the old cases there would have been some colour for saying that the brother was a tenant at will, but the old cases can no longer be relied on. Owing to the impact of the Rent Acts, the courts have had to define more precisely the difference between a tenant and a licensee.”.

…The question in all these cases is one of intention: Did the circumstances and the conduct of the parties show that all that was intended was that the occupier should have a personal privilege with no interest in the land?”

Delivering concurring judgment, Romer. LJ, further considered the facts and observed:

“She was not a tenant at will, and unless she was, she could not create the tenancy on which the defendant relies. In the absence of a sufficient title or interest in her to carve out or to create a similar tenancy in the defendant, his claim. I say, fails in limine.”

Further, in his judgment, Lord Denning, referred to an earlier decision in the case of Errington V. Errington, (1952) 1 AII.E.R. 149 wherein the Court held that the test of exclusive possession is by no means decisive.

For determining what was the intention of the parties the Court relied upon following observations from the decision in the case of Booker v. Palmer, (1942) AH England Law reporter 677 wherein Lord Greene, M.R. held:.-

“To suggest there is an intention there to create a relationship of landlord and tenant appears to me to be quite impossible. There is one golden rule which is of very general application, namely, that the law does not impute intention to enter into legal relationship where the circumstances and the conduct of the parties negative any intention of the kind.”

Along with other cases, the aforesaid case was referred to and relied upon in the case of Rajbir Kaur and Another v. Ms,. S, Chokesiri and Co., [1989] 1 SCO 19, Supreme Court considered and held that ultimately the question whether a transaction is a lease or licence “turns on the operative intention of the parties and there is no single, simple litmus test to distinguish one from the other.”

The relevant discussion in paragraph 22 is as under: –

“22. It is essential to the creation of a tenancy that the tenant be granted the right to the enjoyment of the property and that, further, the grant be for consideration. While the definition of `lease’ in Section 105 of the Transfer of Property Act, 1882, envisages the transfer of a right to enjoy the property, on the other hand the definition of a `licence’ under section 52 of the Indian Easements Act, 1882, consistently with the above, excludes from its pale any transaction which otherwise, amounts of an “easement” or involves a transfer of an interest in the property, which is usually involved in the case of a transfer of right to enjoy it.

These two rights viz. Easements and lease in their very nature, are appurtenant to the property. Oh the other hand, the grant only for the right to use the premises without being entitled to the exclusive possession thereof operates merely as a licence. But the converse implications of this proposition need not necessarily and always be true. Wherever there is exclusive possession, the idea of a licence is not necessarily ruled out.

English law contemplates what are called `Possessory Licences’ which confer a right of exclusive possession, marking them off from the more usual type of licences which serve to authorise acts which would otherwise be trespassess Thus exclusive possession itself is not decisive in favour of a lease and against a mere licence, for, even the grant of exclusive possession might turn out to be only a licence and not a lease `where the grantor himself has no power to grant the lease.

In the last analysis the question whether a transaction is a lease or a licence “turns on the operative intention of the parties” and that there is no single, simple litmus test to distinguish one from the other. The “solution that would seem to have been found is as one would expect, that it must depend on the intention of the parties. “

Dealing with the contention that intention of the parties is to be determined upon a proper construction of the deed entered into between the parties, and that alone is a decisive matter, the Court dealt with the said contention in paragraph 32 and observed as under : –

“Indeed learned counsel placed strong reliance on the following observations by this Court in Mrs. M.N. Clubwalq V. Fida Hussain “Whether an agreement creates between the parties the relationship of landlord and tenant or merely that of licensor and licensee 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.”

The proposition of Dr. Chitale as to the conclusiveness of what emanates from the construction of the documents has, in this case, its own limitations. The import, significance and conclusiveness of such documents making, or evidencing, the grants fall to be examined in two distinct contexts. The dispute may arise between the very parties to the written instrument, where on the construction of the deed one party contends that the transaction is a `licence’ and the other that it is a `lease’.

