Plan to Rent Your Place? Know How Lease & Licence Are Different

Similar to the jargons used in a home-buying process, the world of renting is also filled with complex terms of its own. Among the most misunderstood terms in the renting parlance are the words — lease and licence. When a residential premise is let out, a landlord and a tenant enter into an agreement, which could be a lease or a licence. While these terms are used interchangeably in common parlance, they are inherently different. While a lease gives more rights to a tenant, a licence is favourable towards landlords. Under a lease, an exclusive possession is granted over a property for a specific time period. While Section 52 of the Indian Easements Act, 1882, defines licence, lease is defined under Section 105 of the Transfer of Property Act, 1882.

However, merely captioning the agreement as lease or licence does not make it so in the eyes of law. It must be ascertained that not only the connotation of the agreement but also the content should clearly indicate the intent of the parties. In case of a dispute, the court would look into the character of the agreement and the intention of the parties concerned.

The lease

Under a lease, a tenant is given the right to occupy a property for a certain period on a fixed amount to be paid as rent. By signing a lease agreement, the owner transfers some right over the immovable property to the tenant. The tenant is entitled to remain in possession of the premises till the lease agreement is terminated. A lease could be in the documented form or could be a verbal understanding between the owner and the tenant.

The licence 

Under a licence, an owner permits another party to use his immovable property for certain purposes. A licence is an authorisation to perform some act upon another person's property without giving any rights of possession. No easement or interest is granted over such property and the owner can at any point revoke the permission to stay. Guest house, hotels, party lawns are generally rented out based on a licenced agreement.

The difference

• Under a lease, a transfer of interest is done in favour of the tenant, while no interest over the property is transferred to him in case of a licence. 

• A lease is transferrable to a third party and also inheritable by legal heirs, etc. A licence is of personal nature and can only be utilised by the person to whom it is granted. It can neither be transferred nor inherited. 

• With the death of either the grantor or the grantee, a licence comes to an end. A lease does not come to an end on the death of either party and could be continued by their representatives. 

• Revocation of a licence is easy and could be done at the will of the owner, while a lease could only be terminated according to the contract. 

• A licensee does not have any proprietary right in the property and cannot sue the owner for the same but a lessor can sue the owner for protection of his right to possession. A lessor can proceed against a trespasser in his own name, whereas a licensee cannot do so.

• In a lease, the right to possession remains with the tenant while the owner enjoys the right to possess in case of a licence. To evict a lessee, an eviction suit needs to be filed before the court. In case of a licence, the possession by the licensee becomes unlawful per se. 

• A lease can be terminated by serving a notice to the lessee while a licence can be terminated even without a notice. 

• If any kind of breach is committed, the agreement can be enforced in case of a lease. In a licence, only a suit for damages can be filed before the court.

• A lease remains unaffected by the sale of the property and the rights of the previous lessor are assumed by the new owner of the property. A licence comes to an end as soon as the sale of property comes into effect. 

• In case of a lease, it is mandatory to mention an amount in the agreement, unlike a licence.