What are ingredients of Lease? What are the basic distinction between lease and licence? (Asked in UPHJS 2007)
Ingredients of Lease
(1) two parties- lessor and lessee
(2) immovable property is subject matter
(3) transfer of right
(4) consideration – promised or paid.
Lease cannot be in favour of person incompetent o contract but lease may be made on behalf of incompetent person for 5 years or upto 18 years of his age.
Unregistered lease is not valid. (see Arif Vs Jadunath)
There is a marked distinction between a lease and a licence. Section 105 of the Transfer of Property Act defines a lease of immoveable 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 s. 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.
Sec 52 of the Indian Easements Act defines licence as” 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 immoveable 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."
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.
“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 n 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 infalliable and if a person was given exclusive possession of a premises, it would conclusively establish that he was a lessee.” (see Associated Hotels Of India Ltd Vs R N Kapoor AIR 1959 SC 1262)
But there was a change and Lord Denning in Errington v. Errington ([1952] 1 All E.R. 149) reviewing the case law on the subject summarizes the result of his discussion as "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 was taken as well-established by SUBBA RAO J in Associated Hotels Of India Ltd Vs R N Kapoor AIR 1959 SC 1262:
“(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.”
It was held in this case that a saloon in Hotel is not a licence but a lease as, the only thing that can be said is that a lodger in a hotel building can step into the saloon to have a shave or haircut. So too, he can do so in the case of a saloon in the neighbouring house. The tenant is not bound by the contract to give any preferential treatment to the lodger.
Difference between lease and licence:
1. Lease is a transfer of interest, but licence is not.
2. Revocation of lease can take place in any of the ways provided by the law while licence is revocable at the pleasure.
3. Lease can be assigned, but a licence cannot and it is personal right.
4. An action against the trespasser can be maintained by the lessee but not by licensee.
5. Lessee is required to have exclusive possession of the property for its proper enjoyment. But, a licence is created without transfer of possession.
6. Lease is heritable in nature. Licence is not heritable because the right extinguishes with the death of licensee.
7. Consideration is must in case of lease. But word consideration is absent in licence.
In Mrs M N Clubwala And Anr Vs Fida Hussain Saheb And Ors AIR 1965 SC 610 it was observed that “while it is true that each stall-holder is entitled to the exclusive use of his stall from day to day it is clear that he has no right to use it as and when he chooses to do so or to sleep in the stall during the night after closure of the market or enter the stall during the night after 11-00 P.m. at his pleasure. He can use it only during a stated period every day and subject to several conditions. These circumstances, coupled with the fact that the responsibility for cleaning the stalls, disinfecting them and of closing the Market in which the stalls are situate is placed by the Act, the regulations made thereunder and the licence issued to the landlords, is on the landlords, would indicate that the legal possession of the stalls must also be deemed to have been with the landlords and not with the stall-holders. The right which the stall-holders had was to the exclusive use of the stalls during stated hours and nothing more.”
In Bharat Petroleum Corp Ltd Vs Chembur Service Station on 2 March, 2011, Hon’ble Supreme Court of India gave several illustrations of licence in para 20, while saying that, “Licences can be of different kinds. Some licences with reference to use of immovable property may be very wide, virtually bordering upon leases. Some licences can be very very narrow, giving a mere right enabling a person to visit a premises - say a museum or a lecture hall or an exhibition. In between are the licences of different hues and degrees. All licences can not be treated on the same footing. We may refer to some illustrations to highlight the difference.
Illustration (A):
An owner of a property enters into a lease thereof, but to avoid the rigours of Rent Control legislation, calls it as a licence agreement. Though such a lease is captioned as a `licence agreement', the terms thereof show that it is in essence, a lease. Such a licence agreement which puts the licensee in exclusive possession of the premises, untrammelled by any control, and free from any directions from the licensor (instead of conferring only a bare personal privilege to use the premises) will be a lease, even if described as licence. For example, if the exclusive possession of an apartment or a flat or a shop is delivered by the owner for a monthly consideration without retaining any manner of control, it will be a lease irrespective of whether the arrangement is called by the owner as a `lease', or `licence'. As far as the person who is let into exclusive possession, the quality and nature of his rights in respect of the premises will be that of a lease or a tenant and not that of a licensee. Obviously such a `licensee' cannot be `evicted' or `dispossessed' or prevented from using the premises without initiating legal action in accordance with law.
