Difference Between Lease and License

 Author: Fazila Nawaz

2          ABSTRACT

 The difference between both the agreements can be figured out through the possession test and intention of interest transfer test. The test of possession sometime didn’t work to make a clear distinction thereby; courts now use intention of transfer of interest to find whether the intention of making the deed was to create a lease or a license. This paper has thoroughly analysed lease under Transfer of property Act and has made the comparison between the two terminologies.

1.     INTRODUCTION

Lease creates legal interest in the property, whereas this element is absent in license. The distinction between lease and license has created two different methods to transfer a property to another person, with distinct authority of transferee over the property.

The lessee authority in the property is stronger as compare to licensee. It is because license gives licensee a merely privilege to enjoy some of the rights of owner over the property. However, in lease the interest transferred that is expressed though possession for a specific time limit. When the tenancy time is expired it is owners right to either exceed of conclude the lease time.

In Pakistani law lease is covered under the provisions of Transfer of Property Act and license is mentioned in the Easement Act, 1882. The purpose of use test is to find the difference among lease and license during judicial. The possession test was derived from common law cases.       

3          LEASE UNDER TRANSFER OF PROPERTY ACT

Lease is made by the landlord and tenant under contract for a valid amount of consideration  that is promised or paid. Payment of the consideration in a lease is called a rent. [1]

Lease is governed in Pakistani law under Transfer of property Act, 1882 (section 105); it defines lease as a transfer of enjoyment right of the immoveable property, made for a certain time either expressly or impliedly. ”[2] The ingredients of lease according to the Act are;[3]

·         That it must be related to an immovable property

·         The duration of the right of enjoyment is fixed

·         The right is transferred for any consideration

·         The transfer needed to be accepted by transferee

Duration of the lease of immovable property for agriculture or manufacturing purpose is made from year to year while lease for other purposes is made from month to month. The lessor in lease transfer some of his rights to the lessee who acquire the land for a specific time. Consequently, it creates rights and liabilities upon the lessor and lessee against each other. If any condition expressed is breached the lessor has right to forfeit the lease. However, based on the principle of equity the Transfer of property Act also laid this rule that suit for ejectment cannot be filed by the lessor, unless he serves on lessee a written notice but only lessor holds absolute right over the property. [4] 

3.1           Haji Habibullah v Anjuman Eislamia, Baluchistan[5]

The case was filed for the ejectment and injunction against the petitioner. Land was leased to the petitioners by means of registered deed. The respondent need the occupied land thus eviction application was filed against tenants.

The decision was made that tenants not legally possessing land after the expiration of tenancy. It added that tenancy is expired after the time specified for term of tenancy is expired. Thereby decision was against the lessee.

4          LICENSE UNDER EASEMENT ACT

 In Pakistani law under license is covered under the Easement Act 1882 (Section 52); it defines license as a permission that a person gives to another to right to do, or continue to do on an immoveable property. [6]

License is only a permissive right that a purely a personal privilege granted by the transfero. For instance hostelers stay in hostels is a licensee.  

5          DIFFERENCE BETWEEN LEASE AND LICENSE

 lease and license both the allows use of property by transferee on permission of transferor.  However, Lease and license are two different terminologies and to understand both the clear distinction between these two is must.

5.1         Nature

Lease is a transfer of interest over a property showed with possession  transferred to the transferee. The exclusive right of possession is transferred by the lessor to the lessee in lease and lessor completely excludes himself from the right of possession.[7]  There is not right of exclusive possession.   

5.1.1        Street v Mountford [9] 

The petitioner got two rooms at a weekly rent and deed made was titled "license agreement!. It also declared that its doesn't makes tenancy. The petitioner vowed that Mountfort had right to license not lease. There upon the defendant went to  the House of Lords.

The House decide that grant of exclusive possession creates lease.   

5.2          Principle of Distinction between Lease and License

The test of exclusive possession was considered not accurate every time for the distinction of license and lease. If a person was given exclusive possession of the premises it was construed that it has established lease. However, trend judicial opinion has changed this prospective. 

5.2.1        Somma v Hazelhurst[10]

A couple got double bedroom for a weekly rent.  Service or attendance was not received by the couple from the landlord. The landlord obliged them to enter into different agreements that stated they were licensees. Their was an agreement that they have to share room with another person selected by landlord. The couple enjoys have exclusive possession. 

The Court held that it was an agreement of license.

5.2.2        Associated Hotels of India Ltd v R.N Kapoor  [11]

The respondent secured the possession of two rooms under a deed executed between him and the appellant. Respondent created any application to rent controller on accession of rent . The appellant claimed respondent to be under license. 

The court held that the interests of the parties were to create lease. Hence, the agreement was declared a lease not a license.

5.4         Test laid Down to Find Whether a Document is Lease or License

5.4.1        Cobb v Lane[13] 

  Sister allowed her brother to stay in rent for 13 years. The Court held that there was no intension to create legal relation, thus brother occupied mere license.  The court figured out that o determine to distinguish a document creates lease or license the following prepositions must be well established;

·         To find elements of lease or license the substances of the document must be preferred to the form

·         Real test is the intention of parties whether they want to create license or lease

·         If document creates interest in the property it is a lease, yet when it only permits to make use of the property of which the legal possession continues with the owner, it is a license

·         When in the document the party get exclusive possession of the property, prima facie the party is conferred as tenant, However, when intention are negative to the create the lease that becomes a license.

6          POINTS OF DISTINCTION BETWEEN LEASE AND LICENSE[14]

·         Lease can be assigned but a license is not transferable

·         Lessee can sue the trespasser but a licensee cannot do so

·         Lease is irrevocable unless the stipulations are meet, yet the license is revocable instantly[15]

·         A lease is determined only in a manner provided by the law but license is determined on death of either party or by alienation of the property in respect of which it was granted[16]

·         License is merely a competence to do something but lease is transfer of interest in immovable property.

7          CONCLUSION

Lease and license are two distinct terminologies. Yet, both give the transferee right to use owners property, thereby these two sometime becomes difficult to distinct.

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