“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.
Some apparent features which can be derived out while reading the provisions relation the concept of “Lease” under Transfer of Property Act, 1882 would be as follows.
1. Transfer of an interest to the transferee. The person who is transferring an interest must possess that interest. Problem in this regard usually arises when a lessee sub-lease the property.
2. Parties to the lease. It would be very interesting to note here that parties are entering into a contract, which means they must comply with the provision mentioned under Indian Contract Act, 1872 to know the competency of the parties. It prohibits certain person to enter into a contract e.g. a minor, a person with unsound mind.
3. Subject matter of the lease. Being the most important element in order to form a lease deed, its existence becomes necessary at the time of making a lease deed. It can be any immovable property irrespective of the fact whether they are enclosed or not. It can be a land; it can be a house and similar immovable property. But, it would be also important here to note that it is interest which a person holds in this property which is transferred.
4. Another important point which has to be kept in mind in a lease deed is the form of the lease. It can be absolute, or it can be derivative. A lease which is in derivate form can be further sub-leased to another person or to a “sub-lessee”, but that doesn’t mean that lessee has been absolved from his liabilities. He still remains responsible to the head-lessor. On the other hand, a lease in absolute form cannot be sub-leased to another person. Whether the lease is derivate or absolute is a question of fact, and can only be determined from the condition and clauses mentioned under a lease deed.
5. Duration of lease is another important factor which has to be kept in mind while dealing this matter. Fixed time period is not mandatory in a lease deed, but the duration for which it has been leased out becomes very important for the purpose of a valid lease.
6. Consideration provided by the person, who is receiving the interest in the property become another important condition to be complied with. It is not a mandatory condition that consideration should be in the form of money, it can be any another manner suitable for the said purpose or which has been prescribed by law. It can be any form of service of some monetary value.
From the above points, it becomes quite clear that there are certain conditions which are to be complied with in order to form a lease. After discussing important points/features for the purpose of lease, now it would be necessary to see what are the conditions and features of a licence. It would be then become very easy to differentiate between these two concepts. Following are some of the features which can be attributed to a licence agreement.
1. Unlike Lease, in licence there is no transfer of interest which a transferor owns in a property. It is a mere permission to enter into the property without any transfer of interest. Some examples would be very interesting to note here such as a person who is allowed to conduct his song performance during specific hours of a day, permission to use a specific portion in a land for setting up a movable shop etc.
2. The heritable nature of lease is not present in a licence i.e., a licence is neither heritable nor transferable. It can only be used by the person with whom licence agreement has been made. In other words, it can be concluded that licence is a personal contract between the parties.
3. A person who grants the licence can terminate at any point of time. It would not be necessary to wait until the time period is elapsed for the termination of a licence. The same cannot be done in a lease agreement. Also, if the property is sold to a third party, licence agreement comes to an end with immediate effect.
4. A licensee cannot alter the nature of the property which has been provided to him. He would not be able to make any modification whatsoever be the nature of it. It would be the exclusive right of the owner to do so. Moreover, a licensee doesn’t hold any possessory right over the licensed property; instead possessory right is with the owner of the property.
From the above discussion it would not be difficult to understand the various points relating to lease and licence. Ann now, it would not be much difficult to understand the difference between these two concepts. Lease is much extensive than that of licence, and it confers a great amount of right to the transferee which cannot be extinguished so easily. A person entering into lease deed cannot invalidate it unilaterally, but in the case of a licence transferor would be able to end the licence. It would be easier to understand this after looking at some of the decision/case laws of Supreme Court.
Real intention of the parties forms the basis to interpret whether the agreement which has been made between the parties is a lease or not. This was held by the Supreme Court in C.M. Beena v P.N. Ramachandra Rao AIR 2004 SC 2103;2004 AIR SCW 1858, stating that “the difference between a lease and a 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”. And it was further held by the court that the conduct of the parties of the parties before and after the creation of relationship is of relevance for finding out their intention. Similar view was also held by the Supreme Court in Achintya Kumar Saha v Nanee Printers AIR 2004 SC 1591; 2004 AIR SCW 763, where an issue relating to tenancy and licence was sorted out by the court referring to the intention of the parties, and it was held by the court that intention of the parties who are forming an agreement becomes the deciding factor to conclude the real nature of the agreement made. Moreover, court opined that the surrounding circumstances should also be taken into account while determining the real intention of the parties. This view was also held by the Supreme Court in case of Rajbir Kaur v S. Chokosiri and Co. AIR 1988 SC 1845.
In the case of Delta International Ltd v Syam Sundar Ganeriwalla AIR 1999 SC 2607, a dispute arose between the parties as to whether the agreement between them was a lease or that of “leave and licence”. Document nowhere mentioned any provision which can make it evaded from the provisions mentioned under W.B. Premises Tenancy Act, 1956. It was held by the Supreme Court that “where it was nowhere pleaded that the deed executed between the parties was a camouflage to evade the rigours of the provisions of the Rent Act nor was it stated that a sham document was executed for achieving some other purpose the intention of the parties would be required to be gathered from the express words of various terms provided by them in the deed.” Court held it to be an licence agreement.
In case of Vayallakath Muhammodkutty v Illikkal Moosakutty AIR 1996 SC 3288, it was held by the court that simply an embargo put against subletting in the document doesn’t make it a lease agreement. Court was of the opinion that usually question of subletting doesn’t arise in case of a licence agreement.
It was further held by the Supreme Court in Khalil Ahmed basher Ahmed v Tufelhussein Samasbhai Sarangpurwala AIR 1988 SC 184, that if an interest is created in an immovable property which entitles a transferee to enjoy it without any interference, the document should be construed as that of a lease agreement. This point has been discussed earlier in this article that a lessee or the person who gets the possession of the leased property enjoys in exclusively unlike in case of a licence agreement. That means, if an owner of a land grants permission to use the land without any exclusive, the document should be construed as that of a licence.
One of the most famous case in this regard is Associated Hotels of India v RN Kapoor AIR 1959 SC 1262, which provided a clear cut idea between the difference between these two concepts. It was held by the Supreme Court in this case that “if a document gives only a right to use the property in a particular way under certain terms while it remains in possession and control of the owner thereof, it will be a licence.” Court opined that there exist a very thin line of difference between these two concepts which can be determined on the facts and circumstances of each case. When a person gets possessory right and the right to enjoy the property, it would be a lease unlike a licence.
From the above discussion, it would be easier to understand the basic things which are to kept in mind while dealing with matter relating to lease and licence.
We are only tenants, and shortly the great Landlord will give us notice that our lease has expired - Joseph Jefferson
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