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Whether it is a Lease or a Licence.

By

Dr. Y. Srinivasa Rao, M.A (English Lit.)., B.Ed., LL.M., Ph.D in Law of Torts., Judicial Officer.

“I have never come across a case which is not arguable.”

Introduction:

The two important Acts, the Transfer of Property Act and the Indian Easements Act were  enacted in the same year in1882. If the transfer of ‘a right to enjoy’ is equal to ‘ a right to do so’ upon the immoveable property as is mentioned in the ‘Licence’, a contradistinction between ‘lease’ and ‘license’ is to be understood for proper interpretation of a document to know whether it is a lease or licence.   A comparison between ‘lease’ and ‘licence’ becomes a significant factor. The ratio decindi in Sohan Lal case, Mulla’s commentaries, and  the ambit of proviso (6) to section 92 of the Indian Evidence Act  with support of the ruling in the Belapur Co. Ltd., v. Maharashtra State Farming Corpn. (1972) are to thoroughly be examined. An attempt is made in this paper for aclear-cut distinction between the two termsLease may be noted that lease as defined  under the Transfer of Property Act  is different from the lease defined  under the Stamp Act as was held in Kommineni Ravishankar Rao Vs. District Registrar, Medak District at Sanga Reddy and another, 2019 (1) ALT 23.

Sec. 105 of Transfer of Property Act says as infra:

105.  A lease of immoveable 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. 

The transferor is called the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service or other thing to be so rendered is called the rent.

Sec. 52 of the Easements Act reads:

“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.”

  If we concentrate the point ‘question of rights’ in these two provisions, no doubt, we find ‘there is a transfer of a right’ in these two sections.  I will discuss later on the difference between sec. 105 of T.P. Act and Sec. 52 of the Easements Act.

             In Associated Hotels Of India Ltd vs R. N. Kapoor, 1959 AIR 1262 = 1960 SCR (1) 368, it was held that 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. Under s. 108 of the said Act, the lessee is entitled to be put in possession of the property. A lease is there-‘ fore 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 nthe 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 ( [1952] 1 All E.R. 149 ), 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.”

The Court of Appeal again in Cobb v. Lane ([1952] 1 All E.R. 1199) 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 ?”

The following propositions may, therefore, 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 or 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 negative the intention to create a lease. Judged by the said tests, it is not possible to hold that the document is one of licence. Certainly it does not confer only a bare personal privilege on the respondent to make use of the rooms. It puts him in exclusive possession of them, untrammelledby the control and free from the directions of the appellants. The covenants are those that are usually found or expected to be included in a lease deed. The right of the respondent to transfer his interest under the document, although with the consent of the appellants, is destructive of any theory of licence. The solitary circumstance that the rooms let out in the present case are situated in a building wherein a hotel is run cannot make any difference in the character of the holding. The intention of the parties is clearly manifest, and the clever phraseology used or the ingenuity of the document- writer hardly conceals the real intent. I, therefore, hold that under the document there was transfer of a right to enjoy the two rooms, and, therefore, it created a tenancy in favour of the respondent.

Whether it is a lease or a licence:

The crucial test is the intention of the parties, i.e. whether they intended to create a lease or a licence, and  that the test of exclusive possession, though not decisive is of significance as was held in SohanLal Naraindas v. Laxmidas Raghunath Gadit, reported in (1971) 1 SCC 276 = (1971) 2 SCJ 583. The ratio decidendi as laid down in Ramamurthy Subudhy v. Gopinath, AIR 1968 SC 919 and  in M.N. Clubwala (Mrs) v. Fida Hussain, AIR 1965 SC 610 and in Associated Hotels of India Limited v. R.N. Kapoor (AIR 1959 SC 1262) indicates that the document by itself could not be a deciding factor whether a particular transaction was a lease or a licence. 

1. ‘There is a transfer of a right’ as is seen from the definitons of sec. 105 of T.P.Act and sec. 52 of Easements Act. 

2. The ‘right’ consists in enjoying such property transferred is a lease whereas the ‘right’ consists in doing something in or upon the immovable property of the Licensor, despite without the creation of an interest in the property is a licence.

3. Intention of the parties to an instrument must be gathered from the terms of the agreement examined in the light of the surrounding circumstances as was pointed out in Sohan Lal Naraindas v. LaxmidasRaghunath Gadit1972 Bom LR 144 (SC). See also. Bombay, viz. Belapur Company Limited v. Maharashtra State Farming Corporation, reported in 1972 Bom LR 246 and KamlaDevi v. Tkakatmal reported in AIR 1964 SC 859. 

4. 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.

5. It is important to note that the principle of ‘Estoppel by Deed’ as mentioned in Section 115 of the India Evidence Act, which principle is based on a fundamental rule that “No man shall be allowed to dispute his own solemn Deed”.

6.  Intention overrides the written document. Although a document is styled as a lease, but, it may be a licence. If we permit the parties to retract from their written commitment by alleging some intentions, what would be the fate of Sec. 92 of the Indian Evidence Act,1872 inasmuch as it excludes evidence of any oral agreement or statement for the purpose of contradicting, varying, adding or subtracting from the written terms of the contract?

7. Sect. 17(1) of the Registration Act makes leases from year to year or from periods exceeding one year, compulsorily registerable.

8. Section 49(c) of the Registration Act makes it clear that a document which is not registered as per the requirements of Sec. 17 of the Registration Act, shall not be received in evidence.

9. The the owner/landlord, whether lessor or licensor always retains constructive possession.

10. It is better to say that a  document, either as a lease or a licence, on its face value and that would be in consonance with Sec. 92 of the India Evidence Act and Sec. 35 of the Stamp Act and Section 49(c) of the Registration Act. 

Conclusion:

             A lease is a transfer of a right to enjoy such property. Licence does not create an interest in the property is to be understood in the sense that it has to be put in contrast to an easement and  not when it is put in contract with a lease. There is no need to go through the definition of ‘licence’ in the Easements Act, in order to arrive at the meaning of the word ‘Lease’ in the Transfer of Property Act. It is curious to note that the word ‘possession’ is absent in the definition of the word ‘Lease’ therein. There are judicial interpretations that a lessee has juridical possession of the object of the lease whereas licensee has merely a ‘permissive occupation’ thereof. Here, we can easily understand that by the reason of juridicialpossession, such a person stands in such relation to a particular thing that he has in fact dominion over it. It is also to be noted that Sec. 92 of the Indian Evidence Act only prescribes a rule of evidence and that this provision does not It does not fetter the power of Court to reach at the true sense and effect of a transaction in the light of surrounding circumstances.

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