How Is a “Lease Agreement” Different From a “Leave & License Agreement.”

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Lease & License are two different concepts which the Indian Law recognizes. One of these concepts is formal in nature, while the other offers flexibility and an alternate solution to being tied into a lease agreement.

License is defined in S. 52 of the Easements Act and reads as under:

“where one person grants to another, or to a definite number of other persons, a right 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”.

According to S. 105 of the Transfer of Property Act, 1882, 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.

It is clear from the above definition that a lease is not a mere contract but envisages and transfers an interest in the demised property creating a right in favor of the lessee in rem.

To put it precisely if an interest in immovable property entitling the transferee to enjoyment was created, it was a lease; if permission to use land without exclusive possession was alone granted, a license was the legal result.

For example giving a mere right enabling a person to stay in a hotel room, visit a premises like a museum or exhibition centre are form of licenses.

Also Read: How to handle Landlord-Tenant Dispute

Difference Between A Lease & License:

It is the creation of an Interest in immovable property or a right to possess it that distinguishes a lease from a license. A license does not create an interest In the property to which it relates while a lease does. There is in other words transfer of a right to enjoy the property in case of a lease.

The distinction between a licenLease Agreementse and a lease is marked by the last clause of the definition, for a license does not create any estate or interest in the property to which it relates. There is no simple litmus test for distinguishing a lease from a license. The character of the transaction turns on the operative intent of the parties. If interest in immovable property, entitling the transferee to its enjoyment, is created, it is a lease; if permission to use the land without the right to exclusive possession is alone granted, the transaction is a license. It is the creation of an interest in immovable property or a right to possess that it distinguishes a lease from a license. For the purpose of deciding whether a particular transaction is a lease or a license, 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.

S.No. LEASE LICESNE
1. There is a transfer of interest in the property.  Mere permission to do something without any transfer of interest in the property.
2. Both transferable & heritable Neither transferable nor heritable
3. Terminates as per the contract Can be withdrawn at the instance of the grantor.  
4. Unaffected by sale of Property Comes to an end by sale of Property.
5. Does not comes to an end by virtue death of grantor or grantee  Comes to an end by virtue of death of grantor or grantee.

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How to determine whether an agreement confers a status of a licensee or a lessee?

Whether a particular transaction creates a lease or a license is always a question of intention of the parties which is to be inferred from the circumstances of each case.

Intention of the parties to an instrument must be gathered from the terms of the agreement examined in the light of the surrounding circumstances. The description given by the parties may be evidence of the intention but is not decisive. Mere use of the words appropriate to the creation of a lease will not preclude the agreement operates as a license.

A recital that the agreement does not create a tenancy is also not decisive. 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. In determining whether the agreement creates a lease or a license the test of exclusive possession, though not decisive, is of significance.

License agreement vs Lease agreement: Which form of agreement to prefer?

Where the agreement grants to a person only the right to use the premises without being entitled to the exclusive possession thereof, it merely creates a license in his favor. In case of a License, the licensor shall continue to have full possession and control of the premises. License also confers on him an unrestricted right of entry into and use of the premises. Thus the License recognises that the Licensee or its agents does not have exclusive possession of the premises. It is well settled that mere permission to use the premises without being entitled to exclusive possession thereof creates only a license.

It is common practice among owners of shopping complexes and malls to give out parts of the property on leave and license basis, so that they can have more control over their property.

To know more about lease agreements & license write to us at easykanoon@gmail.com.

About The Author:

Gaurav Sharma is the Founder of Easy Kanoon & is a legal consultant with more than 10 years of experience.