NATIONAL UNIVERSITY OF ADVANCED LEGAL STUDIES

LAW OF PROPERTY

ASSIGNMENT

LEASE AND LICENSE

SUBMITTED BY
ELIZABETH JAMES.1492.
4TH SEM, BA LLB (Hons.)
NUALS

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 LEASE AND LICENSE
INTRODUCTION
Property Law is the most extensive field of law. It includes the aspects of rights, obligation, duties
and claims of the buyer or seller or any other parties involved in the transaction. There are a
number of principles and concepts under Property Law. This includes ownership, possession,
tangible and intangible property, transferability of the properties, who can transfer property, what
type of property can be transferred, inheritance, acquisition and many more. Two critical aspects
under Property Law include Lease and License. If we take a general understanding of both the
terms, a License was described as the consent of the landowner being communicated to another
person for using his land. On the other hand, a Lease can be defined as the transfer of the interest in
a property to another person for a specific period of time. Though a plain reading of these
definitions gives us the impression that both are similar to one another, they are very distinct
concepts under Property Law.
The legal provisions that govern Lease and License under the Indian Legal System are given
under the Transfer of Property Act 1882 and Indian Easement Act 1882. Sections 105 to 117 of the
Transfer of Property Act respectively talks about Lease whereas, Section 52 to 64 of the Easement
Act lays down the regulations for Licensing of a property.

LEASE
The definition of Lease is given in S.105 of the TP Act, and according to that, a Lease is the
transfer of immovable property for a particular time period for a specific consideration. A much
clearer and detailed definition of a lease was given by the Supreme Court in the decision of State
Bank of Hyderabad v. Nehru Palace Hotels, which said, “A lease entails a transfer of right to enjoy
such property in respect of which a lease is made out for a defined time which is expressed or
implied or even in perpetuity in consideration of a price paid or promised to be paid in cash or
anything of value which is to be rendered periodically or on specified occasions” 1. It is imperative
to note that, on the occasion of Lease, there is only a transfer of possession, i.e., mere possessory
rights, and there is no transfer of ownership of the property. Possession only includes mere physical
custody or control over the property or object. While in ownership, the title of the property, along
with the right to alienation, is available to the owner of the property. Ownership gives the de jure
claim over the property; on the other hand, possession only has de facto recognition. There are two

1
State Bank of Hyderabad v. Nehru Palace Hotels, AIR 1991 SC 2130

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parties involved in a contract of Lease of property; the lessor and the lessee. The person who
transfers the property to the other person while holding the ownership is called the lessor, and the
person who enjoys the property for a limited period is called the lessee. The Contract of Lease
requires certain essential elements to complete the requirements of a valid lease agreement under
law. The parties of the Lease must be competent to contract (S.11 of the Indian Contract Act lists
down who is and who is not competent to contract). The Lessor and Lessee cannot be the same
person2, and the Lessor can be the absolute owner of the property or a joint tenant. A person can
create a lease over a property only when he/she enjoys a possessory or titular right to the property 3.
There should be a consideration for the lease of the property to make it a valid lease agreement; the
consideration can be made in the form of rent or premium, money’s worth such as a share in crops,
service or anything of value. The acceptance of the Lessee (the person who leased the property for
enjoyment) to the terms and conditions mentioning the period of the lease, the consideration
involved is very important. The time period for which the property is leased should be expressly
mentioned in the Lease agreement. If the Lease agreement does not provide for a specific time
period, then, as per S. 106 of the Act, the lease can be put to an end at the option of the parties by
issuing a notice to quit. A Lease can be given towards immovable property only, such as houses,
factories, land, buildings, shops Etc. In the case of Sky Land International Pvt. Ltd v. Kavita P
Lalwani4, the Court observed the various types of leases present over an immovable property which
constitutes perpetual lease, term lease, periodic lease and tenant at sufferance. Under a lease
agreement, both the lessor and lessee enjoy certain rights and has to bear liabilities over the
property:

