LEASE OR LICENSE?

A Lease is defined under Section 105 of the Transfer of Property Act. It is a contract between the lessor and the lessee for the possession and profits of land, etc, on one side and the recompense by rent or other consideration on the other.

A license is defined in Section 52 of the Indian Easements Act, 1882 as 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 major difference is that a lease transfers ‘exclusive possession’ to the lessee. It is not merely a permission to use the premises. However, a license does not include exclusive possession of the property in question. It is a right to use the property with the licensor’s permission, without which it would be illegal. Moreover, a question of eviction only arises when it comes to a lease agreement, and not a license.

A finding on the question whether the person is a tenant or a licensee is a finding of fact. [1] For the purpose of deciding whether a particular transaction is a lease or a licence, the question of intention of the parties is to be determined, and the intention has to be inferred from the circumstances of each case. It is essential, therefore, to look to the substance and essence of the agreement, and not merely to the form.

In Associated Hotels of India v R N Kapoor,[2] Justice Subba Rao set out the following propositions as well established for ascertaining whether a transaction is a lease or licence:

  1. To ascertain whether a document creates a lease or a licence, the substance of the document must be preferred to its 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 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 negate the intention to create a lease.

The intention of the parties is of utmost importance, and it is clear from the above discussion that they intended enter into a lease agreement. It prefers the substance over form concept. Therefore, the wording of the agreement and the intention of the parties has to be carefully analysed before classifying an agreement as a lease or a license.


[1] Samir Kumar Chateya v Hirendra Nath Ghosh, AIR 1992 Cal 129

[2] 1959 AIR 1262

Poonam Pradhan Saxena: Property Law

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