Difference between Lease/Rent Agreement & Leave & License Agreement

Difference between Lease/Rent Agreement &  Leave & License Agreement

·         What is a License Agreement?

·         What is a Lease?

·         Difference between Leave & License and Lease Agreement

·         How to distinguish Lease from License or vice-versa


1.     What is a License Agreement?

A "license", as described by Black's Law Dictionary, is the right to perform a certain act or set of acts on someone else's property without owning any estate therein. According to the Oxford Dictionary of Law, under a License it is permissible to enter or occupy someone else's property for a predetermined reason.

While various courts have elaborated on the legal concept from time to time, the basis of the leave and license agreement can be found in the Indian Easements Act of 1882. Section 52 of the Indian Easements Act states, "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 grantor's immovable property, 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."

2.     What is a Lease?

According to Black's Law Dictionary, a "Lease" is a conveyance of lands or tenements to a person for life, for a certain period of time, or at will in exchange for rent or another kind of payment. It is described as "a contract in which a property owner provides another person exclusive ownership of the property for an established duration, in exchange for rent and occasionally for a capital payment known as a premium," according to the Oxford Dictionary of Law.

Lease has been defined in Section 105 of the Transfer of Property Act, 1882 which states, “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”.


3.      Difference between Leave & License and Lease Agreement?

The distinction between a license and a lease is that a lease is not a mere contract but envisages and transfers an interest in the demised property by creating a right in favor of lessee in rem. License would only make an action lawful which without it would be unlawful but not transfer any interest in favor of licensee in respect of the property. This has been observed in Mangal Amusement Park (P) Ltd v. State of Madhya Pradesh AIR 2012 SC 3325.

As was also observed in C.M. Beena v. P.N. Ramachandra Rao, (2004) 3 SCC 595, “Generally speaking, the difference between a “lease” and “licence” is to be determined by finding out the real intention of the parties as decipherable from a complete reading of the document, if any, executed between the parties and the surrounding circumstances. 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

Differences between Lease and License are enumerated herein:



A transfer of Interest in a property is created

No transfer of interest is created

When property is given out on a lease, the lessee is also assumed to have legal possession of the property. 

While executing a license, no possession is given out to the Licensee.

Lease is transferable and heritable i.e. a property can be sub-leased or inherited by legal heirs of lessee.

A License is neither transferable nor inheritable.


4.      How to distinguish Lease from License or vice-versa?

The basis for determining whether the agreement that has been made between the parties is a lease or not is the real intention of the parties. in C.M. Beena v. P.N. Ramachandra Rao (Supra) the Supreme Court stated that "the difference between a lease and a licence is to be determined by finding out the real intention of the parties as decipherable from a complete reading of the document, if any, executed between the parties and the surrounding circumstances" . The court further noted that it is important to consider the actions of the parties both before and after the establishment of a relationship in order to determine their intentions. The Hon’ble Apex court has held similar views in various consequent judgments as well.

This concept was first discussed in Associated Hotels of India Ltd. v. R.N. Kapoor, (1960) 1 SCR 368 wherein it was observed in Para 28 that, “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 Board of Revenue v. A.M. Ansari, (1976) 3 SCC 512, “A close study of the above definitions shows that it is the creation of an interest in immovable property or a right to possess it that distinguishes a lease from a licence. A licence does not create an interest in the property to which it relates while a lease does. There is in other words transfer of a right to enjoy the property in case of a lease.”

As to whether a particular transaction creates a lease or a licence is always a question of intention of the parties which is to be inferred from the circumstances of each case. For the purpose of deciding whether a particular grant amounts to a lease or a licence, it is essential, therefore, to look to the substance and essence of the agreement and not to its form



In light of the aforementioned considerations, it may be concluded that a lease document is far more permanent, perpetual, and transferable. Both an ownership title and an interest in the immovable property are created in the lessee's favour. A leave and license agreement, on the other hand, is more frequently used when rent is paid in exchange for the right to use the property for a certain purpose and no rights are created in the licensee's favour. Also, as held by the Hon’ble Supreme Court in a catena of decisions, it is ultimately the intent of the parties and the subsequent agreement which determines whether the said agreement is a lease or license. 

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