 Lessor: The lessor enjoys the right to collect the consideration as agreed upon in the lease
agreement from the lessee. In case of a breach of the contract by the lessee, the lessor is given,
by law, the right to take back the possession of the property from the lessee. On the termination
of the contract by reaching the maturity period of the lease, the lessor can take back his property
from the lessee. If there is any damage caused by the lessee on the property, the lessor is in total
capacity to recover the damages from the lessee. However, the lessor also has fixed liabilities
towards the lessee as per the law. The lessor is bound to transfer the possessory rights to the
lessee on the commencement of the lease agreement. If there is no transfer of possession, it will
not constitute a lease agreement. Hence the transfer of possession is an essential factor. The

2
Rye v. Rye, 1962 AV 496
3
Lov Raj Kumar v. Daya Shankar, AIR 1986 Del 364(368)
4
Sky Land International Pvt. Ltd v. Kavita P Lalwani, (2012) 191 DLT 549

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 lessor has the liability for disclosing any material defect about the leased property with the
lessee if such a defect cannot be noticed on ordinary supervision by a reasonable man.
 Lessee: The lease agreement is voidable at the option of the lessee in a situation where the
leased property has been destroyed, wholly or partly, by flood, by war or any violent acts of a
mob, making the leased property unfit for the benefit of the lessee. Nevertheless, this is subject
to the fact that if such damage is due to the fault of the lessee, then this privilege will not be
available for the lessee. The lessee has the absolute right to recover the expenses he has incurred
for the repairs in the property by deducting the same from his rent. If there is any failure of
required payment by the lessor to the lessee, then the lessee can deduct the same from his rent or
the lessor himself. The obligation upon the lessee is to leave the property after the tenure of the
lease in the same condition as he received it; the lessee has the right to take away or detach
anything that he may have possibly attached to the leased property. If the lessee has planted any
crop at the leased property, then he or his legal representatives are well with their right to take
the profits and benefits arising out of such crops. The lessee also enjoys the right of sub-leasing
or mortgaging the property by transferring his part of interest over the property to the other
party. The lessee has an obligation to pay the agreed amount of rent or premium within the
prescribed time as per the agreement. As discussed above, the lessee is liable to maintain and
return the property in the same condition as it was given to him at the commencement of the
lease period, and also, he should not attach any permanent attachments to the property without
the consent of the lessor. The lessee is well under the liability to return the leased property to the
lessor on the expiry of the lease term. It is expected by the law from the lessee that he will
maintain and preserve the property and take every reasonable step to prevent any other person
from using the asset or the property.

HOW DOES A LEASE AGREEMENT COME TO END?

Sec. 111 of the Transfer of Property Act list down the ways for the determination of a lease
agreement: -
a)Lapse of time: In this situation, the lease will automatically cease to exist when the prescribed
time limit under the lease agreement comes to an end.
b)Specified Event: When the agreement holds a condition about the cease of the lease on the
occurrence of a specified event about the same, the lease will be terminated.

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 c)Express Surrender: When the lessee himself gives up his interest in the property and thereby
comes to a mutual arrangement with the lessor to put an end to the lease, we can term it as
Express Surrender of the Lessee.
d)Implied Surrender: Implied Surrender of the lease occurs when the lessee enters into a
separate contract with a 3rd party for the lease of the property.
e)Forfeiture: The lease agreement can be terminated when - [i] the lessee performs the breach
of an expressed condition of the contract which will give the right to the lessor to take back
the possession of the property; [ii] the lessee formally declares the abandonment of his
interest over the property; [iii] the lease will stand terminated if the lessee is declared
insolvent by the Court subject to the conditions of the contract.
f) Expiry of Notice to Quit: The notice to quit is a written statement issued by the lessor to the
lessee when the lessor desires to end the lease agreement on the expiry of the term period as
per S. 106 and 111 of the Act. So, on the expiry of the notice to quit given to the lessee, the
lease will also expire. Sec. 113 of the TP Act gives two ways (expressed and implied) for
waiving the notice to quit issued by the lessor.

