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LEASE[1]

Table of Contents

(S. 105 TO 117)

QUESTION BANK

Q.1 Define the lease of immovable property and discuss the provisions relating to the determination of lease under the Transfer of Property Act, 1882.

Q.2 What are the essential elements of a valid lease? How does it differ from a licence?

Q.3 Define lease. Explain the rights and liabilities of the lessor and lessee.

SYNOPSIS

I Definitions of ‘Lease’ (S. 105):-…………………………………………………………. 100

Definitions of Lessor, Lessee, Premium and Rent:-…………………………………… 101

II Essential of Lease:-………………………………………………………………………… 101

1) Parties to Lease:-………………………………………………………………………….. 101

2) Lease how made? (S. 107):-……………………………………………………………. 101

3) Subject matter of Lease:-……………………………………………………………….. 102

4) Transfer of Right to enjoy property:-…………………………………………………. 102

5) Duration of lease:-………………………………………………………………………… 102

6) Consideration:-…………………………………………………………………………….. 103

III Rights and Liabilities of Lessor and Lessee (S. 108):-……………………………. 103

1) Liabilities of the Lessor:-……………………………………………………………… 103

a) Duty to disclose material defect………………………………………………….. 104
b) Duty to give possession:-……………………………………………………………. 104
c) Covenant for quiet enjoyment:-…………………………………………………….. 104

2) Rights of the lessee:-……………………………………………………………………. 104

a) Right to enjoy accessions:-…………………………………………………………. 104
b) Right to avoid lease:-…………………………………………………………………. 104
c) Right to repair property:-…………………………………………………………….. 105
d) Right to make payments:-……………………………………………………………. 105
e) Right to remove fixtures:-……………………………………………………………. 105
f) Right to crops:-…………………………………………………………………………. 105
g) Right to transfer his interest:-……………………………………………………….. 105

3) Liabilities of Lessee:-…………………………………………………………………… 106

a) Duty to disclose facts:-………………………………………………………………. 106
b) Duty to pay rent:-……………………………………………………………………… 106
c) Duty to maintain property:-…………………………………………………………. 106
d) Duty to give notice of any encroachment:-………………………………………. 107
e) Duty to use property as a person of ordinary prudence:-……………………. 107
f) Not to erect permanent structure:-…………………………………………………. 107
g) Duty to retransfer possession:-…………………………………………………….. 107

IV Modes of determination of Lease (S. 111):-………………………………………. 107

1) By efflux of time:-………………………………………………………………………. 107

2) By happening of event:-………………………………………………………………… 107

3) By termination of lessor’s interest in property:-………………………………….. 108

4) By merger:-………………………………………………………………………………… 108

5) By surrender express or implied:-……………………………………………………. 108

6) By forfeiture:-…………………………………………………………………………….. 108

(d) On expiration of a notice period:-…………………………………………………… 109

V Distinction between the lease, license, sale etc.:-……………………………………. 109

(1) Distinction between the ‘lease’ and ‘license’:-…………………………………… 109

(i) Definition:-……………………………………………………………………………… 109

(ii) Transfer of an interest:-…………………………………………………………….. 110

(iii) Accretion to property:-…………………………………………………………….. 110

(iv) Transferable:-………………………………………………………………………… 110

(v) Proprietary or personal right:-…………………………………………………….. 110

(vi) Revocation:-………………………………………………………………………….. 110

(vii) Suit against third person:-………………………………………………………… 111

(viii) Effect of Transfer:-……………………………………………………………….. 111

(ix) Effect of death:-………………………………………………………………………. 111

Supreme Court……………………………………………………………………………… 111

2) Distinction between ‘Lease’ and ‘Sale’:-…………………………………………… 111

Sections 105 to 117 of the Transfer of Property Act deal with the ‘Lease’. However, as per S. 117, none of the provisions in this topic relating to the lease are applicable to agricultural purposes except in so far as they apply to the state Government. In other words, the provisions relating to lease are not applicable to agricultural land except specifically applied by the State Government by notification in the official Gazette.

