Difference Between Lease and Licence

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Introduction

When it comes to managing property, whether for residential, commercial, or other uses and making the most out of it, two common contractual arrangements often come into play: licences and leases. Both terms often appear in legal documents and conversations related to property rental, but they serve different purposes and come with distinct legal implications. Imagine Mr. O, a property owner, has a prime commercial space in a bustling business district. Due to his busy schedule and lack of expertise in managing the property, Mr. O is looking for ways to make productive use of this valuable asset without compromising his ownership. He is considering two potential arrangements: a lease and a licence. Sometimes people get confused over the two terms therefore there is a need to understand the differences between a licence agreement and a lease agreement. Overall, the distinction between these two terms is crucial for anyone involved in property transactions, whether as a landlord, tenant, or licensee. In India, the concepts of "lease" and "licence" are governed by distinct legal frameworks, each serving different purposes and having unique implications for property usage. In this article, we will explore the potential differences between lease and licence.

Lease

In India, a lease is primarily governed by the Transfer of Property Act, 1882 (TPA). Section 105 of the Transfer of Property Act, 1882 defines, ‘lease’. It states that “A lease of immoveable 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.

Lessor, lessee, premium, and rent defined.—

The transferor is called the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service or other thing to be so rendered is called the rent.” In short, it is a legal agreement that grants a tenant exclusive possession of a property for a specified period, typically in exchange for rent, and a legally binding contract that grants a tenant the right to occupy and use the property. 

Licence

The term ‘licence’ is defined under Section 52 of the Easements Act, 1882. It states that “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.” It is a permission or authorization granted by the property owner to another party, allowing them to use the property for a specific purpose. 

What is the Difference between lease and licence?

Some of the major differences between the both are discussed as follows:

Possession

• Lease: Provides Exclusive Possession of the Property.
• Licence: Only grants permission to use the property without exclusive control.

Transfer of Interest

• Lease: It creates a legal interest in the property and confers rights under property law.
• Licence: It does not create any legal interest or rights in the property.

Transferable and Heritable

• Lease: Both transferable and heritable.
• Licence: Neither transferable nor heritable.

Revocability

• Lease: It cannot be revoked by the lessor unless there is a clause mentioned in the lease agreement or ordered by the court.
• Licence: Can be canceled or revoked anytime by the licensor.

Term

• Lease: Long-term and fixed in duration.
• Licence: Short-term and flexible.

In case of Sale of Property or Death of the Party/Parties

• Lease: Not Affected, does not come to an end.
• Licence: It comes to an end if the property is sold to a third property or in case of death of the party/parties.

Related Case Laws

• Khalil Ahmed Bashir Ahmed vs. Tufelhussein Samasbhai Sarangpurwala (November 13, 1987)
• Rajbir Kaur vs. M/s. S. Chokosiri and Co. (August 09, 1988)
• Delta International Limited vs. Shyam Sundar Ganeriwalla (April 09, 1999)
• Achintya Kumar Saha vs. Nanee Printers (January 30, 2004)
• Bharat Petroleum Corp. Ltd. v. Chembur Service Station (March 02, 2011) 

Conclusion

Understanding the differences between a lease and a licence is essential for navigating property transactions in India. A lease provides exclusive possession and a legal interest in the property, suitable for longer-term arrangements. In contrast, a licence grants permission for temporary, non-exclusive use, without creating any legal interest. Whether you are entering into a property agreement as a landlord, tenant, licensor, or licensee, clarity on these distinctions will help ensure that your arrangement aligns with your needs and expectations, and complies with Indian legal standards.