Zuben Developers Limited (Referred as 'Zuben Developers'), a real estate development company, permitted Urban Café Private Limited to operate a café within a premium commercial complex owned by it. The agreement executed
CS Professional · Drafting, Pleadings and Appearances · PYQS · June 2026
Zuben Developers Limited (Referred as 'Zuben Developers'), a real estate development company, permitted Urban Café Private Limited to operate a café within a premium commercial complex owned by it. The agreement executed between the parties described the arrangement as a "License Agreement" and stipulated that Urban Café would occupy the designated premises for a fixed period of five years, subject to payment of monthly charges. However, in practice, the café operator was granted exclusive possession of the premises, had the right to install fixtures and interior infrastructure and operated the premises without any regular interference from the developer. After three years, Zuben Developers sought to terminate the arrangement with immediate effect on the ground that it was merely a licence revocable at will. Urban Café, however, disputed the termination and argued that the arrangement was in substance is a lease rather than a licence, thereby conferring statutory protection against arbitrary termination. The dispute has raised on the true legal nature of the agreement and this has also highlighted them the importance of careful drafting in property transactions. On this background, answer the following questions referring case laws wherever applicable: Referring the case law, state the test(s) applied by courts in determining whether a particular property arrangement constitutes a lease or a licence, irrespective of the terminology used in the document.
Answer & Explanation:
Tests Applied by Courts to Determine Whether an Arrangement is a Lease or a Licence In Chandulal v. Delhi Municipal Corporation , court held lease transfers interest; licence is personal, revocable, creating no proprietary rights. Courts apply substance-over-form principles, disregarding nomenclature and focusing on the true intention of parties. The primary test is exclusive possession if the occupant enjoys control without interference, it indicates a lease. The distinction between a lease and a licence is determined not by the title or nomenclature used in the document but by the real nature of the rights created. Courts consistently apply the principle that substance prevails over form. Other factors to determine lease or licence may include: Intention of parties inferred from terms and conduct Duration and certainty of term Right to transfer or sub-let Control retained by owner Nature of consideration (rent vs licence fee) Exclusive Possession Transfer of Interest Right of Termination Surrounding Circumstances and Conduct of Parties Judicial precedents emphasize that even if an agreement is labelled as a licence, it may be construed as a lease if it confers proprietary interest. If the occupier has the right to exclude everyone, including the owner (except for limited purposes), from the premises, it is a lease. Mere possession without exclusive rights indicates a licence.
Topics: Property Law
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