I Definitions of ‘Lease’ (S. 105):-

A lease of immovable property-

(i) is a transfer of a right to enjoy such property,

(ii) made for a certain time (expressed or implied) or in perpetuity,

(iii) in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value,

(iv) to be rendered periodically or on specified occasions,

(v) to the transferor by the transferee,

(vi) who accept the transfer on such terms.

Definitions of Lessor, Lessee, Premium and Rent:-

The transferor is called the ‘Lessor[2]’; the transferee is called the ‘Lessee[3], the price is called the ‘Premium[4]’ and the money, share, service or other things to be so rendered is called the rent[5].

II Essential of Lease:-

The following are essential elements of the lease, viz.

1) Parties to Lease:-

There should be a lessor and lessee in a contract of lease. A man could not grant a lease to himself. Thus, for an agreement of lease, two parties must be competent to contract. The person transferor, i.e., the lessor, must be competent to transfer or authorised to transfer the property. The competent lessor can lease a property for any period he likes. Still, a person having limited rights or rights for a limited period can lease it within that limitation and up to a limited period of his right.

2) Lease how made? (S. 107):-

A Lease of immovable property from year to year or for any term exceeding one year or reserving a yearly rent can be made only by a registered instrument. All other leases of immovable property can be made either by a registered instrument or by oral agreement accompanied by delivery of possession. Such an instrument needs to be executed by both parties.

In Sonu Sitaram Verenkar v. Nishith Verenkar

(Laws (Bom) 2021-2-116)

The Bombay High Court held that an oral lease could not be extended beyond one year; it had to be registered.

3) Subject matter of Lease:-

The subject matter of a lease should be immovable property. S. 3 of the Act defines “Immovable property”. According to the definition, not only land, buildings and minerals but also benefits arising out of land, such as fisheries, ferries etc., are also immovable property.

A lease of a building along with fixtures and furniture, or, similarly, a lease of a factory along with machinery, may be granted.

4) Transfer of Right to enjoy property:-

The lease is a transfer of limited rights or limited estate. It is a transfer of a right of enjoyment of a property. The corollary of the transfer of the right of enjoyment is the transfer of possession of the property. In lease and mortgage, limited estate or rights are transferred; i.e. the right of enjoyment is transferred with possession of immovable property.

5) Duration of lease:-

As per the definition, the lease should be for a certain time, which is specified expressly or impliedly or in perpetuity. Thus, the lease agreement must specifically state the time of start and extinguishment of the lease or perpetuity. The lease may be for a certain time; there may be a periodic lease or lease in perpetuity.

In the absence of contract or local usage to the contrary, a lease of immovable property for agricultural (if permitted) or manufacturing purposes shall be deemed to be a lease from year to year, which is terminable by notice of six months by either of the parties. A lease for any other purpose is deemed to be a lease from month to month, terminable by fifteen days’ notice by any of the parties.

6) Consideration:-

Every contract and lease should include a consideration. Consideration may be paid either as a premium or rent. A’ premium’ is paid when the whole amount of consideration is paid at once or in a lump sum, but rent is paid periodically if it is to be paid periodically.

Consideration for lease need not necessarily be in the form of money but may be in kinds like a share of crops, services or any other thing of value.

III Rights and Liabilities of Lessor and Lessee (S. 108):-

Rights and liabilities of the lessor and lessee are determined by the portion of an agreement of lease. However, in the absence of such express rights and liabilities in an agreement, S. 108 of the Act lays down some implied rights and duties of the lessor and lessee.

They will prevail if rights and duties are expressly mentioned in their agreement. In the absence of such an agreement, only implied rights and duties under S. 108 will be considered. Similarly, if any local custom or usage governs their rights and liabilities, that usage and custom will prevail over rights and duties mentioned under S. 108.