Illustration (B):
The owner of a land constructs a shopping mall with hundred shops. The owner of the mall earmarks different shops for different purposes, that is sale of different types of goods/merchandise, that is shops for exclusive clothing for men, shops for exclusive clothing for women, shops for hosieries, shops for watches, shops for cameras, shops for shoes, shops for cosmetics and perfumes, shops for watches, shops for sports goods, shops for electronic goods, shops for books, shops for snacks and drinks etc. The mall owner grants licences in regard to individual shops to licensees to carry on the identified or earmarked business. The licensor controls the hours of business, regulates the maintenance, manner of display, cleanliness in the shops. The ingress and egress to the shop licensed to the licensee is through the corridors in the mall leading from three or four common access points/entrances which are under the control of the licensor. The licensee is however entitled to stock the shop with brands of his choice though he does not have the right to change the earmarked purpose, entertain any clientele or customers of his choice and fix the prices/terms for his goods. He can also lock the shop at the end of the business hours and open it whenever he wants. No one else can trade in that shop. In such a case, in spite of the restrictions, controls and directions of the licensor, and in spite of the grant being described as licence, the transaction will be a lease or tenancy and the licensee cannot be dispossessed or evicted except by recourse of law.
Illustration (C):
In a shopping complex or in a mall the owner gives a licence to a person to use a counter to sell his goods in consideration of a fee. The access is controlled by the licensor and there is no exclusive use of any specific space by the licensee. At the end of the day, the licensee can close the counter. The space around the counter is visited and used by customers to the mall and not exclusively by the customers of the licensee. In such a case, if the licence is terminated, the licensor can effectively prevent the licensee from entering upon his premises and the licensee will have no right to use the counter except to remove his belongings. In such a licence it may not be necessary for the licensor to sue the licensee for `possession' or `eviction'.
Illustration (D):
A much narrower version of a licence is where an exhibitor of cinematograph films, or a theatre owner permits a `customer' or `guest' to visit an entertainment hall to view and enjoy a movie or a show for the price of a ticket. The licensee is permitted to occupy a seat in the theatre exclusively for the period of the show. Or a cloakroom with toilet facilities in a public building permits a visitor to use the toilet/closet facilities on payment of a fee. The licensee is permitted to use the toilet/closet exclusively to relieve himself. In such cases, the licence is for a specific purpose and for a specific period. The licensee has no other right to enter the premises, nor the right to continue to occupy the seat in the theatre or use the toilet/closet continuously. Such a licensee can be forcibly removed by the licensor if the licensee overstays or continues to occupy the seat beyond the show, or refuses to leave the cloakroom. It is not necessary for the licensor to sue the licensee.
Illustration (E):
A reputed manufacturer of textiles owns several retail outlets in different parts of the country. The outlets are housed in premises owned by the manufacturer or premises taken by it on lease. The manufacturer employs a sales manager on salary for each outlet to manage the outlet and sell its products and entrust him with the keys of the premises, so that he can open the outlet for business and close the outlet at the end of the day. Or the manufacturer, instead of engaging a sales manager, appoints an agent who is permitted to sell only the products of the manufacturer in the retail outlet, and receive a commission on the turnover of sales. The manufacturer stipulates the manner of sale, and the terms of sale including the prices at which the goods are sold. The manufacturer also checks the products sold periodically to ensure that only its products (and not fakes) are sold. The manufacturer also reserves the right to terminate the services of the sales manager/agent. In such cases on termination of the services of the employee/agent, the manufacturer can physically prevent the sales manager/agent from entering the retail outlet and make alternative arrangements for running the outlet. There is no need to approach a court to `evict' the sales manager/agent.”
It was also held by Hon’ble R V Raveendran, J in Bharat Petroleum that, “To reiterate, the permission granted to the respondent by the appellant to enter the outlet premises is for the purposes of using the equipments/facilities belonging to the appellant installed in the outlet, to sell the products of the appellant. Under the licence (DPSL) agreement, the respondent cannot enter the premises for any purpose other than for using the facilities or equipment installed by the appellant or for any purpose other than selling the petroleum products of the appellant. Therefore the licence to enter the premises and the licence to use the facilities/equipment is incidental to the licence to sell the products of the appellant as a licensed dealer, distributor or agent. In this case the premises is a land held on leasehold by the appellant wherein it has constructed/erected certain structures and housed certain facilities/ equipment. The premises is known as appellant's `company owned retail outlet'. The goods/products sold belong to the appellant. If the appellant decides to stop the supply of its goods for sale in the said outlet, automatically the licence granted to the respondent to enter premises and use the facilities become redundant, invalid and infructuous. There is no licence in favour of the licensee to use the premises or use the facilities independent of the licence to sell the goods of the appellant.
