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Rental Agreement vs. Leave and Licence Agreement

India Contract | Published on: 2010-08-20

The terms rental agreement and leave and licence agreement are often used interchangeably, but in fact there is a significant difference between the two.

Rental agreement

Rental agreements are also referred to as tenancy or lease agreements. In rental agreements, there is a transfer of interest from a lessor to a lessee. If the premises are given on tenancy, there is an element of irrevocably (or immovability) by the owner except on the grounds for eviction mentioned under the Rent Act.

Leave and licence agreement

The phrase "license" was defined in Section 52 of the Indian Easement Act, 1882 [ACT NO. 5 OF 1882] [17th February, 1882], as follows: "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 does not amount to an easement or an interest in the property, the right is called a license".

Licence does not create any interest in the premises in favour of the licensee excepting a mere right to use and occupy the premises for a limited duration in consideration of the price paid. Licence only creates a right or interest in the immovable property to do something, under the authority of the grantor of the licence.

Every license is governed by the provisions under the Indian Easement Act. When any property is given on leave and license, the agreement is known as leave and license agreement.

A leave and license agreement can be terminated according to the terms of the agreement, and the owner can demand the possession back from the licensee.

The classification of an agreement

The question whether a certain agreement to occupy an immovable property is an agreement to lease or an agreement of leave and license has been a subject of many court judgments.

Ever since the introduction of the Rent Acts and security of possession given to the tenants by law, agreements of license have come to be viewed with suspicion that they are a disguise taken by the landlords. According to the courts, the classification of an agreement and the real nature of the transaction has to be determined through construction of the document as a whole and not based on particular words used in the document.

From the various judgments it can be said that the tests laid down to decide whether an agreement is a lease or a license are - what was the intention of the parties and whether the agreement creates an interest in the property.

Where one person grants to another, a right to do something in the immovable property of the grantor, and such right does not amount to an easement or an interest in the property, it is a licence. A licence may be granted by anyone to the extent to which he may transfer his interests in the property affected by the licence. The grant of a licence may be express or implied from the conduct of the grantor, and an agreement which purports to create an easement, but is ineffectual for that purpose, may operate to create a licence.

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