By Nazaqat Lal, Advocate & Solicitor
nazaqat_lal@hotmail.com | Mar 22, 2024
INTRODUCTION
Execution of a lease effectively results in the transfer of property for a specified time period, after which, the property reverts back to the lessor or if the lease deed provides, the lessee may have the option to purchase the property on the terms and conditions mentioned in the lease deed. In a leave and license, there is no transfer of property and on termination of the license or expiry of the license period, the licensee’s right to use comes to an end. The distinction between a lease and leave and license becomes important in a dispute situation as it has a bearing on the rights of the parties and the reliefs granted.
DEFINITIONS AND GOVERNING LAW
Lease is governed by the Transfer of Property Act, 1882 and is defined as “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.”
Leave and license is governed by the Easements Act, 1882 and license is defined as “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 a license.”
CASE LAW DISTINGUISHING LEASE AND LEAVE & LICENSE
In the cases of Associated Hotels of India Ltd. v. R.N. Kapoor and C.M. Beena , the question before the Supreme Court was whether it was a case of license or a case of tenancy wherein the license was a camouflage for evading the applicability of rent control legislation. In order to answer this question, the Supreme Court relied upon the tests to distinguish between a lease and leave and license and determined the rights of the parties accordingly.
In Associated Hotels, the Supreme Court held as follows.
“28. …The following propositions may, therefore, be taken as well established : (1) To ascertain whether a document creates a licence 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 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. …”
Following the decision in Associated Hotels, the Supreme Court of India in the case of C.M. Beena held as under.
“8. …Generally speaking, the difference between a “lease” and “license” 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. Only a right to use the property in a particular way or under certain terms given to the occupant while the owner retains the control or possession over the premises results in a licence being created; for the owner retains legal possession while all that the licensee gets is a permission to use the premises for a particular purpose or in a particular manner and but for the permission so given the occupation would have been unlawful.”
“10. Given the facts and circumstances of a case, particularly when there is a written document executed between the parties, question arises as to what are the tests which would enable pronouncing upon the nature of relationship between the parties. Evans & Smith state in The Law of Landlord and Tenant (4th Edn.) –
“A lease, because it confers an estate in land, is much more than a mere personal or contractual agreement for the occupation of a freeholder’s land by a tenant. A lease, whether fixed-term or periodic, confers a right in property, enabling the tenant to exclude all third parties, including the landlord, from possession, for the duration of the lease, in return for which a rent or periodical payment is reserved out of the land. A contractual license confers no more than a permission on the occupier to do some act on the owner’s land which would otherwise constitute a trespass. If exclusive possession is not conferred by an agreement, it is a license. … [T]he fundamental difference between a tenant and a licensee is that a tenant, who has exclusive possession, has an estate in land, as opposed to a personal permission to occupy. If, however, the owner of land proves that he never intended to accept the occupier as tenant, then the fact that the occupier pays regular sums for his occupation does not make the occupier a tenant.” (at p. 33)”
CONCLUSION
Courts will place reliance on the intention of the parties, circumstances before and after execution of the document and whether exclusive possession was transferred under the document to determine whether the document in question is a lease or license. The answer to this question becomes fundamental to determining the rights of the parties and reliefs that will consequently be granted. The dividing line between a lease and leave and license is clear though it can often get blurred.
