In India, financial constraints prevent everyone from being able to transfer their property. A temporary transfer has granted every citizen the right to enjoy any property, whereas a permanent or absolute transfer is a luxury for some. Leasing is one way to transfer ownership of a piece of property for a set amount of time. A lease is the transfer of a property’s interest for a predetermined amount of time without the transfer of the property’s ownership. Instead of transferring ownership rights, a lease transfers the right of possession. Here, the transferor is referred to as the lessor, and the transferee, or the person using the property for a specific time, is referred to as the lessee. The Transfer of Property Act, 1882 governs lease, which is provided in Sections 105 to 117.
Only immovable property may be leased. Separate from the right of ownership is the right of possession. Several governments provide land for the construction of apartment developments, but only on a leasehold basis. By paying a fee, the lease term can be increased to 999 years. A buyer must verify that the seller of a leasehold property has a transfer memorandum from the local development authority before making a purchase. Since leasehold parcels are less expensive than freehold ones, developers prefer to build apartments on them. When there is fewer than 30 years left on the lease, banks do not like to finance the purchase of leasehold property.
A lease is defined in Section 105 as a transfer of immovable property for a specific period of time in exchange for money in which the transferee has agreed to the conditions of the agreement. The creation of a right to use immovable property for a specific period of time in exchange for compensation under the terms specified in a lease is a transaction involving immovable property. The lessee receives the right to possess and enjoy the property, and he obtains this interest through the conveyance of lease. This transferable interest that the lessee receives may also be transferred by him in favour of a sublessee or a subtenant. It is not only a permission that the lessor may revoke whenever he pleases. The link between the lessee and the property is established, not just with the owner. A tenant or subtenant has the right to occupy property when the interest to do so has been created until the lease is properly ended and eviction occurs in line with the law. A tenant or subtenant has the right to occupy property when the interest to do so has been created until the lease is properly ended and eviction occurs in line with the law. A lease must be both inheritable and transferable in order to function. A monthly lease is an inheritable asset; however, a grantee’s lifelong lease expires with his passing. The leasehold property interests of the lessor and lessee are inheritable and pass to their heirs upon their passing.
Subject Matter of Lease
Specific immovable property, such as land, houses, factories, shops, minerals, and buildings, including the exterior walls enclosing or not enclosing the part so demised, constitutes the subject matter of a lease. It may also include benefits derived from land, such as fisheries, ferries, market dues, sand mines, or mineral land. A “right to enjoy immovable property” within the meaning of section 105 is the ability to engage in mining activities on land in order to extract a specific mineral and to remove and appropriate that “mineral.” The land and other items attached to the building, such as fixtures given by the lessor or, in the instance of a movie theatre, equipment, would also be included in a composite lease of the building.
Unless specifically excluded from the concept of land in the lease contract, a lease of a house and a shop includes both the superstructure and the site. In a lease of simply a cinema building, the projector, generator, and screen are expensive pieces of theatre equipment that are not included in the rent, nor are the terrace and air space above a tenanted multistory building. It is a lease of the business and not the shop when tools, equipment, and a certain type of furniture appropriate for running a barbershop are leased for a sum established for running the business. Unless the lessee exercises a different choice, the right of tenancy continues even if the leased property is destroyed by fire, water, or assault from an army, a mob, or another unstoppable force. If the lease expressly states that it is exclusively for the home and not the land, it would end if the house were to be destroyed.
Tenancy at Sufferance
When a person in possession under a valid title maintains possession after that title has determined, without the consent of the person entitled, a tenancy at sufferance, which is non-consensual in nature, results. As an illustration, A lets B rent his home. The term of the lease is set at five years. After the five-year period has passed, the tenant does not leave. Now, he would be considered a tenant holding over. If this tenant establishes a subtenancy, the lessee who remains after his term has ended is a tenant at sufferance. However, if he is in without the landlord’s permission, he is a trespasser and is responsible for any lost profits (the claim that a lawful owner of the property has against the unlawful possessor of the property. ) Tenancy at sufferance does not establish a landlord-tenant relationship, therefore the tenant in such a situation is not entitled to a termination notice.