These rights and duties are reciprocal to some extent. The rights and liabilities of Lessor and Lessee are as follows-

1) Liabilities of the Lessor:-

There are the following liabilities of Lessor, viz.

a) Duty to disclose material defect[6]:-

The lessor is bound to disclose to the lessee any material defect in the property with reference to its intended use, of which the lessor is aware, but the lessee is not aware of it and could not discover it with ordinary care.

b) Duty to give possession:-

The lessor is duty-bound to deliver possession of the leased property. The duty of the lessor to deliver possession of the leased premises arises only when the lessee makes a request to that effect.

c) Covenant for quiet enjoyment:-

After putting into possession the lessee of the leased property, the lessor has to ensure that the lessee’s possession and enjoyment need not be disturbed by himself or anybody else during the lease period. This right is available to the lessee and any other person, i.e., the assignee (sub-tenant, etc.), who has rights from the lessee.

2) Rights of the lessee:-

There are the following rights of the lessee viz.

a) Right to enjoy accessions:-

If any accession is made to the property during the continuance of the lease, such accession is to be deemed to be comprised in the lease. ‘Accession’ is an addition to leased property caused artificially or by natural processes. Thus, if a leased house has some coconut or mango trees that provide fruits to lease, he has the right to consume them as an accretion and as a part of the lease agreement. However, upon termination of the lease, the lessee must surrender accession to the lessee. For example, if some trees have grown on land during the lease house, the lessee is duty-bound to return them when the lease terminates.

b) Right to avoid lease:-

Suppose by fire, tempest, flood, or violence of an army or a mob or other irresistible force, any material part of the property is wholly destroyed or rendered substantially or permanently unfit for lease purposes. In that case, the lease becomes void at the option of the lessee.

However, the lessee is not entitled to avoid the lease if the damage is caused due to his own default.

c) Right to repair property:-

Suppose the lessor neglects to make any repairs which he is bound to make to the property within a reasonable time after notice. In that case, the lessee is bound to make it himself and deduct the expenses of the repairs with interest from the rent or otherwise recover it from the lessor.

d) Right to make payments:-

If the lessor neglects to make any payment that the lessor is bound to make and which, if not made by him, is recoverable from the lessee or against the property (such as light bill, house tax, etc.), the lessee may make such payment himself and deduct it with interest from the rent or otherwise recover it from the lessor.

e) Right to remove fixtures:-

The lessee may, even after the determination of the lease, remove at any time when he is in possession of the property leased but not afterwards all things which are attached to the earth by him. He cannot attach any permanent structure without the consent of the lessor. He should leave the property in the state in which he had received it.

f) Right to crops:-

When the lease of an uncertain duration is determined by any means except the fault of the lessee, he or his legal representative is entitled to all the crops planted or sown by the lessee and grown upon the property when the lease determines and to free ingress or egress to gather and carry them.

g) Right to transfer his interest:-

The lessee may transfer absolutely or by way of mortgage or sub-lease the whole or any part of his interest in the property. Any transferee of such interest or part may again transfer it. The lessee shall not cease to be subject to any of the liabilities attached to the lease by reason only of such transfer.

However, the following cannot transfer their interests, viz.

(i) A tenant having a nontransferable right of occupancy.

(ii) The farmer or an estate in respect of which default has been made in paying revenue or

(iii) The lessee of an estate under the management of a court of Wards.

3) Liabilities of Lessee:-

Lessee has the following liabilities or duties:-

a) Duty to disclose facts:-

The lessee is bound to disclose to the lessor any fact as to the nature or extent of the interest which the lessee is about to take, of which the lessee is aware but the lessor is not aware and which materially increases the value of such interest.

b) Duty to pay rent:-

Lessee’s duty to disclose his interest or defects corresponds with the lessor’s. The Lessee is bound to pay or tender the premium or rent to the lessor or his agent at the proper time and place.

c) Duty to maintain property:-

The lessee is bound to keep and, on the termination of the lease, restore the property in as good condition as it was when he was put into possession, except for reasonable wear and tear or irresistible force. He is duty bound to allow the lessor and his agents, at all reasonable times during the term, to enter upon the property, inspect the condition, and give notice of any defect in such conditions. If any such defect or loss is caused by the lessee or his agent, he is duty-bound to make it good.

