Introduction
A 'lease' grants an interest in immovable property. In contrast, a 'license' gives a right to do or continue to do, in or upon immovable property, something which would otherwise be unlawful. Understanding the import of the foregoing sentence is essential to understand to decide between a lease or a license in a given scenario. While the definitions of 'lease' and 'license' have stayed the same since 1882, the issues surrounding 'lease' and 'license' continue to be debated, and sometimes the distinction appears blurred in use cases. Over the years, decided cases have discussed various aspects of a 'lease' and 'license'. This write-up dissects the two concepts – 'lease' and 'license' to provide a better insight with respect to the use case.
Lease and License – As Defined in Statute
Section 105 of the Transfer of Property Act 1882 defines Lease as:
'A lease of immovable property is 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.'
Section 52 of the Indian Easements Act 1882 defines a License 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.'
Judgements for Lease and License
Associated Hotels of India Ltd. v. R.N. Kapoor
By virtue of an agreement with the Appellant, the Respondent occupied two rooms in the hotel and was carrying out his business as a hairdresser from the said rooms. During the appeal, the Respondent argued that the rent demanded from him was too high and that a fair rent should be fixed under the Delhi and Ajmer-Merwara Rent Control Act, 1947.
However, the Appellant contended that the Respondent was a licensee and not a tenant as under Section 2 of the Delhi and Ajmer-Merwara Rent Control Act, 1947, the term "premises" did not include a room in the hotel. In this case, the Court discussed the distinction between a lease and a license and observed:
"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 of a price paid or promised. Under s. 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.
Whereas s. 52 of the Indian Easements Act defines a licence thus:
"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 licence." 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."
...
"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 this case, the Court held that the agreement in question did not constitute a license because, under the agreement, the Respondent was put in exclusive possession of the room, unhinged by the control and directions of the appellants.
Pradeep Oil Corporation v. Municipal Corporation of Delhi and Ors
The question before the Court was whether an agreement for the erection of an oil storage tank together with a pump house, chowkidar cabins, switch room, residential rooms and verandah for storing oil decanted from the railway tankers, which bring petroleum products to the site at which they are decanted, would amount to lease or license. In this case, the Court held that:
"A license may be created on deal or parole, and it would be revocable. However, when it is accompanied with a grant, it becomes irrevocable. A mere license does not create interest in the property to which it relates. License may be personal or contractual. A licensee without the grant creates a right in the licensor to enter into a land and enjoy it.
A license, inter alia,
(a) is not assignable;
(b) does not entitle the licensee to sue the stranger in his own name;
(c) it is revocable and
(d) it is determined when the grantor makes subsequent assignment."
The Court reiterated the factors one must consider for ascertaining whether a lease or a license is being created as given in 'Associated Hotels of India Ltd. v. R.N. Kapoor'. It held that the mere use of the word 'licensee' would not be sufficient to hold the grant in question to be a license. Noting that the appellant was granted exclusive possession of the land in question and construction rights, the Court ruled that there was a strong presumption in favour of tenancy, which the appellant failed to rebut. Hence, it was decided by the Court that the agreement in question constituted a lease in favour of the appellant-grantee.
Lease and License – Use Case in Airport Concession Agreements
This article considers a few concession agreements to compare use cases for 'license' and 'lease' relating to immovable property.
