7/27/2014 LEASE AND LICENSE | Rented Building Owners Association Kerala

LEASE AND LICENSE

1. Generally
Lease and license are two special types of contracts. Lease is an agreement by which the
owner of the building or land allows other to use it for a specified time in return for
payment. License is a permission by the granter to do or continue to do something
which in the absence of such permission would be wrongful and such right does not
amount to an easement or an interest in the property. Licence is just a permission
given by the licensor to the licensee to do an act, or to occupy the particular premises
for a particular time, which, in the absence of such right, will be unlawful.

The lease and the license over an immovable property, sometimes has close
resemblances. In India the lease is defined in Section 105 of the Transfer of Property
Act. According to which a lease of immovable property is a transfer of a right to enjoy
such property, made for a certain time, expressed 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 occasion to the
transferor by the transferee, who accepts the transfer on such terms. It further explains
that the transferor is called lessor and transferee is called lessee, the price paid is called
the premium and the money, share, service or other thing to be so rendered is called
the rent. The lease of immovable property is generally governed by the provisions of
chapter V (Sections 105-117) of Transfer of Property Act 1882. But if local rent laws are
in force, then the local law which is the special law governs the leases in that area. If
the duration of the lease is not specified in the contract the lease may be treated as
month to month tenancy or year to year tenancy according to the nature of the use of
the property by the lessee.
The contracts of licenses are generally dealt by the provisions of chapter VI (Section 52
to 62) of the Indian Easements Act 1882. Section 52 defines a licence as follows:
“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 the license”.
The person who grants the licence is called licensor and the person to whom the
license is given is the licensee. The license is a personal privilege given to the licensee
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by the licensor. There are revocable and irrevocable licenses. If a person is given the
right to use the immovable property in a particular way under certain terms while
retaining control and possession of the same the person so permitted is only a licensee.
A dispensation of license properly passes no interest nor alters or transfers property in
anything but makes an action lawful, which without it had been unlawful. As a license
to hunt in a man’s park, to come into his house is only actions which, without license,
had been unlawful. But a license to hunt in a man’s park and carry away the dead killed
is a grant.
When once the license is revoked, licensee has no permission to use the premises and
he is bound to surrender the property. It is the prime devoir of the court to avoid
multiplicity of proceedings. After holding that the defendant was holding the property
under a license and that license has been revoked, and that the defendant has got a
duty to surrender the shop room in question to the plaintiff, it is not just and proper to
direct the plaintiff to file another suit for the same relief, if the court can grant the
relief in this proceedings itself.

2. Revocation of the license

A licensee has no interest in the land and his possession is purely permissive. A license
does not create any estate or interest in the property to which it relates. As licensees
the defendants cannot obviously claim any right of possession over the property. In the
case of a license, though the occupation is with the licensee the control or possession
of the property is with the licensor through such a licensee. The occupation of the
licensee being purely permissive under the Licensor the former is under legal obligation
to restore the possession of the property to the latter whenever license is terminated.
Licensor can definitely call upon the licensee to vacate the premises. The Licensor is
legally entitled to the relief by way of mandatory injunction if a suit is filed within a
reasonable time after the termination or revocation of the licence.

2. Irrevocable license

Section 60 of the easement Act defines licences which are not revocable.
60. License when revocable:- A licence may be revoked by the granter, when unless-
(a) it is coupled with a transfer of property and such transfer is in force;
(b) the licencee, acting upon the licence, has executed work of a permanent character
and incurred expenses in the execution.
Licence is irrevocable when construction of some permanent character is done on the
premises with the consent of the licensor and the licencee has incurred expenses for
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such construction. This permanent construction must be for the purpose of enjoyment
of the licence. The licence agreement must permit the licencee for such construction.
Unauthorized construction made by the licencee will not entitle him for the right of
irrevocable licence. Hence where the licence deed provides for construction of some
permanent structure and the licencee expending money construct some permanent
structure there for the enjoyment of the licence the licence is an irrevocable licence.
Licencee had constructed a house which is permanent in character in the premises. No
objection was raised by licensor. the licence has become irrevocable. The licensor is not
entitled to recover the property after demolishing the building, which the licencee has
constructed therein. Irrevocable licence can be created by agreement also.
There was a clear provision that at the time of surrender of possession, the licencee
should dismantle the structures put up by him in the land in question and he would
only be entitled to value of improvements in respect of the permanent structures put up
by him. There is a clear contract which would disentitle the licencee from claiming the
benefit under S.60 of the Easements Act.
A tenant of a plot of land raised a pucca petrol pump and shop at a considerable
expense with the knowledge of the landlord but no express permission of the landlord
was obtained to do so. The transaction was a lease and not a permanent licence and
section 60 of Easement Act is not applicable.
Conduct of acquiescence to the raising of constructions was eloquent enough to show
that the licence was irrevocable.
Licence coupled with transfer of property exists in a valid form; it operates as a
contract, or a gift or a grant and become irrevocable. For example, where a common
property is partitioned and a well falls in the share of one of them and it is provided in
the partition deed that the one who got the portion without the well is allowed to take
water from the well on the other part. This is a case of licence coupled with transfer of
property and cannot be revoked. This is an irrevocable licence.
The plea of irrevocable licence should be taken at the trial stage and not at the appeal
stage. The appellants are precluded from raising such a plea at the appellate stage.
The licence was to construct the building and hand it over to the licensor such a
contract will not result in irrevocable licence.

