Licence versus Lease
We are forwarding this write up on Licence versus Lease to you, in the
event that you have not understood, as indeed we ourselves had not,
this subject. Hope it will be of some help to many of you.
Licence versus Lease
Legal Talk by Adv. Shridhar Sinai Usgaonkar / Heraldo/Business/Estates
The Supreme Court has made it clear that the real test for determining
the nature of the right created by an instrument vis-a-vis Lease or
Licence is to know the intention of the parties. This means the nature
of the document has to be gathered not only from the vocabulary used
therein, but also the intention of the parties thereto.
A Lease is transferable (if permitted in the Lease Deed) and
heritable, but Licence is neither transferable nor heritable because
it is a personal privilege.
From the e-mails that are being received from readers, it appears
that there is lack of understanding among the general public as to the
implications of a Lease and Licence and the differences between the two?
The Supreme Court in a catena of judgements has made it clear that the
real test for determining the nature of the right created by an
instrument vis-a-vis Lease or Licence is to know the intention of the
parties. If a document creates an interest in the property. it is
Lease but if it permits the grantee to make use of the property while
retaining the possession with the owner, it is Licence. This means
that the nature of the document is to be gathered not only from the
vocabulary used therein but also the intention of the parties thereto.
Whenever premises are 'rented out' for residential or commercial
purposes, the deeds executed for that purpose are often titled as
"Leave and Licence". Logically, the documents should be titled either
as "Deed of Licence' or "Licence Agreement." The word "leave" is added
without any authority or justification.
The right of Lease is recognised and its various aspects are defined /
explained under Chapter 5 of the Transfer of Property Act, 1882, while
that of the Licence is done so in Chaptr 6 of Indian Easements Acts,
1882. These two Acts do not recognise any right known as "Leave". It
is not known who invented the right of "Leave" under which it is
recognised and how it came to be coined. If anyone offers any
plausible explanation for the use of the word "Leave" in 'Licence
agreement' then it is most welcome.
Sometimes, though the parties intend to create or create a right of
Lease in transaction, they camouflage the same by labelling the deed
as "Deed of Licence" to evade the provisions of Rent Control Act. In
such cases, the courts would not go by what is stated in the documents
expressly but would decide the case from all the relevant circumstances.
The money received from a Licencee should actually be called as "fee"
but it is customarily called as "rent".
Now, to differences: If during the lease-period, any accretion is made
to the property leased, such accretion is deemed to be comprised in
the lease. But a licencee acquires no right in the property.
A Lease is transferable (If permitted in the Lease Deed) and heritable
but Licence is neither transferable nor heritable because it is a
personal privilege.
In Lease, the lessee gets a proprietary right in respect of the
premises but a Licencee gets only a personal right of using the
premies of another.
Lease cannot be revoked before the expiry of the term or without
breach of any express condition of the Lease. But a Licence is
generally revocable subject to certain exceptions – when the Licence
is coupled with transfer of property and such transfer is in force or
the Licencee, acting upon the Licence has executed a work of a
permanent nature and incurred expenses. A Lessee is entitled to a
notice to quit before eviction but a licencee is normally not entitled
to such notice unless the contract contemplates the same.
Lease does not end with the sale, mortgage, exchange and gift of
property or death of either parties but Licence would end in such
cases. An exhaustive list of difference however, cannot be enumerated
here for want of space.
