To ascertain whether a document creates a lease and licence, the substance of the material must be preferred to the form. Whether they intended to create a lease of a licence.
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 licence; 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 negatived the intention to create a lease.
At one time it was thought that the test of exclusive possession was infallible and if a person Were given sole possession of premises, it would conclusively establish that he was a lessee.
However, there was a change, and the recent trend of judicial opinion is reflected in Errington v. Errington, wherein Lord Denying reviewing the case law on the subject summarizes the result of his discussion thus:- Although a person who is let into exclusive possession is, prima facie, to be considered to be tenant, nevertheless he will not be held to be so if the circumstances negative any intention to create a tenancy.
If all one finds is that somebody has been in occupation for an indefinite period with no special evidence of how he got there or of any arrangement being made when he went into the occupation, it may be said that there is a tenancy at will. The modern cases establish that the question in all these cases is one of intention:-
Did the circumstances and the conduct of the parties show that all that was intended was that the occupier should have a personal privilege with no interest in the land?
In the case of Rajbir Kaur and Another v. Ms S, Chokesiri and Co.,  1 SCO 19, the Supreme Court considered and held that ultimately the question whether a transaction is a lease or licence “turns on the operative intention of the parties and there is no single, simple litmus test to distinguish one from the other.
In Mrs M.N. Clubwalq V. Fida Hussain the Supreme Court held that “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.”
In the absence of a written document and when somebody is in exclusive possession with no special evidence how he got in, in such cases exclusive possession of the property would be the most relevant circumstance to arrive at the conclusion that the intention of the parties was to create a lease.
Further lease or licence is a matter of contract between the parties. Section 107 of the Transfer of Property Act among other things provides that leases of immovable property may be made either by a registered instrument or by oral agreement accompanied by delivery of possession; if it is a registered instrument, it shall be executed by both the lessee and the lessor.
The contract between the parties is to be Interpreted or construed on the well-laid principles for the construction of contractual terms, viz, for construction of settlements, the intention of the parties is the meaning of the words they have used, and there can be no intention independent of that meaning; when the terms of the contract are vague or haying double intendment one which is lawful should be preferred; and the construction may be put on the instrument perfectly consistent with his doing only what he had a right to do.