Tenancy at Will
In the event of occupation pursuant to an express agreement to let for an indeterminate duration for a remuneration accruing from day to day as long as both parties want, a tenancy at will is implied by law. It is terminable by any party, and a request for possession by the landlord is sufficient, but a notice to vacate is required when the landlord is asking for a decision of ejectment. A tenant who assumes possession as a result of a failed sale becomes a tenant at will and is responsible for usage and occupation as of the moment the contract comes to an end. Such a tenancy is terminable at any time with 15 days’ notice. It is not necessary to register a tenancy at will when the tenant consents to remain in the property for as long as the landlord permits him to or to leave when the landlord requests it.
Essentials of a Lease
Parties must be competent
A lease agreement’s parties should be able to form legally binding agreements. Lesser ought to be granted ownership of and complete control of a property.
Right of possession
Only the possession of the property is transferred in a lease; ownership rights are not.
Rent or a premium can be used as consideration for a lease.
The lease agreement, as well as the duration and terms and restrictions placed on the transfer, must be accepted by the lessee in order for them to receive the interest in the property following the lease.
Every lease is for a specific amount of time, which must be stated in the leasing agreement. The lessor has the option to loosen it.
What happens when the lease agreement does not prescribe the time period of the lease?
In the absence of a lease agreement, Section 106 specifies the term of the lease. It stipulates that in the absence of a contract, the lease can be terminated by both parties by giving notice to vacate. The specified time period always starts on the day the notice to quit was received. When a lease is judged to be on a year-to-year basis for agricultural or manufacturing purposes, a 6-month notice is required before the lease expires one year after it was first signed. When a lease is considered to be month-to-month for any other reason, it will be subject to a 15-day notice that the lease will expire one month after it begins. The caveat to this clause indicates that the person obligated to abide by the notice to vacate in this clause must receive written notice of it. If this is not feasible, it must be attached to a prominent location on the land.
Commencement of Lease
The tenancy must begin on a specific date, so its month is the one following that date in the calendar used. The commencement should be certain but it is adequate if it can be made certain. The lease starts on the day it is executed if the day of commencement is not specified, and it suffices if it may be made definite at a later time. Unless possession is taken pursuant to the agreement, in which case the term shall begin on the date of such possession, an executory leasing agreement is unlawful for lack of certainty if the term’s beginning is not specified or if there are no documents available for determining it.
Execution of Lease
Section 107 specifies how leases are created. Three topics are covered in this section:
- When there is a lease of movable property for a term of one year or longer, only a registered deed may be used to make this agreement.
- All other leases of movable property may either be made orally or by the registration of a deed, which also transfers ownership of the property.
- Both parties to the lease will execute the necessary deeds when the lease involves several properties.
In Punjab National Bank v. Ganga Narain Kapur, the court determined that the provisions of Section 106 would apply if the lease was executed orally.
Rights and liabilities of Lessor and lessee
Rights of the lessor
- The rent specified in the lease agreement is recoverable by the lessor from the lease.
- If the lessee violates any provision of the lease, the lessor has the right to regain control of the property.
- If there is any damage done to the property, the lessor has the right to seek compensation from the lessee.
- Upon expiration of the lease term specified in the agreement, the lessor has the right to reclaim control of his property from the lessee.
Liabilities of the lessor
- Any significant flaw in the property that the lessor knows of but the lessee cannot discover under normal supervision must be disclosed.
- The request of the lessee to be granted the right of possession over his property is binding on the lessor.
- If the lessee accepts the terms of the lease agreement and enters into a contract with the lessor, he is free to use the property for the remaining term without worrying about having to pay rent at a later date.
Rights of the lessee
- Any modifications made while the lease is in place (alluvion for the time being in effect) will be covered by the same lease.
- If a large portion of the leased property is completely or partially destroyed by fire, flood, war, mob violence, or any other event rendering it useless as a benefit to the lessee. If this occurs, he has the opportunity to void the lease. The addendum to this clause specifies that the lessee will not be eligible for this remedy if the damage was caused by any of his own actions.
- If the lessor fails to make the necessary repairs within a reasonable amount of time, the lessee has the right to recover any costs he incurred from the rent.
- Any such payment that a lessor is required to make may be recovered by the lessee either directly from the lessor or by deducting it from the rent interest. When the lessor has failed to make the necessary payment, he is entitled to this right.
