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Lease and License : Difference

By Y.Srinivasa Rao, Principal Senior Civil Judge, Tirupati.

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. – Lord Greene, M.R. ( Booker v. Palmer, (1942) AH England Law reporter 677).

Introduction: To ascertain whether a document creates a licence or lease, the substance of the document must be preferred to the form. The real test is the intention of the parties-Whether they intended to create a lease of a licence. 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 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.Ref. Associated Hotels Of India Ltd vs R. N. Kapoor, [1960] 1 SCR 368. Distinction between lease and license is marked by the last clause of Section 52 of the Easement Act as by reason of a license, no estate or interest in the property is created.

Difference between Lease and License:

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. Rights and obligations of the Lesser as contained in the Transfer of Property,1882 are also subject to the contract to the contrary. Even the right of assignment of leasehold property may be curtailed by an agreement. — Municipal Corporation Of Delhi vs Pradip Oil Corporation And Anr, 100 (2002) DLT 442.

It may be noticed that the definition of ‘lease’ and ‘license’ as envisaged under Section 105 of the Transfer of Property Act and Section 52  of the Indian Easements Act.

Section 105 Transfer of Property Act reads thus:

“105. 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.”

There is a marked distinction between a lease and a licence. Section 105 of the Transfer of Property Act defines a lease of immoveable property as a transfer of a right to enjoy such property made for a certain time in consideration for a price paid or promised. Unders. 108 of the said Act, the lessee is entitled to be put in possession of the property. A lease is therefore a transfer of an interest in land. The interest, transferred is called the leasehold interest. The lessor parts with his right to enjoy the property during the term of the lease, and it follows from it that the lessee gets that right to the exclusion of the lessor. Whereas s. 52 of the Indian Easements Act defines a licence thus :

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 immoveable 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.”

Under the aforesaid section, if a document gives only a right to use the property in a particular way or under certain terms while it remains in possession and control of the owner thereof, it will be a licence. The legal possession, therefore, continues to be with the owner of the property, but the licensee is permitted to make use of the premises for a particular purpose’. But for the permission, his occupation would be unlawful. It does not create in his favour any estate or interest n the property. There is, therefore, cleat distinction between the two concepts. The dividing line is clear though sometimes it becomes very thin or even blurred. At one time it was thought that the test of exclusive possession was infalliable 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 the recent trend of judicial opinion is reflected in Errington v. Errington (1), wherein Lord Denning 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.”

Where the dominant intention is to use the premises with fittings and fixtures for the purpose of running a business, the same does not tantamount to a lease of immoveable property as decided in the case of Uttam Chand v.S.N. Lalwani, AIR (1965) SC 716, paras II and 12.

“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. On 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.”

“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. ” — Mrs. M. N. Clubwala And Anr vs Fida Hussain Saheb And Ors , 1964 SCR (6) 642.


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.

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.

While it is true that the essence of a licence is that it is revocable at the will of the grantor the provision in the licence that the licensee would be entitled to a notice before being required to vacate is not inconsistent with the licence. — M.N. Clubwala v, Fida Hussain Saheb, (1964) 6 S.C.R. 642.

When is a licence deemed to be revoked ?

Indeed, section 62 (c) of the Indian Easements Act, 1882 itself provides that a licence is deemed to be revoked where it has been either granted for a limited period, or acquired on condition that it shall become void on the performance or non- performance of a specified act, and the period expiriest or the condition is fulfilled. In the agreements in question the requirement of a notice is a condition and if that condition is fulfilled the licence will be deemed to be revoked under section 62, It would seem that it is this particular requirement in the agreements which has gone a long way to influence the High Court’s finding that the transaction was a lease. 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. In the absence, however, of a formal document the intention of the parties much be inferred from the circumstances and conduct of the parties.”

In Union Bank Of India vs Chandra Kanta Gordhandas Shah, 1994 SCC (6) 271 — an instrument was held to be a deed of lease as the lessee was conferred right to exclusive possession wherefor various terms of the indenture which were taken into consideration for finding out whether the same was lease or a license.

In Vayallakath Muhammodkutty vs Illikkal Moosakutty , AIR 1996 SC 3288, where the defendant was given exclusive possession of the disputed premises for running a hotel but was not given the permission to sub-lease the property, the document was held to be a license.

“9. …. this Court has indicated that for a consideration as to whether a document creates a license or lease, the substance of the document must be preferred to the form. It is not correct to say that exclusive possession of a party is irrelevant but at the same it is also not conclusive. The other tests, namely, intention of the parties and whether the document creates any interest in the property or not are important considerations.”

In Om Prakash vs. Dr. Ravinder Kumar Sharma, 1995 (Suppl.) 4 SCC 115, a deal was held to be a license where the keys of the premises was to be taken in the morning and returned in the evening and a portion thereof was occupied by the mother of the licensor.

In Lilawati H. Hiranandani vs Usha Tandon, 1995 (Suppl.) 4 SCC 158, an assignment made to the effect that the owner permitted the licensee to occupy a portion with no right or interest created in his favor and also undertaken to vacant the premises within one month, was held to be a case of license.

In Swarm Singh vs. Madan Singh, it was held :

“3. On a careful consideration of the above arguments, we feel that there is no substance in any one of them. To our mind it is very clear that the right granted under the above document is nothing but a license. Our reasons are as under:

(1) the nomenclature of the document is license. Of course, we hasten to add that nomenclautre is not always conclusive;


(2) the document in question in no unambiguous terms says that the possession and control shall remain with the owner. This is a clear indication of the fact that no interest in immovable property has been conferred on the grantee. If it were to be a case of lease under Section 105 of the Transfer of Property Act, there must be an interest in the immovable property. On the contrary, if it were to be a license under Section 52 of the Easements Act, no such interest in immovable property is created. The case on hand is one of such.

(4) No doubt there is a statement in the document that “I shall not sublet it to further anybody else. This is nothing more than an affirmation of the requirement that the licensee must use the property. No doubt under Section 52 of the Easements Act, license is personal but where an affirmation is made that such an affirmation cannot alter the relationship of the parties as Lesser and lessee. In this view factually the case Capt. BVD’ Douza v. Antonio Fausto Fernandes, Quoted from the judgment and order dated 3.5.1993 of Andhra Pradesh Admn. Tribunal at Hyderabad in OA No. 47322/91 and 5668/92, is distinguishable.”

Conclusion:— Whether a document will constitute lease or license would inter alia depend upon certain interpreted criteria which are:

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

 (b)    that real test is the intention of the parties -- whether they intended to create a lease or a license; 

 (c)    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 license; and  

 (d)   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 negative the intention to create a lease." 


Whether any indenture constitutes lease, or license the nomenclature of the document may not be decisive, as it is necessary to consider the substance of the transaction and not its mere form. Particular words and phrases may be used in a document but such usage may be for various purposes. The document having regard to the purport and object of the Act, must thus be construed having regard to the principal object and purport thereof. For the said purpose even the doctrine of purposive construction may be taken recourse to. But once the Court is in a position to ascertain the substance thereof so as to enable it to arrive at a finding as to whether thereby an interest in the land is created or not the same would subserve the purpose.

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