3. Comparison of provisions
A comparative chart of lease under chapter V of the TP Act and licence under chapter VI
of the Easements and Licences Act is given below:
Sl.No. Particulars Lease Licence
1. Provision Chapter V. TP Act 1882 Chapter VI of the I.E. Act 1882
2. Definition S.105 S.52
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3. How to be made S.107 S.54

4. Duration S.106, 110
(perpetual lease possible) S.60
(Irrevocable Licence possible)
5. Duty of the lesser/ Grantor S108 (A)
Rights of the lessor’s/ Grantor’s S.57
6. Transferee S109 S.59
7. Termination S 111 S.62
8. After termination S 116 S.63, 64

4. Lease or License – the test

The test to know whether a transaction is a licence or a lease has to be ascertained by
close scrutiny.
Supreme court of India in Associated Hotels v. R. N. Kapoor formulated the test for
ascertaining whether a transaction is lease or license.
1) If the deed creates an interest in the property, it is a lease, whereas if it only permits
another to make use of the property on which the legal possession continues with the
granter, it is a license.
2) If the deed transfers exclusive possession of the property to the transferee the
transaction is a lease.
3) What ever a document states whether a transaction is a license or lease can be
ascertained by looking to the intention of the parties and not the form of the deed.
This intention has to be ascertained on a consideration of all the relevant provisions in
the agreement. Fact that the premises are in exclusive possession of a person would not
make him a lessee. The word ‘rent’ was used loosely for ‘fee’ does not indicate that the
parties intended to bring into existence a lease.

Supreme court in B.M. Lall v. Dunlop Rubber Co India Ltd analysed the distinction
between a lease and licence. They are,
1. Lease is the transfer of a right to enjoy the premises, whereas the licence is a
privilege to do something on the premises which otherwise would be unlawful.
2. The transaction is a lease if it grants an interest in the property, it is a licence if it
gives a personal privilege.
3. The label which the parties choose to put upon the transaction though relevant is
not decisive. It is not the form but the substance is to be taken into account.
4. If the agreement is in writing it is the matter of construction of the agreement having
regard to the terms and the objects and circumstances in which it is made. The
question is not of words but of substance.
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The intention of the parties is to be looked into, there is no simple litmus test to
distinguish one from the other.