- All items that the lessee may have affixed to the land or other objects have a right to be removed. He is just required to return the property in the same state that he found it in.
- Lessee or his legal representative has the right to receive all earnings or benefits from the crops that were sown by the lessee at that property when a lease is of an undetermined length in the lease agreement. Even if the lease expires, they still have the freedom to enter and exit the property.
- By subleasing or mortgaging, the lessee has the right to completely transfer the property or any portion of his stake in it. The lease agreement’s terms and conditions do not apply independently to the lessee.
Liabilities of the lessee
- Lessee is required to disclose all relevant material facts that the lessor is unaware of but which are likely to increase the value of the property and for which the lessee has an interest.
- The lessor or his representative must receive the agreed-upon rent or premium from the lessee within the allotted time period.
- Lessee is required to keep the property in the same state that he received it in at the start of the lease and must return it in the same condition.
- Lessee is required to notify the lessor if they become aware of any actions involving the property, including any encroachment or interference.
- The property is to be used by the lessee in the same manner that an owner would, which entails maintaining it as closely to its natural state as possible. Nevertheless, he has a duty to stop anyone from utilizing the asset or item for any other purpose than what the lease agreement specifies.
- Except for agricultural purposes, the lessee cannot affix any permanent construction without the lessor’s permission.
- After the lease’s predetermined period has passed, the lessee has a duty to return ownership of the property to the lessor.
How does a Lease end?
Determination of lease
Regarding the determination of the lease, which specifies how a lease may be cancelled, Section 111 states:
Lapse of time
The lease terminates after the allotted time period has passed.
When the length of the lease is subject to conditions that depend on the occurrence of certain events.
The property may no longer be of interest to the lessor, which would cause the lease to end.
When the same person receives the interest of both the lessor and the lessee.
When the lessee and lessor come to a mutual agreement, the lessee loses ownership of the property.
It is an implied surrender of the current lease when the lessee enters into a contract with another party for the lease of property.
A lease can be revoked in one of three ways:
- Whenever the lessee violates an express condition. The property may be returned to the lessor in possession.
- When the lessee transfers the property’s title to a third party or renounces his character.
- If the terms allow it, the lease will be cancelled when the banks declare the lessee to be bankrupt.
Expiry of Notice to Quit
The lease will end when the lessor gives the lessee a notice to vacate.
What is notice to quit and what happens after it?
If the lessor wishes to terminate the lease, whether at the end of the term as stipulated in Section 106 or for the reasons listed in Section 111, a formal written statement known as a notice to leave is given to the lessee.
Any lease that is accepted after receiving a notice to vacate will be forfeited as described in Section 111(g). But according to Section 112, if the lessor accepts any rent from the lessee after beginning the process of terminating the lease on the grounds of forfeiture, it will be understood that the lease will still be in effect and that the termination and notice to leave have been waived.
The notice may be waived either explicitly or implicitly, as per Section 113.
- Express Waiver of notice to Quit – This occurs when the lessor accepts the rent from the lessee after the notice to quit has been delivered.
- Implied Waiver of notice to Quit-This occurs when a lessor gives the lessee a notice to quit and then gives the lessee another notice to quit after the first notice has expired. Implied waiver of the first notice to quit exists.
The intention to renew the current lease is also shown by the waiver of notice.
Effect of Holding over
According to Section 116 of the Holding Overlays Down Act, if a notice to quit waiver has been made, the lease will not be referred to as a new lease but rather as a lease on sufferance or tolerance without objecting to it. The phrase “holding over” refers to keeping possession of a leased property. After that, the lease is renewed in accordance with Section 106 in the same manner as any other regular lease.
According to this clause, the lease will be renewed if the lessor concurs with the lessee’s holding over of the property. However, if the lessor rejects the lessee’s request to keep possession, he may file a lawsuit against him for trespass or tenant misconduct.
Lease is a crucial component of everyday living. Everyone has seen a lease agreement where a house, car, or other item is rented. The general public should therefore be aware of the rights of each individual under a lease as well as the rules that regulate leases. The lease contains references to Sections 105 through 117, some of which have been examined in this page to provide clarification and a broad understanding of the lease for the general public, law students, and the legal community.
Author: Arryan Mohanty,
Symbiosis Law School, Nagpur/Student