The term ‘lease’ and ‘license’ are defined under Section 105 of the Transfer of Property Act and Section 52 of the Indian Easements Act respectively.
Section 105 of Transfer of Property Act:
“Lease Defined. 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 Easements Act, 1882:
“License, Defined. 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.”
Associated Hotels of India Ltd. vs. R.N. Kapoor,  1 SCR 368 (Supreme Court, 1959)
- A lease is a transfer of an interest in land. The interest transferred is called the leasehold interest. The Lesser parts with his right to enjoy the property during the term of the lease and the lessee gets that right to the exclusion of the Lesser.
- In case of license, the legal possession 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.
Mrs. M.N. Clubwala v. Fida Hussain Saheb,  6 SCR 642 (Supreme Court, 1964)
- Whether an agreement creates between the parties the relationship of landlord and tenant or merely that of licensor and licensee the decisive consideration is the intention of the parties. This intention has to be ascertained on a consideration of all the relevant provisions in the agreement.
Chandu Lal vs. Municipal Corporation of Delhi, AIR 1978 Delhi 174 (Delhi High Court, 1978)
- The intention of the parties is the real test for ascertaining the character of a document.
- If a document gives only a right to use the property in a particular way but its possession and control remains with the owner thereof, it will be a license. In such a case the legal possession remains with the owner of the property, the licensee being permitted to make use of the property for a particular purpose.
- Exclusive possession does not militate against the concept of a license, if the circumstances negative any intention to create a tenancy.
- A license only makes an action lawful which without it would be unlawful, but does not transfer any interest in favor of the licensee in respect of the property.
- In the case of a license there is something less than a right to enjoy the property in the licensee, while on the other hand, in the case of a lease, there is a transfer of a right to enjoy the property.
- A bare licensee having no interest in the property cannot maintain an action for its possession.
Rajbir Kaur and Anr. vs. S. Chokesiri and Co. AIR 1988 SC 1845
- The question whether a transaction is a lease or licence “turns on the operative intention of the parties and there is no single, simple litmus test to distinguish one from the other.”
- The grant only for the right to use the premises without being entitled to the exclusive possession thereof operates merely as a licence.
- Exclusive possession itself is not decisive in favour of a lease and against a mere licence, for, even the grant of exclusive possession might turn out to be only a licence and not a lease where the grantor himself has no power to grant the lease.
Delta International Limited vs. Shyam Sundar Ganeriwalla & Another, AIR 1999 SC 2607
- To find out whether the document creates lease or license real test is to find out ‘the intention of the parties’; keeping in mind that in cases where exclusive possession is given, the line between lease and licence is very thin.
Municipal Corporation of Delhi vs. Pradip Oil Corporation and Anr., 100 (2002) DLT 442 (Delhi High Court, 2002)
- A mere license does not create interest in the property to which it relates. Lease on the other hand, would amount to transfer of property.
- 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.
- By reason of a license, no estate or interest in the property is created.
- 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.
Madhu Behal and Anr. vs. Rishi Kumar and Anr., (2009) 3 PLR 628 (Punjab & Haryana High Court, 2009)
- It is never a nomenclature in the document that governs the decision as to whether a document as a ‘lease’ or a ‘licence’.
- The essential feature that distinguishes a lease from licence is always a transfer of interest in the demised property in a transaction of lease while a licensee does not involve any such transfer of interest.
- The lease is heritable while license is personal to the grantee.
- The legal possession of the property is inevitably transferred to a tenant under lease while in a transaction of license the legal possession continues with the licensee and the licensee has a mere right of user of the premises in a particular fashion mentioned under the document.
Summary: Lease vs. License – Differences
|transfer of an interest
||mere permission to do something without any transfer of interest
|both transferable and heritable
||neither transferable nor heritable
|Comes to an end only in accordance with the terms and conditions stipulated in the contract
||can be withdrawn at any time at the pleasure of the grantor
|entitled to any improvement or accession made to the property
||Not so entitled
|unaffected by the transfer of the property by sale in favour of third party and continues
||comes to an end immediately if the property is sold to a third party
|lessee has the right to protect the possession in his own right
||licensee cannot defend his possession in his own name as he does not have any propriety right in the property
|does not come to an end either by death of the grantor or the grantee
||comes to an end with the death of either grantor or the grantee