d) Duty to give notice of any encroachment:-

Suppose the lessee becomes aware of any proceedings to recover the property or any part thereof or of encroachment made upon, or any interference with, the lessor’s rights concerning such property. In that case, he is bound to give, with reasonable diligence, notice thereof to the lessor.

e) Duty to use the property as a person of ordinary prudence:-

The lessee may use the property and its products in a way a person of ordinary prudence would use if they were his own. He should not use or permit another person to use the property for a purpose other than that for which it was leased. He is not permitted to sell timber, pull down or damage buildings belonging to the lessor, or work mines or quarries, etc., inconsistent with the lease agreement.

f) Not to erect permanent structure:-

Without the lessor’s consent, the Lessee must not erect any permanent structure on the property except for agriculture purposes.

g) Duty to retransfer possession:-

It is the duty of the lessee to determine the lease and put the lessor into possession of the property.

IV Modes of determination of Lease (S. 111):-

A lease or tenancy may come to an end in the following ways.

1) By the efflux of time:-

Lease for a definite period expires on the last day of the term, and the lessor or a person entitled to the revision may enter without notice or other formalities into the property. Thus, the lease comes to an end by the efflux of time.

2) By happening of an event:-

A lease of immovable property terminates by the happening of an event upon which the lease was created. So long as such an event does not happen, the lease continues. E. g. A lease for the life of ‘A’ determines his death. Similarly, the lease to excavate minerals determines when all minerals are excavated.

3) By the termination of lessor’s interest in property:-

A lease of property determines where the interest of the lessor in the property ends.

The lessor’s interest may end when an event occurs upon which the lease is terminable.

Similarly, where a lessor has only a limited interest or power to grant a lease, the lease determines the loss of interest; for example, a lease by a Hindu widow, who is entitled only to a life estate, determines her death.

4) By merger:-

The lease is determined by a merger. The merger occurs when the interests of the lessee and the lessor in the whole property become vested simultaneously in one person.

In other words, the same person cannot be both landlord and tenant. For example, if A sells property X to B, of which he had already granted a lease, if the lessee inherits the whole property from the lessor, etc., the lease comes to an end by the merger.

5) By surrender, express or implied:-

The lease determines whether to surrender by express or implied surrender. Express surrender means the lessee yields up his interest under the lease to the lessor by mutual agreement. Such an agreement may be in writing and registered or may not be.

Implied surrender takes place either by

(i) the creation of a new relationship between the lessor and the lessee, or (ii) by the relinquishment of possession by the lessee and takes over by the lessor, e.g. if, during the subsistence of the first lease, a new lease of the same property takes place between same parties, it becomes the implied determination of the first lease.

6) By forfeiture:-

The lease terminates by forfeiture in the following circumstances

(a) in the case where the lessee breaks the express condition, which provides that on breach of it, the lessor may re-enter the property or

(b) in this case, the lessee renounces his character as such by setting up a title in the third person or by claiming the title in himself or

(c) the lessee where the adjudicated an insolvent and the lease provides that the lessor may re-enter on the happening of such event.

Provided that in any of the above cases, the lessor or his transferee should give notice in writing to the lessee of his intention to determine the lease.

Thus, in the first case under close (a), if there is an express condition in the lease deed that the lessee shall not alienate his leasehold, otherwise, it will be treated as a breach, and the lessor will re-enter into the property, and the lessee alienates or subleases the property, the lessor can re-enter and forfeit the leasehold property.

In (b) case, if the lessee denies his lessor’s title and sets up a title in himself or in the third person, the lessor gets the right of forfeiture. In other words, if the lessee says that not the lessor but he himself or some third person is the true owner of the leasehold property, the lessor gets the right of forfeiture of property.

(d) On the expiration of a notice period:-

The lease terminates on the expiration of a notice period to determine the lease or to quit or of intention to quit the property leased.