The intention to be gathered from the document read as a whole has, quite obviously, a direct bearing. But in cases where, as here, the landlord alleges that the tenant has sublet the premises and where the tenant, in support of his own defence sets up the plea of a mere licensee and relies upon a deed entered into, inter se, between himself and the alleged licensee, the landlord who is not a party to the deed is not bount by emanates from the construction of the deed.

At best, it is a piece of evidence, the weight to be accorded to which will necessarily depend upon all the other circumstances of the erase; The tenant arid the subtenant, who jointly set up a plea of licence against the landlord may choose to camouflage the truth and substance of the transaction behind a facade of a self-serving and conveniently drafted instrument.”

In the case of Sohan Lal Naraindas v: Laxmidas Raghunath Gadit, [1971] 1 SCC 276, (paras 6 &. 9) the Court has observed as under: –

“6. An attempt was deliberately made to camouflage the true nature of the agreement, by reciting in several clauses that the agreement was for lease and licence and it emphasise the pretence, it was also recited that the defendant was not to have any right as tenant or sub-tenant in respect of the loft. 9. 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 operates 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.”

Summing Up

From the aforesaid discussion what emerges is:-

(1) To find Out whether the document creates lease or license real test is to find out `the intention of the parties’; keeping in mind that in cases where exclusive possession is given, the line between lease and licence is very thin.

(2) The intention of the parties is to be gathered from the document itself; Mainly, intention is to be gathered from the meaning and the words used in the document except where it is alleged and proved that document is a camouflage. If the terms of the document evidencing the agreement between the parties are not clear, the surrounding circumstances and the conduct of the parties have also to be borne in mind for ascertaining the real relationship between the parties.

(3) In the absence of a written document and when somebody is in exclusive possession with no special evidence how he got in, the intention is to be gathered from the other evidence which may be available on record, and in such cases exclusive possession of the property would be most relevant circumstance to arrive at the conclusion that the intention of the parties was to create a lease.

(4) If the dispute arises between the very parties to the written instrument, the intention is to be gathered from the document read as a whole. But in cases where me landlord alleges that the tenant has sublet the premises and where the tenant in support of his own defence sets up the plea of a mere licensee and relies upon a deed enter into inter se, between himself and the alleged licensee, the landlord who is not a party to the deed is not bound by what emanates from the construction of the deed; the tenant and the sub-tenant may jointly set up the plea of a license against the landlord which is a camouflage.

In such cases, the mask is to be removed or veil is to be lifted and the true intention behind a facade of a self-serving conveniently drafted instrument is to be gathered from all the relevant circumstances. Same would be the position where the owner of the premises and the person in need of the premises executes a deed labelling it as a licence deed to avoid the operation of rent legislation.

(5) Prima facie, in absence of a sufficient title or interest to carve out or to create a sim i lar tenancy by the sitting tenant, in favour of a third person, the person in possession to whom the possession is handed over cannot claim that the sub-tenancy was created in his favour; because a person having no right cannot confer any title of tenancy or sub-tenancy. A tenant protected under statutory provisions with regard to occupation of the premises having no right to sublet or transfer the premises, cannot confer any better title. But, this question is not required to be finally determined in this matter.

(6) Further lease or licence is a matter of contract between the parties. Section 107 of the Transfer of Property Act inter alia provides that leases of immoveable property may be made either by registered instrument or by oral agreement accompanied by delivery of possession; if it is a registered instrument, it shall be executed by both the lessee and the lessor.

This contract between the parties is to be Interpreted or construed on the well laid principles for construction of contractual terms, viz, for the purpose of construction of contracts, the intention of the parties is the meaning of the words they have used and there can be no intention independent of that meaning; when the terms of the contract are vague or haying double intendmcnt one which is lawful should be preferred; and the construction may be put on the instrument perfectly consistent with his doing only what he had a right to do.

Reference

Delta International Ltd. V. Shyam Sundar Ganeriwalla (1999)