Difference Between Lease and License

The term ‘lease’ and ‘license’ are defined under Section 105 of the Transfer of Property Act and Section 52 of the Indian Easements Act respectively.

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Section 105 of Transfer of Property Act:
“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.”

Section 52 of the Easements Act, 1882:
“License, Defined. 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 license.”

“Lease” is a word which everyone is aware of, and hears it day in and day out while dealing the transactions related to immovable property. Lease can be defined as the right to enjoy an immovable property for a certain period of time, in consideration of a price paid by the person getting possession of the property.

Under Black’s Law dictionary, “Lease” can be defined as a conveyance of lands tenements to a person for life, for a term of years, or at will, in consideration of rent or some other recompense. Oxford Dictionary of Law defines it as “a contract under which an owner of property grants another person exclusive possession of the property for an agreed period, in return for rent and sometimes for a capital sum known as a premium.

Section 105 of Transfer of Property Act, 1882 defines lease and one would be easily able to derive some of the important characteristics of a lease such as transfer of an interest, parties to the lease, subject matter of lease etc. But, there is another provision or legal principle which at sometimes is confused with the concept of lease i.e. Licence.

Black’s Law Dictionary defines “Licence” in the context of property law as an authority to do a particular act or series of acts upon another’s land without possessing any estate therein. Oxford Dictionary of Law defines it as Permission to enter or occupy a person’s land for an agreed purpose.

Both the provisions look similar, then what make them different is a very important question, which has to be resolved, and it is abstruse to do so. Sometimes, there arise some situations, which abridge difference between them. In order to understand the difference between these two provisions and to know the situation, which they may conflict, it becomes very important to understand the basic features of both Lease and Licence.

Generally, a lease contemplates the following:
a) a demise or a transfer of a right to enjoy property;
b) for a term or in perpetuity;
c) in consideration of a price paid or promised, or of money, a share of crop or services or other things of value to be rendered periodically or on specified occasions to the transferor.

The essential characteristic of a lease are:
1. transfer of an interest;
2. parties to a lease;
3. subject matter of lease;
4. types of lease;
5. duration of lease; and

6. consideration for lease.
Transfer of Interest
A lease a transaction with respect to immovable property and creates a right to enjoy such property for a certain term and for consideration on the conditions mentioned in it. The right to possess and enjoy the property is transferred in favour of the lessee and he acquires this interest through the conveyance of the lease. After the creation of such an interest, a tenant or a sub-tenant is entitled to remain in possession thereof until the lease is duly terminated and eviction takes place in accordance to law. The relationship of landlord and tenant can come into existence only after the transfer of an interest in immovable property pursuant to a contract and creates a right in rem. Where there is no transfer of interest there is no lease.Further, if an option is given to the lessor by the lessee himself to resume the leasehold, it is a personal covenant and does not create an interest in the land.

Parties in Lease
The parties to the lease are the transferor, who is called the lessor or landloard, and the transferee, who is called the lessee or tenant. Both the parties must be competent to contract. The lessor and the lessee cannot be the same person, they have to be two different persons.A lessor can be an absolute owner of the land or a joint tenant or a lessee himselfbut above all must be competent to contract. Thus minors, or unregistered associations cannot be lessees.

Subject Matter of Lease
The subject matter of a lease is a specific immovable property such as land, houses, factories, shops, minerals, buildings etc. Usually a lease of a house and a shop includes not only the superstructure but also the site, unless the same is specifically excluded from the definition of the land in the lease deed.However, terrace and air space above a tenanted multi-storeyed building are not included in lease.

Duration of Lease
The lease need not be for fixed period but its duration should be definite. An uncertainty as to the duration of the term will be detrimental to the lease.When the lease is for specific period, its period cannot be infinite by mere provisions of renewal every year.

Consideration for Lease

There must be a consideration fixed for lease for lease that may be in the form of:
a) money;
b) money’s worth such as a share in crops;
c) service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee.
Consideration may be termed as rent plus premium as well as rent alone or premium alone. Also, a lease without consideration is invalid.

Licence
A 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 is unlawful, and such right does not amount to an easement or an interest in the property. Further, it is an authority to do a particular act or series of acts upon another’s land without possessing any estate therein.

Thus, the primary distinction between a lease and a licence is that the lease is a transfer of a right in a specific immovable property, whereas, licence is a bare permission and a licencee is not entitled to notice to quit before evidence.

Primary distinctions between Lease and Licence:

1. A lease is a transfer of an interest in a specific immovable property, while licence is a bare permission, without any transfer of an interest.

2. A lease creates an interest in favour of the leassee with respect of the property, but a licence does not create such an interest.

3. A lease is both transferable and heritable, a sub tenancy can be created by the tenant and on the death of the tenant, the tenancy can be inherited by his/her legal heir, whereas, licence is neither transferable nor heritable.

4. A licence comes to an end with the death of either the grantor or the garantee, since it is a personal contract, but a lease does not comes to an end on either the death of the grantor or grantee.

5. A licence can be withdrawn at any time at the pleasure of the grantor but the lease can come to an end only in accordance with the terms and condition stipulated in the contract of tenancy agreement.

6. A lease is unaffected by the transfer of the property by sale in favour of a third party. It continues and the purchaser has to wait till the time period for which the tenancy was created is over before he can get the possession, whereas, in case of a licence, if the property is sold to a third party, it comes to n end immediately.

7. A lessee has a right to protect the possession in his own right. Whereas, a licencee cannot defend his possession in his own name as he does not have any proprietary right in the property.

8. A lessee in possession of the property is entitled to any improvements or accessions made to the property, while a licencee is not.

Whether a Lease of a Licence

A finding on the question whether the person in possession is a tenant or a licencee is a finding of fact. To ascertain if a document creates a lease or a licence, the substance of the document should be preferred to its form. Where it creates an interest in the property, it is a lease; but, if it only permits another to make use of the property, of which legal possession and control continues with the owner, it is a licence. A licence does not create any estate or interest in the property to which it relates.Thus, whether an instrument operates as a lease or licence is not a matter of words contained in the instrument creating it, but of its substance. The decisive consideration is the intention of the parties, but the intention must be gathered on a true construction of the agreement and not merely from the description given by the parties.

Where, on point of intention the document is ambiguous, the question is to decide in the context of the surrounding antecedent and consequent circumstances, and parole evidence. A document, which expresses the intention of both parties or of one party to create license will nevertheless create tenancy if the rights and obligations enjoyed and imposed satisfy the legal requirements of tenancy.

The mere use of words appropriate to a lease will not preclude its being held a license; so even a document referring to ‘rent’ maybe a license. Transfer of exclusive possession generally indicates an intention to create a lease even though the sum is described as a ‘license fee’, but it is no longer a conclusive test and there maybe cases where transferee in excusive position is a licensee. Where, after the expiry of the original period of lease, the lessee continues in possession and the lessor accepts from him premium for the subsequent period, it is a lease and the lessee could not be ejected without the termination of the freshly created lease.