Section 105 of the Transfer of Property Act defines a lease of immovable 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 section 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.

Whereas Section 52 of the Indian Easements Act defines a 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 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."

Analysis of both sections suggests:

1. 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.
2. 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.
3. It does not create in his favour any estate or interest in the property. There is, therefore, a 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 error-free and if a person was given exclusive possession of premises, it would conclusively establish that he was a lessee.

The following propositions may, therefore, be taken as well-established:

• To ascertain whether a document creates a license or lease, the substance of the document must be preferred to the form;
• the real test is the intention of the parties-whether they intended to create a lease or a license;
• 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 license; and
• 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. Judged by the said tests, it is not possible to hold that the document is one of license.

Reference can be made to various case laws as discussed herein under to differentiate between the two concepts:

Case Law	Reference Number	Relevant Extract of Judgement
Mrs. M.N. Clubwala v/s. Fida Hussain Saheb	[1964] 6 SCR 642 (Supreme Court, 1964)	Whether an agreement creates between the parties the relationship of landlord and tenant or merely that of licensor and licensee the decisive consideration is the intention of the parties. This intention has to be ascertained on a consideration of all the relevant provisions in the agreement.
Rajbir Kaur and Anr. vs. S. Chokesiri and Co.	AIR 1988 SC 1845	The question of whether a transaction is a lease or license “turns on the operative intention of the parties and there is no single, simple litmus test to distinguish one from the other.” The grant only for the right to use the premises without being entitled to the exclusive possession thereof operates merely as a licence. Exclusive possession itself is not decisive in favour of a lease and against a mere licence, for, even the grant of exclusive possession might turn out to be only a licence and not a lease where the grantor himself has no power to grant the lease.
Municipal Corporation of Delhi vs. Pradip Oil Corporation and Anr.	Delhi High Court, 2002	A mere license does not create interest in the property to which it relates. Lease on the other hand, would amount to transfer of property. License may be personal or contractual. A licensee without the grant creates a right in the licensor to enter into a land and enjoy it. By reason of a license, no estate or interest in the property is created. A license, inter alia, (a) is not assignable; (b) does not entitle the licensee to sue the stranger in his own name; (c) it is revocable and it is determined when the grantor makes subsequent assignment.
Madhu Behal and Anr. vs. Rishi Kumar and Anr.	Punjab & Haryana High Court, 2009	It is never a nomenclature in the document that governs the decision as to whether a document as a 'lease' or a 'licence'. The essential feature that distinguishes a lease from licence is always a transfer of interest in the demised property in a transaction of lease while a licensee does not involve any such transfer of interest. The lease is heritable while license is personal to the grantee. The legal possession of the property is inevitably transferred to a tenant under lease while in a transaction of license the legal possession continues with the licensee and the licensee has a mere right of user of the premises in a particular fashion mentioned under the document.

The distinction between lease and license in a simplified (Tabular) manner:

LEASE	LICENSE
A lease is a transfer of interest in land	A licence is merely a personal right and does not amount to any interest in immovable property
A lease involves a transfer of interest followed by possession of the property in question	A licence does not transfer any interest in the property and the licence has no right of possession
Exclusive possession of the property in question is given to the transferee	No such exclusive possession is given to the transferee
A lease is generally transferable	A license is not transferable
A lease is generally not revocable	A license is always revocable
A lease is unaffected if the lessor transfers the property	A license is determined on account of the transfer of the property in question
A lease does not get terminated on account of the death of the lessor	A license gets terminated on account of the death of the grantor
The document-creating lease generally requires registration	The document granting a licence, does not require any registration