The litmus test to determine whether an arrangement is lease or licence is based on the
possession. Possession in the legal sense is the determination to exercise physical
control over a thing on ones own behalf coupled with the capacity of doing so and is,
therefore, necessarily exclusive.
In the case of lease, interest in the property is transferred but in the case of licence the
right to enjoyment of the property in a particular manner and for a particular purpose is
only given. Licence is a right a person grants to another to do in or upon the
immovable property of the granter something which would be unlawful in the absence
of such right and such right does not amount to an easement as an interest in the
property. 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
license.
If the document gives only a right to use the property in a particular way or under
certain terms while it remains in the possession of the owner it will be a license and
not lease.
The definition of lease cannot be stretched to the extent of being inclusive of license.
The difference between the two is very thin and sometimes very difficult to make out,
yet the difference is basic and fundamental. While lease is a transfer of interest in the
property, the licence is merely a permission to do something on the immovable
property, which, but for the permission would be unlawful. In this connection the
definitions given in Section 105 of the Transfer of Property Act and Section 42 of The
Indian Easements Act, 1882, would be very useful for making out the difference
between the two. For purpose of ascertaining the nature of relationship, the
“nomenclature” used in a deed or instrument is not very material.
There is no simple litmus test to distinguish a lease as defined in S.105, Transfer of
Property Act from a license as defined in S.52 Easements Act, but the character of the
transaction turns on the operative intent of the parties. To put it pithily, if an interest
in immovable property, entitling the transferees to enjoyment, is created, it is a lease;
if permission to use land without right to exclusive possession is alone granted, a
license is the legal result.
A license does not create an interest in the property to which it relates while a lease
does create interest in the property. Thus there is transfer of right to enjoy the property
in case of a lease. Whether a transaction is a license or lease is a question of intention
of parties which is to be inferred from the circumstances of each case.
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The cardinal distinction between a lease and license is that in a lease there is a transfer
of interest in land whereas in the case of license there is no such transfer although the
licensee acquires a right to occupy the land.
There is no single litmus test to distinguish a lease from a license, but the character of
the transaction turns out on the operative intention of the parties. To put it pithily, if
an interest in immovable property, entitling the transferee to enjoyment is created it is
lease. If a permission to use land without right to exclusive possession is alone granted,
it is license.

1. A lessee can maintain a suit for possession but licensee cannot

2. A lessee can assign his interest to a third party, whereas licensee cannot
3. A licence can be revoked by the granter, whereas lease cannot
4. A lease of immovable property for more than one year can be created only by a
registered deed, whereas registration or even writing is not necessary in the case of a
licence.
The agreement described the transaction as a licence for eleven months, it is a licence.
Whether it is lease or licence is to be determined by finding out the real intention of
the parties as decipherable from a complete reading of the document, if any, executed
between the parties and the surrounding circumstances.
The word ‘rent’ or ‘pattom’ may be loosely used for ‘fee’ also. That does not mean that
the word ‘pattom’ or ‘rent’ by itself be considered as indicating a landlord tenant
relationship. It has to be understood and interpreted in a reasonable manner in the
background of other statements, evidence and surrounding circumstances.
This is a matter of substance and not merely of words. The description given is a good
indication of the intention of the parties. The parties can certainly be presumed to have
reduced to writing what they had in their mind, in other words their intention. It is
open to the parties to enter into a transaction of licence or to create a relationship of
lessor and lessee. The parties are well aware nowadays of the distinction between lease
and licence and the consequences that follow the creation of a licence in contra
distinction to a lease, especially after the advent of the Rent Control legislations. When
it is the express term of the grant that the grantee was only permitted to use the
property as licencee for a specific purpose and that only that limited right was being
granted to him, it requires cogent and convincing material to the contra by way of
circumstances of the case or conduct of parties to hold that the transaction was
nevertheless a lease. The indicia mentioned by us herein earlier are all indicative of the
transaction being only a licence and not a lease. The building has been found to be in
the exclusive possession of the first defendant that is not conclusive of the matter. As
stated in the decision in Kalyani Amma v. Kunhambu Nair 1984 KLT SN 105 Page 62,
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possession given to the licencee is only such as is necessary to effectively use the
premises for the purposes for which the licence was given. Even in cases where transfer
of possession is exclusive, it need not necessarily be an indication of the creation of a
lease for even in a licence there should be some transfer of possession. Possession is
necessary even for a licencee to do such acts in the land as he is permitted to do. As
held in Errington v. Errington (1952 (1) All England Law Reports 149) exclusive
possession is by no means decisive of lease. Again as held in Abbey field (Harpender)
Society Ltd. v. Woods (1968) (1) All. ER 352 a man may be a licencee, even though he
has exclusive possession. It is the substance of the agreement that governs the matter.
The court must look at the agreement as a whole and see whether a tenancy really was
intended.
Occupation of the building on the basis of a licence agreement. Where licencee refuses
to give vacant possession of the building on expiry of lease period, suit for mandatory
injunction and recovery of damages demanding vacant possession is maintainable. Law
does not prohibit parties from entering into a licence arrangement and conducting
themselves accordingly. I do not find anything to hold that notwithstanding the terms
and conditions stated in the deed the real transaction was one of lease and that the
deeds were intended as a camouflage to cover up the real transaction. In that view I find
nothing illegal in taking the view that deeds revealed licence arrangement. That is a
finding of fact entered on the evidence and on proper construction of licence. As such
no substantial question of law is involved. Counterfoil of receipt book for payment of
(licence) fee shows that he has received receipts for payment of ‘licence fee’. The parties
have meant and understood the transaction not to be a lease arrangement but only as
conferring a personal privilege on the appellant to use the premises for the specific
purpose of conducting business in jewellery.