Ingredients of Lease
(1) two parties- lessor and lessee
(2) immovable property is subject matter
(3) transfer of right
(4) consideration – promised or paid.
Lease cannot be in favour of person incompetent o contract but lease may be made on behalf of incompetent person for 5 years or upto 18 years of his age.
Unregistered lease is not valid. (see Arif Vs Jadunath)
There is a marked distinction between a lease and a licence. Section 105 of the Transfer of Property Act defines a lease of immoveable 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 s. 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.
Sec 52 of the Indian Easements Act defines licence as” 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 immoveable 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."
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.
“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 n 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 infalliable and if a person was given exclusive possession of a premises, it would conclusively establish that he was a lessee.” (see Associated Hotels Of India Ltd Vs R N Kapoor AIR 1959 SC 1262)
But there was a change and Lord Denning in Errington v. Errington ([1952] 1 All E.R. 149) reviewing the case law on the subject summarizes the result of his discussion as "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 was taken as well-established by SUBBA RAO J in Associated Hotels Of India Ltd Vs R N Kapoor AIR 1959 SC 1262:
“(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.”
It was held in this case that a saloon in Hotel is not a licence but a lease as, the only thing that can be said is that a lodger in a hotel building can step into the saloon to have a shave or haircut. So too, he can do so in the case of a saloon in the neighbouring house. The tenant is not bound by the contract to give any preferential treatment to the lodger.
Difference between lease and licence:
1. Lease is a transfer of interest, but licence is not.
2. Revocation of lease can take place in any of the ways provided by the law while licence is revocable at the pleasure.
3. Lease can be assigned, but a licence cannot and it is personal right.
4. An action against the trespasser can be maintained by the lessee but not by licensee.
5. Lessee is required to have exclusive possession of the property for its proper enjoyment. But, a licence is created without transfer of possession.
6. Lease is heritable in nature. Licence is not heritable because the right extinguishes with the death of licensee.
7. Consideration is must in case of lease. But word consideration is absent in licence.
In Mrs M N Clubwala And Anr Vs Fida Hussain Saheb And Ors AIR 1965 SC 610 it was observed that “while it is true that each stall-holder is entitled to the exclusive use of his stall from day to day it is clear that he has no right to use it as and when he chooses to do so or to sleep in the stall during the night after closure of the market or enter the stall during the night after 11-00 P.m. at his pleasure. He can use it only during a stated period every day and subject to several conditions. These circumstances, coupled with the fact that the responsibility for cleaning the stalls, disinfecting them and of closing the Market in which the stalls are situate is placed by the Act, the regulations made thereunder and the licence issued to the landlords, is on the landlords, would indicate that the legal possession of the stalls must also be deemed to have been with the landlords and not with the stall-holders. The right which the stall-holders had was to the exclusive use of the stalls during stated hours and nothing more.”
In Bharat Petroleum Corp Ltd Vs Chembur Service Station on 2 March, 2011, Hon’ble Supreme Court of India gave several illustrations of licence in para 20, while saying that, “Licences can be of different kinds. Some licences with reference to use of immovable property may be very wide, virtually bordering upon leases. Some licences can be very very narrow, giving a mere right enabling a person to visit a premises - say a museum or a lecture hall or an exhibition. In between are the licences of different hues and degrees. All licences can not be treated on the same footing. We may refer to some illustrations to highlight the difference.
Illustration (A):
An owner of a property enters into a lease thereof, but to avoid the rigours of Rent Control legislation, calls it as a licence agreement. Though such a lease is captioned as a `licence agreement', the terms thereof show that it is in essence, a lease. Such a licence agreement which puts the licensee in exclusive possession of the premises, untrammelled by any control, and free from any directions from the licensor (instead of conferring only a bare personal privilege to use the premises) will be a lease, even if described as licence. For example, if the exclusive possession of an apartment or a flat or a shop is delivered by the owner for a monthly consideration without retaining any manner of control, it will be a lease irrespective of whether the arrangement is called by the owner as a `lease', or `licence'. As far as the person who is let into exclusive possession, the quality and nature of his rights in respect of the premises will be that of a lease or a tenant and not that of a licensee. Obviously such a `licensee' cannot be `evicted' or `dispossessed' or prevented from using the premises without initiating legal action in accordance with law.