LICENSE
Under modern law, a license is a validation or authentication given to the acts of the licensee,
which will otherwise be considered unlawful by the owner of the licensed property. The transaction
involved in a Lease agreement is governed by the Indian Easement Act of 1882. License is the
legal right to use another person’s property upon the permission of the owner of the property,
provided that such a right does not include possessory right. According to Sec 52 of the Easement
Act, when a person grants another person(s) to do or continue to do something on the immovable
property of the former, it will become a license. Unlike in a lease agreement, under a license, the
person only has a right to use the land and does not have any possessory rights. A Lease gives the
lessee with possessory rights, but in license, there is only mere authorised enjoyment of the land
without possession. The parties should have a clear intention of their objectives which has to be
carefully drafted so as to avoid a possible uncertainty or doubt of whether the parties want a lease
or license agreement. The agreement has to be clear on the terms as to the purpose of licensing, and
the licensee can only enjoy the right over the land for meeting that specific purpose. It is essential
in a license agreement that the grant of the licensor is involved, which will give the authorization to
the licensee. There shall be a licensing fee involved as a price for granting the privilege. There is no
ownership or possession in a license agreement but a mere personal right/obligation over the land
for a specific purpose. The right vested in the licensee through a license should not be an easement
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or something which transfers an interest in the property to the licensee; hence it is a non-
transferable as well as a non- heritable right of the licensee over the property. A license cannot be
transferred to the agents or servants except in a case where the license is to visit a public
entertainment place. The permission or grant given by the grantor can be drawn out expressly or
impliedly through the conduct of the grantor or else through an agreement. It is very important to
take note of the fact that the grantor or licensor can only grant the license only and only when he
enjoys the lawful interest or title over the property5. If the licensor loses his interest/title over the
property, then the license will lapse. There are two kinds of license: Bare license and License
coupled with a grant or interest on land. A Bare license is a personal permission that is granted to
the licensee without any specific consideration flowing between the parties. Such a license does not
come with any grant of interest over the property, and a bare license can always be revoked by the
will of the grantor at any time -for example, a right to enter or be present upon the land of another
person, generally in the case of a guest at someone’s house. The second type of License is the
license coupled with a grant or interest over land. This license arises in situations where the
licensor gives permission to enter the land for the purpose of removing something from the land,
for example like timber. Such a license added on by a grant of interest allows the licensor to enter
the land and realise his right or interest (profits a prendre) according to the agreement. If a license
agreement gives permission to the licensor to enter the land and cut the timber or construct a
building, then it can be said to be a grant of license along with an interest over the land. The grantor
of the license has the duty to disclose any material facts that he is aware of to the licensee regarding
any defects or any danger evolved over the property and on his failure to do so, if any such defects
or danger cause any injury to the licensee, then he can claim damages from the licensor. A license
can be revoked by the grantor, and Sec. 62 of the Act gives nine such situations where an
agreement of license can be revoked. The revocation can be expressed or implied. When the license
granted involves consideration, and the licensee is ceased of his enjoyment of right over the
property before such enjoyment comes to termination, and without any fault on the part of the
licensee, the licensee can recover compensation from the licensor.

DIFFERENCE BETWEEN LEASE AND LICENSE

The concepts of lease and license differ on the basis of the rights and duties it entitles on the
parties, their terms of termination and many other factors. Lease agreements are governed by the
Transfer of Property Act 1882, while the provisions relating to license is given under the Indian
Easement Act 1882. The primary difference between a lease and license agreements is that a lease
5
Ludhichem Industries v. Ahmed R V Peer Mohammed, AIR 1981 SC 1998

