DIFFERENCE BETWEEN LEASE AND LICENSE WITH EXAMPLES
In
Associated Hotels of India Ltd. v. R.N. Kapoor (AIR 1959 SC 1262) this Court
referred to the difference between a
lease and licence.:
"There
is a marked distinction between a lease and a licence. Section 105 of the
Transfer of Property Act defines a lease of immovable property as a transfer of
a right to enjoy such property made for a certain time in consideration for a
price paid or promised. Under Section 108 of the said Act, 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......"
After
referring to the definition of licence in Section 52 of the Easement Act, this
court held:
"Under
the aforesaid section, 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 licence. The legal possession,
therefore, 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 the permission,
his occupation would be unlawful. It does not create in his favour any estate
or interest in the property. There is, therefore, clear distinction between the
two concepts. The dividing line is clear though sometimes it becomes very thin
or even blurred. 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 [1952] 1 All E.R. 149, 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."
"...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 licence; (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..."
In
C.M. Beena vs. P.N. Ramachandra Rao - 2004 (3) SCC 595, this Court explained a
Licence thus :
"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."
20.
Licences can be of different kinds. Some licences with reference to use of immovable
property may be very wide, virtually bordering upon leases. Some licences can
be very very narrow, giving a mere right enabling a person to visit a premises
- say a museum or a lecture hall or an exhibition. In between are the licences
of different hues and degrees. All licences can not be treated on the same
footing. We may refer to some illustrations to highlight the difference.
Illustration
(A):
An
owner of a property enters into a lease thereof, but to avoid the rigours of
Rent Control legislation, calls it as a licence agreement. Though such a lease
is captioned as a `licence agreement', the terms thereof show that it is in
essence, a lease. Such a licence agreement which puts the licensee in exclusive
possession of the premises, untrammeled by any control, and free from any
directions from the licensor (instead of conferring only a bare personal
privilege to use the premises) will be a lease, even if described as licence.
For example, if the exclusive possession of an apartment or a flat or a shop is
delivered by the owner for a monthly consideration without retaining any manner
of control, it will be a lease irrespective of whether the arrangement is
called by the owner as a `lease', or `licence'. As far as the person who is let
into exclusive possession, the quality and nature of his rights in respect of
the premises will be that of a lease or a tenant and not that of a licensee.
Obviously such a `licensee' cannot be `evicted' or `dispossessed' or prevented
from using the premises without initiating legal action in accordance with law.
Illustration
(B):
The
owner of a land constructs a shopping mall with hundred shops. The owner of the
mall earmarks different shops for different purposes, that is sale of different
types of goods/merchandise, that is shops for exclusive clothing for men, shops
for exclusive clothing for women, shops for hosieries, shops for watches, shops
for cameras, shops for shoes, shops for cosmetics and perfumes, shops for
watches, shops for sports goods, shops for electronic goods, shops for books,
shops for snacks and drinks etc. The mall owner grants licences in regard to
individual shops to licensees to carry on the identified or earmarked business. The licensor controls the hours of business,
regulates the maintenance, manner of display, cleanliness in the shops. The
ingress and egress to the shop licensed to the licensee is through the
corridors in the mall leading from three or four common access points/entrances
which are under the control of the licensor. The licensee is however entitled
to stock the shop with brands of his choice though he does not have the right
to change the earmarked purpose, entertain any clientale or customers of his
choice and fix the prices/terms for his goods. He can also lock the shop at the
end of the business hours and open it whenever he wants. No one else can trade
in that shop. In such a case, in spite of the restrictions, controls and
directions of the licensor, and in spite of the grant being described as
licence, the transaction will be a lease or tenancy and the licensee cannot be
dispossessed or evicted except by recourse of law. Illustration (C):
In
a shopping complex or in a mall the owner gives a licence to a person to use a
counter to sell his goods in consideration of a fee. The access is controlled
by the licensor and there is no exclusive use of any specific space by the
licensee. At the end of the day, the licensee can close the counter. The space
around the counter is visited and used by customers to the mall and not
exclusively by the customers of the licensee. In such a case, if the licence is
terminated, the licensor can effectively prevent the licensee from entering
upon his premises and the licensee will have no right to use the counter except
to remove his belongings. In such a licence it may not be necessary for the
licensor to sue the licensee for `possession' or `eviction'. Illustration (D):
A
much narrower version of a licence is where an exhibitor of cinematograph
films, or a theatre owner permits a `customer' or `guest' to visit an
entertainment hall to view and enjoy a movie or a show for the price of a
ticket. The licensee is permitted to occupy a seat in the theatre exclusively
for the period of the show. Or a cloakroom with toilet facilities in a public
building permits a visitor to use the toilet/closet facilities on payment of a
fee. The licensee is permitted to use the toilet/closet exclusively to relieve
himself. In such cases, the licence is for a specific purpose and for a
specific period. The licensee has no other right to enter the premises, nor the
right to continue to occupy the seat in the theatre or use the toilet/closet
continuously. Such a licensee can be forcibly removed by the licensor if the
licensee overstays or continues to occupy the seat beyond the show, or refuses
to leave the cloakroom. It is not necessary for the licensor to sue the
licensee. Illustration (E):
(For
more study: Bharat Petroleum Corp.Ltd vs Chembur Service Station on 2 March,
2011 comprising Judges Mr. R. Ravindran and H.L.Gokale and link: http://indiankanoon.org/doc/761336/)