Illustration (B):
The owner of a land constructs a shopping mall with hundred shops. The owner of the mall earmarks different shops for different purposes, that is sale of different types of goods/merchandise, that is shops for exclusive clothing for men, shops for exclusive clothing for women, shops for hosieries, shops for watches, shops for cameras, shops for shoes, shops for cosmetics and perfumes, shops for watches, shops for sports goods, shops for electronic goods, shops for books, shops for snacks and drinks etc. The mall owner grants licences in regard to individual shops to licensees to carry on the identified or earmarked business. The licensor controls the hours of business, regulates the maintenance, manner of display, cleanliness in the shops. The ingress and egress to the shop licensed to the licensee is through the corridors in the mall leading from three or four common access points/entrances which are under the control of the licensor. The licensee is however entitled to stock the shop with brands of his choice though he does not have the right to change the earmarked purpose, entertain any clientele or customers of his choice and fix the prices/terms for his goods. He can also lock the shop at the end of the business hours and open it whenever he wants. No one else can trade in that shop. In such a case, in spite of the restrictions, controls and directions of the licensor, and in spite of the grant being described as licence, the transaction will be a lease or tenancy and the licensee cannot be dispossessed or evicted except by recourse of law.
Illustration (C):
In a shopping complex or in a mall the owner gives a licence to a person to use a counter to sell his goods in consideration of a fee. The access is controlled by the licensor and there is no exclusive use of any specific space by the licensee. At the end of the day, the licensee can close the counter. The space around the counter is visited and used by customers to the mall and not exclusively by the customers of the licensee. In such a case, if the licence is terminated, the licensor can effectively prevent the licensee from entering upon his premises and the licensee will have no right to use the counter except to remove his belongings. In such a licence it may not be necessary for the licensor to sue the licensee for `possession' or `eviction'.
Illustration (D):
A much narrower version of a licence is where an exhibitor of cinematograph films, or a theatre owner permits a `customer' or `guest' to visit an entertainment hall to view and enjoy a movie or a show for the price of a ticket. The licensee is permitted to occupy a seat in the theatre exclusively for the period of the show. Or a cloakroom with toilet facilities in a public building permits a visitor to use the toilet/closet facilities on payment of a fee. The licensee is permitted to use the toilet/closet exclusively to relieve himself. In such cases, the licence is for a specific purpose and for a specific period. The licensee has no other right to enter the premises, nor the right to continue to occupy the seat in the theatre or use the toilet/closet continuously. Such a licensee can be forcibly removed by the licensor if the licensee overstays or continues to occupy the seat beyond the show, or refuses to leave the cloakroom. It is not necessary for the licensor to sue the licensee.
Illustration (E):
A reputed manufacturer of textiles owns several retail outlets in different parts of the country. The outlets are housed in premises owned by the manufacturer or premises taken by it on lease. The manufacturer employs a sales manager on salary for each outlet to manage the outlet and sell its products and entrust him with the keys of the premises, so that he can open the outlet for business and close the outlet at the end of the day. Or the manufacturer, instead of engaging a sales manager, appoints an agent who is permitted to sell only the products of the manufacturer in the retail outlet, and receive a commission on the turnover of sales. The manufacturer stipulates the manner of sale, and the terms of sale including the prices at which the goods are sold. The manufacturer also checks the products sold periodically to ensure that only its products (and not fakes) are sold. The manufacturer also reserves the right to terminate the services of the sales manager/agent. In such cases on termination of the services of the employee/agent, the manufacturer can physically prevent the sales manager/agent from entering the retail outlet and make alternative arrangements for running the outlet. There is no need to approach a court to `evict' the sales manager/agent.”
It was also held by Hon’ble R V Raveendran, J in Bharat Petroleum that, “To reiterate, the permission granted to the respondent by the appellant to enter the outlet premises is for the purposes of using the equipments/facilities belonging to the appellant installed in the outlet, to sell the products of the appellant. Under the licence (DPSL) agreement, the respondent cannot enter the premises for any purpose other than for using the facilities or equipment installed by the appellant or for any purpose other than selling the petroleum products of the appellant. Therefore the licence to enter the premises and the licence to use the facilities/equipment is incidental to the licence to sell the products of the appellant as a licensed dealer, distributor or agent. In this case the premises is a land held on leasehold by the appellant wherein it has constructed/erected certain structures and housed certain facilities/ equipment. The premises is known as appellant's `company owned retail outlet'. The goods/products sold belong to the appellant. If the appellant decides to stop the supply of its goods for sale in the said outlet, automatically the licence granted to the respondent to enter premises and use the facilities become redundant, invalid and infructuous. There is no licence in favour of the licensee to use the premises or use the facilities independent of the licence to sell the goods of the appellant.
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