Section 105 of the Transfer of Property Act, 1882 define 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 a specified occasions to transferor by the transferee , who accept the transfer of such terms.

The Transfer of Property Act, 1882 does not define: “Immovable Property”, it has given an exclusive definition that,” Immovable Property”, does not include standing timber, growing crops or grass.

The Registration Act, 1908 defines “Immovable Property” as follows: “ immovable property shall include land, buildings, hereditary allowances, rights to way, lights ,ferries ,fisheries or any other benefit to arise out of land or things attached to the earth or permanently fastened to anything which is attached to the earth but not  standing timer, growing crops or grass.”

leasing contracts in folder

The General Clauses Act, 1897 defines as follows; “immovable property”, shall include land, benefit arise out of land and things attached to earth or permanently fastened to anything attached to the earth.”

1. LEASE OF AN IMMOVABLE PROPERTY;

1. “Lease” of an immovable property. It means transfer of a right to enjoy such property made for a certain time (express or implied), or in perpetuity, in consideration of a;

a. Price paid or promised or;

b. Money;

c. A share of crops;

d. Service or;

e. Any other thing a value.

2. To be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms.

Note: Lease is a partial transfer of right in a property by transferor to transferee, to enjoy subject property for certain period to time on payment of periodically consideration.

Essential Elements of a Lease; are

  • the parties to lease -lessor & lessee;
  • the subject matter of lease- a immovable property;
  • there must be transfer of some right;
  • duration of lease;
  • consideration of lease- lease rent/premium;
  • acceptance of transfer of right by the lessee;
  • lease must be in accordance with provisions of Section 107 of the Properties Act, 1882.

Supreme Court has also pointed some essential conditions of lease:

  • there should be a transfer of a right to enjoy an immovable property;
  • such transfer may be for a certain term or in perpetuity;
  • the transfer should be in consideration of a premium or rent;
  • the transfer should be a bilateral transaction;
  • the transferee accepting the terms of transfer.

2. AGREEMENT TO LEASE OF AN IMMOVABLE PROPERTY;

The “Agreement” indicates there is no transfer of possession or right of enjoyment with immediate effect. An Agreement to Lease is a contract under which a person promises to grant lease on a future date. In Agreement to Lease the parties bound by the agreement for the grant of lease to become effective in future. It is executory contract just like a contract to sell, an agreement to let creates only personal obligation which may be enforced and accompanied by delivery of possession.

3. LETS’ CONSIDER DIFFERENCES;

Sr. No. Lease Agreement to Lease
1 A lease creates a right in rem (right in rem means: right not to have your land, buildings, or other possessions interfered with; the right not to be caused physical harm by another person A right in rem is available against the world at large.) An Agreement to Lease does not create right in rem.
2 A lease operates as a transfer of right to enjoyment of property with immediate effect. It does not transfer right of enjoyment of property with immediate effect.
3 A lease establishes the relationship of landlord and tenant between parties. It does not create such relationship.

4. LICENSE

ACAMEMIKE: defines “A licence is a personal right granted to a person to do something upon immovable property of the grantor and does not amount to the creation of interest in the property itself. It is purely a permissive right and is personal to the grantee. It creates no duties and obligations upon the persons making the grant and is, therefore, revocable except in certain circumstances expressly provided for in the Indian Easements act, 1882 itself.”

5. Licence is defined in section 52 of the Indian Easements Act, 1882 as under:

“52. `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.”

The definition of licence makes it clear that a licence granted by the owner enables a licensee a right to do or continue to do certain specified things in or upon an immovable property.

In Associated Hotels of India Ltd. v. R.N. Kapoor (AIR 1959 SC 1262) Supreme 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 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.”

Note: from above details we can say that Lease is the transfer of right of enjoyment of an immovable property whereas the license is the right of a person to use the land or another while it remains in the possession of another.

6. LETS’ CONSIDER DIFFERENCES;

Sr. No. Lease License
1 Should be according to the provisions of Section 105 of the Transfer of Property Act, 1882. Governed by provisions of Section 52 of the Easement Act, 1882.
2 There is immediate transfer of right to enjoy immovable property with immediate effect. There is no transfer of right. But licensee acquired right to occupy the property.
3 If during the lease-period, any accretion is made to the property leased, such accretion is deemed to be comprised in the lease. Licensee acquired not right in property.
4 A lease is transferable and heritable. A license is neither transferable or heritable.
5 Lessee gets a proprietary right in respect of the land; this right is called demise. Licensee gets only a personal right of using the land of another person. The right of license is in the nature of a permission to do or continue to do certain things on the licensor’s land.
6 Lease cannot be revoked before expiry of the term or without breach of any express condition by the lessee. License is generally revocable subject to certain conditions.
7 A lease cannot revoke at pleasure. A license can be revoked at pleasure unless it is coupled with a transfer of property and such transfer is in force or the licensee, acting upon the license has executed a work of a permanent character and incurred expenses in the execution.
8 A lessee is entitled to a notice to quit leased property. A licensee is not entitled to such notice.
9 A lessee is entitled to maintain a suit on his own name against a trespasser. A licensee is not entitled to maintain a suit.
10 A lessee’s interest is not liable to be defeated by a subsequent transfer of the leased property. A license is determined when the grantor makes an assignment of the subject matter of the license.
11 Death of either party does not affect a lease. Whereas is such circumstances as license shall be terminated.
12 In lease amounts to transfer of property. In license no estate or interest in property is created.

Conclusion:  Whether a transaction is a lease or license, the dominant test is the intention of the parties. In license the licensee is entitled to use the premises having not right and interest therein. But in lease agreement, the lease has right to enjoy the property and property to the extent transferred to the Lessee.

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Some judgements of counts have been taken as it is available. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, author assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws and take appropriate advice of consultants. The user of the information agrees that the information is not professional advice and is subject to change without notice. Author assume no responsibility for the consequences of the use of such information.

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