Rental agreement: Lease or License?
Feb 05, 2020 Home Trading Steps
In the world of real estate, the terms lease and license are used more often than one realizes it, and it is only understandable that people would confuse both the words as same. However, in terms of property, both the names have a very different meaning, and one must not confuse one as another.
The legal definition:
License: under the Section 52of Indian Easement Act, 1882, License is defined 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 immovable property of the grantor, something which would, in the absence of such right, be unlawful and such right doesn’t amount to an easement or an interest in the property, the right is called a license.
Lease: Under the Section 105 of the Transfer of Property Act, 1882, the Lease is defined as- a lease of immovable property is a transfer of a right to enjoy such property, made for a specific time, expressed 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.
The definitions mentioned above give an idea about how the two terms are different in numerous parameters. We discuss those below:
The legal definition:
License: under the Section 52of Indian Easement Act, 1882, License is defined 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 immovable property of the grantor, something which would, in the absence of such right, be unlawful and such right doesn’t amount to an easement or an interest in the property, the right is called a license.
Lease: Under the Section 105 of the Transfer of Property Act, 1882, the Lease is defined as- a lease of immovable property is a transfer of a right to enjoy such property, made for a specific time, expressed 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.
The definitions mentioned above give an idea about how the two terms are different in numerous parameters. We discuss those below:
- Ownership and possession: When you sign the lease agreement, the owner transfers the rights to the property to the tenant for a certain period of time for the mentioned period of time. However, when it comes to signing the license agreement, the landlord holds all the legal rights of the property to himself. This brings the question of why should there be a license if the landlord still holds the rights to the property? According to the law, using the property which belongs to another is unlawful if the license is not created that grants the tenant the rights to use the property. For example, if the property owner allows the tenant to use his property as a community hall or a banquet hall, a license agreement needs to be signed between the parties. Since there is no property rights transfer under license, the property owner can claim the damages if the agreement is not honoured. However, the landlord will have to abide by the agreement of the license as well.
- Time Period: A lease can be handed over for 11 months to 99 years, whereas the license terminated after the activity for which the premises were rented concludes.
- Continuance: The license is between parties, and it terminated immediately after one of the parties dies. This is not the same in case of a lease. Even after one party dies, the lease continues until the end of the mentioned time period.
- Transfer: The lease can be effectively transferred from one party to another and the heirs. The same is not valid in case of license. In the case of the lease, the agreement stands even if the owner of the property changes.
- Revocation: A lease can end only when the term ends, but the landlord can end the license agreement as to when they please.
- Compensation: In case of a lease, monetary exchange is always involved, which is not the case of license.
- Eviction: In the case of tenancy, the landlord needs to move to the court if they want the tenant to evict the place as possession of the property is involved. This is not the same in case of license.
It is advised that the tenant and the landlord must be aware of the terms and conditions of the agreement before signing it to avoid any hassle in future.
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