V Distinction between the lease, license, sale etc.:-

(1) Distinction between the ‘lease’ and ‘license’:-

Though there is a similarity between ‘lease’ and ‘license’, there are a number of distinctions as follows-

(i) Definition:-

According to S. 105 of the Transfer of Property Act, a ‘lease’ of immovable property is a transfer of right to enjoy such property for a certain period in consideration for price’.

Whereas, according to S. 52 of the Easement Act 1882, a ‘license’ means ‘a right granted to another person over the immovable property to do or continue to do some act which is in the absence of such right would be unlawful. Such a right does not amount to an easement or interest in the property.

(ii) Transfer of an interest:-

In a lease, there is the transfer of an interest in the immovable property, whereas in a license, there is no transfer of ownership or interest but only a right to come onto the land or premises and use it for an agreed purpose, E. g. contract to put up an advertisement board on the house or building, the contract to let caterers use the refreshment room by the theatre owner, etc.

(iii) Accretion to property:-

If, during the lease period, any accretion is made to the property leased, such accretion is deemed to be comprised in the lease, whereas a license acquires no such right.

(iv) Transferable:-

A lease is transferable and heritable, whereas the license is not so.

(v) Proprietary or personal right:-

In ‘lease’, the lessee gets a proprietary right in respect of land. Whereas ‘license’ gets only a personal right to use another person’s land to do or continue to do certain things on the licensor’s land. In the absence of such a license, such an act of license amounts to wrong.

(vi) Revocation:-

A ‘lease’ cannot be revoked before the expiry of the term or without breach of any express condition by the lessee, whereas, with certain exceptions, a license is generally revocable. Moreover, a ‘lessee’ is entitled to a notice to quit before eviction, whereas a licensee is not entitled to such notice.

(vii) Suit against a third person:-

A lessee can file a suit against trespassers and strangers in his own name, whereas the licensee is not entitled to file such a suit in his own name.

(viii) Effect of Transfer:-

A transfer of leasehold property does not affect the lessee’s interest and agreement in that property, whereas the license comes to an end by the transfer of property.

(ix) Effect of death:-

Neither party’s death does not put off the lease, whereas it ends the licence.

In Associated Hotel of India V/s R. N. Kapoor[7],

Supreme Court upholding Lord Denning’s observation in Errington V. Erringtone[8] observed that to ascertain whether a document creates a lease or license, (a) the substance of the document must be referred to the form; (b) the real test is the intention of the parties as to whether they intended to create ‘lease’ or ‘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 (c) if under the document party gets exclusive possession of the property, prima facie, he is considered to be a tenant.

2) Distinction between ‘Lease’ and ‘Sale’:-

In a ‘sale’, all rights relating to the property are transferred. It is an absolute transfer to the purchaser from the owner. However, in ‘lease’, there is a partial transfer of interests in a property leased, i.e., the right to enjoy the property, and the owner (lessor) holds reversionary rights[9] (i.e. remaining rights).

*****

[1] दिर्घ मुदतीचा भाडेकरार [पट्टे पर देना- लंबे समय के लिये भाडे पार देणा]

[2] भाडयाने देणारा [पट्टादाता]

[3] भाडयाने घेणारा [पट्टाधारी]

[4] करारासाठी एकत्र, एक रक्कमी दिलेला मोबदला [अधिमूल्य- पट्टे के लिये एकबार हि दीई हुई रक्कम]

[5] भाडे- वार्शिक, दरमाही, किंवा ठराविक वेळी दिला जानारा माबदला [किराया]

[6] मिळकतीमध्ये महत्वाची असलेनी त्रुटी सांगण्याचे कर्तव्य [पट्टे की संपत्ति मे दोष का खुलासा करने का कर्तव्य ]

[7] (AIR 1956 SC1262)

[8] (1952)

[9] षेश अधिकार ख्उर्वरीत अधिकार, [ उत्तरभोगी अधिकार]]