Distinction between Lease and Licence

Distinction between Lease and Licence[1]

            Before distinguishing the concept of lease and licence, first of all, let us see the definition of both these terms.

v  Lease- Lease is the transfer of a right to enjoy an immovable property for a certain period, in consideration of price paid or promised to be paid in cash or kind.[2]

v  Licence- Licence is 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 does not amount to an easement or an interest in the property.[3]

Keeping in mind these definitions let us now go through the points which distinguish a lease from a licence:

1.      Lease is a transfer of interest, but licence is not.

2.      Lease can be assigned, but a licence cannot. A lease being a proprietary right is a transferable interest. Licence on the other hand cannot be transferred by virtue of it being a personal right. However, there exist certain exceptions such as movie tickets.

3.      Lease results in the creation of a demise or leasehold estate. It is a proprietary right in respect of the land. Licence is personal right of a person to use the land of another. It is in the nature of permission.

4.      An action against the trespasser can be maintained by the lessee, because he has interest in the demise. Trespass is the violation of such interest. A licensee cannot institute any action against the trespasser, owing to the reason that he has no interest in the land of the grantor.

5.      Revocation of lease can take place in any of the ways provided by the law. It is not revocable before expiry of the term and without breach of any express condition by the lessee. A licence on the other hand comes to an end by death of either party, or by alienation of the property in question. Licence is revocable at the pleasure of the grantor.

6.      Lessee is required to have exclusive possession of the property for its proper enjoyment. But, a licence is created without transfer of possession. A licensee is required to share the possession with the grantor (who is still the owner) and has not parted with the interest.

7.      Lease is heritable in nature. Licence is not heritable because the right extinguishes with the death of licensee.

8.      In lease exclusive possession is obtained and hence lessee has exclusive control over the property. Normally in licence possession remains with the grantor.

9.      Consideration is must in case of lease. But word consideration is absent in licence.

10.  Lease is generally for a longer period, while licence is generally for a shorter period.

In spite of the above mentioned difference, there exists a point of similarity between a lease and licence. It is that both of them deal with immovable property.

Apparently, there is clear cut distinction between the lease and licence. But in daily course of things, it sometimes becomes very difficult to demarcate between the two. Whether an instrument creates a lease or licence, is matter of substance rather than form. A mechanism of making a licence and not a tenant by giving him possession is in vogue, in order to evade the provisions of the Rent Control Act.

It is in this regard that the following guidelines were laid down by the Supreme Court of India for the purpose of distinguishing between lease and licence.[4] They are as following:

1.      Whether a document creates a lease or a licence, the substance of instrument must be referred rather than the form.

2.      The real test is the intention of the parties.

3.      If a document creates an interest in the property, it is a lease. But if it only permits another to make use of the property on which legal possession continues with owner, it is a licence.

4.      If under the document, transferee gets exclusive possession of the property he is prima facie a lessee. But circumstances may be established which negative the intention of parties to create a lease. Therefore, difference between exclusive possession and exclusive occupation cannot be disregarded.

The emphasis on investigating the operative intent was laid by apex court again in Rajbir Kaur v. M/s. S. Choko Siri and Co.[5]. Similarly, gathering of intention of parties from the terms agreement construed in the context of surrounding antecedents and circumstances were given importance by the court in Poonam Singh Sahani v. Sundari Bhagwan Das Kriplani[6]. Nomenclature was not regarded s the final proof of the creation of lease or licence in M/s. S. A. A. Pvt. Ltd. v. Municipal Corporation of Greater Bombay[7]. For this reason, installation of poll advertisement on footpath and road was held to be a licence, although words like tenancies and rent were used in agreement.

Conclusion

Based on the principles and references provided in the preceding paragraphs, it can be safely asserted that, where the transferee is entitled to have exclusive possession of property, it is a lease. Permission to use the land without right of exclusive possession results in creation of licence. However these principles are subject to various nuances already discussed in the form of judicial pronouncements and the basic points of difference.