Airports:
| Jewar International Airport (Greater Noida) | Delhi and Mumbai International Airport |
| The airport operator has been granted a 'license' for the development of the airport in Greater, and in Delhi and Mumbai, the airport operators were granted leasehold rights with respect to the site for the development of the airport. The operative provisions are given below for ease of comparison. | |
| License | Land Lease Agreement |
| Grant: the Authority hereby grants the concession set to the Concessionaire forth herein, including the exclusive right, licence, and authority to develop, operate and maintain the Airport |
Grant: the exclusive right and authority during the Term to undertake some of the functions of the AAI, being the functions of operation, maintenance, development, design, construction, upgradation, modernisation, finance and management of the Airport. |
| The Concessionaire shall allow free access to the
Site at all times for the authorised representatives of the
Authority, Senior Lenders, and the Independent Engineer, and for
the
persons duly authorised by any Government Instrumentality or Designated GOI Agency to inspect the Airport and to investigate any matter within their authority, and upon reasonable notice, the Concessionaire shall provide to such persons reasonable assistance necessary to carry out their respective duties and functions. |
The Lessee shall, upon receiving reasonable notice in advance, permit the Lessor and its duly authorised representative to enter upon the Demised Premises and the works or structures for the time being constructed or standing thereon to view and inspect the same and, if any defect is found and brought to the notice of the Lessee in writing to, remedy or make good the defect within such reasonable time as may be specified by the Lessor. |
| All property taxes on the Site shall be payable by
the Authority as owner of the Site, provided, however, that any
taxes on property payable by the Authority to the extent arising
out of any development undertaken by the Concessionaire shall be
paid by the Authority in accordance with Applicable Laws and
reimbursed by the Concessionaire to the Authority within a period
of 60 (sixty) days of receiving a notice from the Authority along
with necessary particulars thereof. For the
avoidance of doubt, the Parties agree that stamp duties, if any, due and payable on the grant of license comprising this Agreement shall be paid by the Authority. However, the Authority may require the Concessionaire to pay such stamp duties, which the Authority shall reimburse to the Concessionaire within 15 (fifteen) days of receiving the demand therefor. |
The Lessee shall pay all taxes, levies, import duties, fees (including any license fees) and other charges, dues, assessments or outgoings payable in respect of the Demised Premises or the structures to be constructed thereon or in respect of the materials stored therein which may be levied by any Governmental Authority, local authority or other persons from |
Lease and License – Use Case in Municipal Solid Waste
Management (MSW) Concession Agreements
| Municipal Solid Waste Management Facility, Bhubaneswar (May 29, 2014) | Municipal Solid Waste (MSW) to Energy Processing Facility in Andhra Pradesh | Vadodara Municipal Corporation Concession Agreement (March 1, 2019) |
| The Urban Local Bodies, i.e., Municipalities grant concessions for the management of the MSW. Certain concessions grant a license with respect to the Site being made available for setting up the MSW facility, whereas, in some instances, a Concession has been granted as Lease. | ||
| Leave and license rights
Grant: |
Land lease agreement
Grant: |
Land lease agreement
Grant: |
| The Concessionaire shall allow free access to the site at all times for the authorized representatives and vehicles of the Authority, Senior Lenders, and the Independent Engineer. | The Concessionaire shall allow free access to the site at all times for the authorized representatives and vehicles of the Authority, Senior Lenders, and the Independent Engineer. | The Concessionaire shall allow free access to the site at all times for the authorized representatives and vehicles of the Authority, Senior Lenders, and the Independent Engineer. |
| No mining rights given to the Concessionaire. | No mining rights given to the Concessionaire. | No mining rights given to the Concessionaire. |
| All applicable statutory taxes shall be payable by the Concessionaire and shall not be reimbursed, or payable by the Authority. | All property taxes related to the Land given on lease to the Project Developer shall be payable by the Authority. | All taxes are to be paid by the authority. |
| The Concessionaire shall not sublet the whole or any part of the Site. | The Concessionaire shall not sublet the whole or any part of the Site. | The Concessionaire shall not sublet the whole or any part of the Site. |
The above extracts from the concession agreements arguably point to
a concerning trend of using the nomenclature of 'lease' and
'license' without necessarily adhering to the concepts.
Such use of these terms might lead to unintended legal
consequences.
Conclusion
The statutes have defined the terms' lease' and 'license', making it clear that to ascertain if the rights granted in respect of immovable property are in the nature of a 'lease' or a 'license' will depend on the rights granted. Thus, the nomenclature of the document in question would not be a determining factor.
Examples of 'lease' and 'license' with respect to concessions discussed above are not ideal. Similar rights have been granted in the case of a 'lease' and a 'license'.
The grantor may tend to lean towards a 'license' as opposed to a 'lease' as a 'lease" is looked upon as granting a higher level of rights in favour of the Lessee. In this context, the liability of the Lessee and licensee in respect of the immovable property would arguably be different as the licensee, unlike the Lessee, would not (in most circumstances) enjoy exclusive possession rights. Therefore, due deliberation is required to decide if the grant should be in the nature of a 'license' or a 'lease'.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
