Lease and License are primarily the only two methods in which a right in an immovable property is generally created by the owner without selling it. Lease is a formal course of action when the owner intends to transfer the interest in the property. On the contrary, License is an informal alternative to Lease when the owner only intends to grant the right to use for a temporary period of time.
The fundamental differences between Lease and License are discussed hereunder:
| Basis | Lease | Leave and License |
| Law | Section 105 to 117 of Transfer of Property Act, 1882 | Section 52 to 64 of the Easements Act, 1882 |
| Meaning | A lease is a transfer of an interest in an immovable property for consideration | A License is a right to do something on the owner’s property which, without such right, would be unlawful. |
| Parties | Lessor (Owner) and Lessee (Tenant) | Licensor (Owner) and Licensee (Person to whom right is granted) |
| Example | John grants his house to Lisa for 2 years on lease. Lisa will enjoy exclusive possession of that house in exchange for monthly rent. | Tom grants Jerry a license to occupy and stay in his house for 11 months. |
| Transfer of Right | Yes, it is a transfer of right | No, it is not a transfer of right |
| Possession | Yes, Lessor transfers the exclusive possession of the property | No, Licensee does not enjoy the exclusive possession of the property |
| Termination notice | Yes, Termination Notice is required to revoke the lease before expiry of the term | No. Termination Notice is generally not required to revoke the License. |
| Enforceable | Yes, both the parties can enforce the Lease Agreement | Yes, Licensee is entitled to recover compensation from the grantor due to illegal eviction from the property |
| Registration | Yes, Lease Agreement of 1 year or more has to be registered (Section 17 of the Registration Act, 1908) | Yes, License Agreement of 1 year or more has to be registered (Section 17 of the Registration Act, 1908) |
| Transfer of right | Lease is transferable and heritable. | License is neither transferable nor heritable. |
| Sale of property | Sale of property does not affect the Lease | Sale of property will result in revocation of Licensee |
| Death of parties | Death of either party does not affect the Lease | Death of either party will terminate the License |
| Revocation at pleasure | Lease cannot be revoked at pleasure. | License can be revoked at pleasure unless it is coupled with a transfer of property and such transfer is in force or the licensee has executed a work of a permanent character and incurred expenses in the execution. |
How to distinguish Lease from License
There is a clear distinction between the two concepts. The dividing line is clear though sometimes it becomes very thin or even blurred. Distinction between lease and license has been marked by the Supreme Court in the matter of Associated Hotels Of India Ltd vs R. N. Kapoor dated 19 May, 1959
| Lease | License |
| Lease of immovable property is a transfer of a right to enjoy such property made for a certain time in consideration for a price paid or promised. | If a document gives only a right to use the property in a particular way or under certain terms while it remains in possession and control of the owner thereof, it will be a license. |
| The lessee is entitled to be put in possession of the property. A lease is therefore a transfer of an interest in land. The interest transferred is called the leasehold interest. The lessor parts with his right to enjoy the property during the term of the lease, and it follows from it that the lessee gets that right to the exclusion of the lessor. | The legal possession continues to be with the owner of the property, but the licensee is permitted to make use of the premises for a particular purpose. But for permission, his occupation would be unlawful. It does not create in his favour any estate or interest in the property. |
Exclusive possession
At one time it was thought that the test of exclusive possession was infallible and if a person was given exclusive possession of a premises, it would conclusively establish that he was a lessee. But there was a change and the recent trend of judicial opinion is reflected in Errington v. Errington (1), wherein Lord Denning reviewing the case law on the subject summarizes the result of his discussion thus at p. 155:
“The result of all these cases is that, although a person who is let into exclusive possession is prima facie, to be considered to be tenant, nevertheless he will not be held to be so if the circumstances negative any intention to create a tenancy.”
Intention of the parties
The Court of Appeal in Cobb v. Lane (2) considered the legal position and laid down that the intention of the parties was the real test for ascertaining the character of a document. At p. 1201, Somervell.. L. J., stated: “… the solution that would seem to have been found is, as one would expect, that it must depend on the intention of the parties.”
Denning, L. J., said much to the same effect at p. 1202: “The question in all these cases is one of intention: Did the circumstances and the conduct of the parties show that all that was intended was that the occupier should have a personal privilege with no interest in the land ?“
Conclusive well-established tests to distinguish Lease from License
(1) To ascertain whether a document creates a license or lease, the substance of the document must be preferred to the form;
(2) the real test is the intention of the parties-whether they intended to create a lease or a license;
(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 license; 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.
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