The dif­fer­ence be­tween lease and li­cense

In one form of trans­ac­tion the li­censee will be al­lowed to use the prop­erty even though the pos­ses­sion will re­main with the owner

HT Estates - - Front Page - Su­nil Tyagi

Giv­ing prop­erty on lease or li­cense can be an at­trac­tive source of ad­di­tional in­come. How­ever, many per­sons are not fa­mil­iar with the dif­fer­ence be­tween a leased prop­erty and a li­censed one. Though there is a marked dis­tinc­tion be­tween a lease and a li­cense, iden­ti­fy­ing whether a trans­ac­tion is a lease or li­cense of prop­erty might not al­ways be clear.

The courts have at­tempted to lay down cer­tain prin­ci­ples and propo­si­tions for as­cer­tain­ing whether a trans­ac­tion amounts to a lease or a li­cense. Un­like li­cens­ing, lease of prop­erty is con­sid­ered to be a mode of trans­fer of im­mov­able prop­erty un­der the Trans­fer of Prop­erty Act. In a lease, the lessee is en­ti­tled to be put in pos­ses­sion of the prop­erty and is en­ti­tled to en­joy­ment of the prop­erty to the ex­clu­sion of the les­sor. Thus, a lease is a trans­fer of an in­ter­est in the im­mov­able prop­erty. How­ever, in a li­cense the pos­ses­sion of the prop­erty re­mains with the owner, but the li­censee is per­mit­ted to use the premises for a par­tic­u­lar pur­pose. Thus, no in­ter­est in the prop­erty is cre­ated in favour of the li­censee and the li­censee can use the prop­erty only in the man­ner per­mit­ted by the li­cen­sor. Broadly put, if in a trans­ac­tion the per­son has only re­stricted or lim­ited rights to use the prop­erty while it re­mains in the owner’s pos­ses­sion and con­trol, the trans­ac­tion is con­sid­ered as a li­cense. In such a case a party get­ting ex­clu­sive pos­ses­sion of the prop­erty, prima fa­cie, will be con­sid­ered a ten­ant; but cir­cum­stances may be es­tab­lished which might negate in­ten­tion to cre­ate a lease.

The fol­low­ing are some broad in­di­ca­tors of the kind of transactions gen­er­ally held by the courts to be lease or li­cense. In some cases, where the lessee has been granted the right to ex­clu­sive pos­ses­sion of the prop­erty, the in­stru­ment in ques­tion has been held to be a lease deed by the courts. On the other hand, where the de­fen­dant has been given ex­clu­sive pos­ses­sion of the dis­puted premises for a par­tic­u­lar pur­pose but has not been given the per­mis­sion to sub-lease the prop­erty, the trans­ac­tion is held to be a li­cense. In­ter­est­ingly, there have been cases in which the keys of the premises have been taken by the li­cen­sor in the morn­ing and re­turned in the evening. This trans­ac­tion has been held by the court to be a li­cense.

In or­der to min­imise dis­putes, the par­ties should make it clear at the out­set that the trans­ac­tion is lease or li­cense. The lease deed or li­cense deed should clearly set out the terms with re­spect to rent/li­cense fee, which party is en­ti­tled to ex­clu­sive pos­ses­sion of the prop­erty, the terms of us­age of the prop­erty, etc. Sim­ply nam­ing a doc­u­ment a ‘li­cense deed’ does not make the trans­ac­tion a li­cense, if the na­ture of the trans­ac­tion is ac­tu­ally a lease. It is wellset­tled that the nomen­cla­ture of the doc­u­ment is im­ma­te­rial in de­ter­min­ing the na­ture of the trans­ac­tion. To gauge the true na­ture of the trans­ac­tion, courts seek to as­cer­tain the real in­ten­tion of the par­ties – whether they in­tended to cre­ate a lease or a li­cence. Courts take into ac­count the lan­guage of the doc­u­ment and the facts and cir­cum­stances, ir­re­spec­tive of the name of the doc­u­ment ex­e­cuted by the Par­ties.

THINKSTOCK

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