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agreement vests possessory rights on the lessee, but a licensee only gets mere enjoyment right over
a property in a license agreement. There is a transfer of interest over the immovable property in a
lease agreement, but the same is not present in the case of license. In the case of a lease, it is
transferable and inheritable, for example, sub-tenancy of a property by the lessee and on the death
of the tenant/lessee, the interest and right of tenancy can be taken over by the legal heirs; whereas
the permission in a license agreement is non-transferable and not-heritable. A license can be
terminated at the desire of the grantor 6, but a lease agreement will only come to an end according to
the terms and conditions as agreed by the parties in the contract. The death of a lessor/lessee will
not terminate a lease contract as we saw above that the right of tenancy is heritable. On the other
hand, a license will cease to exist with the death of the licensor or licensee. A licensee does not
hold any right or interest in adding any improvements or accessions to the property, while a lessee
has the complete privilege to do the same as he enjoys possessory right over the property. If the
leased property is sold to a third person, such a lease will not cause the termination of the lease
agreement, and the purchaser has to wait till such tenancy is over to get full possessory right of the
property. However, in license, the permission or the enjoyment right discontinues as soon as the
licensed property is sold to a third party. A written/oral agreement is not a necessary legal
requirement in a license contract; however, the same is very necessary under a lease agreement.
The landmark case which laid down the distinction between a license and lease is Associated
Hotels of India Ltd v. R N Kapoor7. The Court held the opinion that there only exists a subtle or
slimline of difference between the concepts of license and lease, and the difference can be
determined on the basis of the facts and circumstances of each case. It was observed in the case that
if the agreement between the parties only permitted a specific use of the land to the other party
while the possession and ownership of the property remain with the owner himself, it will become a
license agreement. It is very crucial to determine the intention of the parties to identify whether
they wanted to deal with a lease or license agreement. To recognize whether a person is a tenant or
licensee, it will require going to the crux of the document; if the terms of the document give
possessory rights and create an interest over the property, then it will be a lease agreement, but if
the agreement gives only permission to use/ benefit from the property, it can be counted as a
license agreement. Courts, by reading the terms of the agreement 8, by observing the conduct of the
parties9, by looking into the environment surrounding the parties, have tried to evolve and interpret
the intentions of the parties whenever a question comes as to whether an agreement is a license or
6
Municipal Corporation of Delhi v. Pradip Oil Corporation and Anr, 100 (2002) DLT 442
7
Associated Hotels of India Ltd v. R N Kapoor, [1960] 1 SCR 368
8
C M Beena v. P N Ramachandra Rao, AIR 2004 SC 2103
9
Achintya Kumar Saha v. Nanee Printers, AIR 2004 SC 1591

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lease. Similarly, in the English case Street v. Mount ford 10, a similar question as to whether the
agreement between the parties was a license or lease agreement was raised. Lord Templeman,
while answering this question, said that in order to constitute a tenancy agreement, then the
occupier of such property should be given exclusive possessory right for a fixed term and a specific
consideration/payment. The Court must refer to the written agreement between the parties in the
light of the circumstances surrounding them to understand and construct the intention of the parties.
However, in a situation where such written agreement is not present/ or there is no clear reflection
of the intention of the parties in the agreement, then the Court has to infer the same from the
conduct of the parties and the rights enjoyed by the same.

To summarise the discussion, the concept of lease and license appears similar at the very
outset, but both are entirely different. The rights and privileges enjoyed by the parties are very
distinct. The most essential fact to be noted is the transfer of rights. There is no transfer of
possession or interest of the property to the licensee, but the lessee enjoys possessory rights over
the property. In both license and lease, the ownership and title of the property will never go to the
other party; it will always remain with the original owner of the property. A lessee enjoys more
privileges and claims than a licensee. To determine whether a contract is a license or lease solely
relies on the intention of the parties, which can be elucidated by throwing light on the terms of the
contract or the conduct of the parties. The case laws and the Statutes have very well established the
laws and regulation for lease and license.

10
Street v. Mount ford [1985] 2 All ER 289

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RESOURCES
 Yamini Rajora, Definition of License and Granting of License, Academike by Lawctopus
(March 23, 2021), https://www.lawctopus.com/academike/definition-license/

 Pallavi Verma, Difference between Lease and License, Legal Service India (March 27,
2021), http://www.legalservicesindia.com/article/1765/Difference-between-lease-and-
licence.html

 Ravi Shankar, Understanding Lease under Transfer of Property Act, 1882, blog. ipleaders
(March 26, 2021), https://blog.ipleaders.in/lease-under-tpa-1882/

 Dhruvi Dharia, License, Law Times Journal (March 24 2020),

http://lawtimesjournal.in/license-is-a-personal-right/

 A. J Waite, Lease and Licenses: The true Distinguishing Test, 50 Modern Law Review 226-
231 (1987), https://www.jstor.org/stable/1096141