5. Distinctions between lease and license

The apex court has listed some tests to determine whether a deed is lease or licence,
they are; Whether a particular document will constitute “lease” or “licence” would
depend upon certain factors which can be summarized as follows:
(a) Whether a document creates a licence or lease, the substance of the document must
be preferred to the form;
(b) The real test is the intention of the parties — whether they intended to create a
lease or a licence;
(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 licence; and
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(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 a particular transaction creates a lease or a licence, is a question of intention

of the parties which is to be inferred from the circumstances of each case it is therefore
essential, to look to the substance and essence of the agreement and not to its form.
Thus it is clear that the intention of the parties is the paramount consideration and the
fact of exclusive possession together with the payment of rent is of foremost
importance, but the circumstances in which exclusive possession has been given and
the character in – which money paid as rent has been received, are also matters to be
duly considered.
Normally in a case of licence, question of subletting does not arise, but simply for
giving such a clause in an agreement, it cannot be held to be an agreement for lease.
(1) To ascertain whether a document creates a licence or lease, the substance of the
document roust 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”.

Space in hotel let out for carrying on business where possession and control with the
licencee, the transaction is a lease and not a licence.

The following aspects can be considered in a test to identify a transaction whether a

lease or licence.

1. In the case of LEASE Transfer of right of possession is essential 1. In the case of

LICENCE there Need not be a right of possession
2. In the case of LEASE Such right must be an interest in the property 2. In the case of
LICENCESuch right does not amount to an interest in property
3. In the case of LEASE Lessee can sue in his own name in respect of property 3. In the
case of LICENCE Licencee cannot
4. In the case of LEASE If the duration is for one year or more registration is compulsory
4. In the case of LICENCE If interest is not coupled with an interest (u/s. 60(a) of
Easement Act) registration is optional
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5. In the case of LEASE Notice to quit is essential by lessor 5. In the case of LICENCE No
notice is necessary in case of licence
6. In the case of LEASE Transferable (exclusive to the lessee) 6. In the case of LICENCE
Non transferable (personal privilege)
7. In the case of LEASE Heritable to natural heirs (exclusive to the lessee) 7. In the case
of LICENCE Not hereditary (personal privilege alone)
8. In the case of LEASE Forfeiture by denial of title is applicable 8. In the case of
LICENCE Not applicable to licence
9. In the case of LEASE Possession continues after agreed period is holding over 9. In
the case of LICENCE Continuation after agreed period is trespass
10. In the case of LEASE In case of forcible eviction, suit is possible based on prior
possession 10 In the case of LICENSE In forcible eviction damages alone is the remedy
11. In the case of LEASE Court fee payable in a suit between lessor and lessee is under
Section 43 Kerala Court Fees and Suits Valuation Act 1959 11. In the case of LICENSE
Court fee payable in a suit between licensor and licensee is under Section 31 Kerala
Court Fees and Suits Valuation Act 1959
12. In the case of LEASE The owner himself need not be the lessor (landlord) 12. In the
case of LICENSE The owner alone can be the licensor (grantor)
13. In the case of LEASE There must be a contract between two living persons 13 In the
case of LICENSE there Need not be a contract
14. In the case of LEASE The lease cannot be created by a will 14. In the case of
LICENSE it can be through a will
15. In the case of LEASE The Stamp duty payable to a lease deed is under Article 33 of
the Schedule of Kerala Stamp Act 1959 15. In the case of LICENSE The stamp duty
payable to a license deed is Rs. 50 as per article 5 of the schedule to the Kerala Stamp
Act 1959

6. Characteristics of a License
The essential feature of a license are :-
1. License arise out of permission and not otherwise. It may be express of implied.
2. It is a personal privilege, totally unconnected with the ownership of the property.
3. It does not create an interest in the property in respect of which it is granted.
4. It is non-transferable.
5. It is not heritable
6. It is a positive right (there can be no license to prevent a person from doing
something)

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