LEASE (105-117)

Question 1

The essential characteristics of a lease are:

Answer 1

(i) Transfer of an interest;
(ii) Parties to the lease;
(iii) Subject matter of lease;
(iv) Types of leases;
(v) Duration of lease; and
(vi) Consideration for lease.

Question 2

Transfer of an Interest

Answer 2

A lease is a transaction with respect to immovable property and creates a right to enjoy such property for a certain term and for consideration on the conditions mentioned in it.

The right to possess and enjoy the property is transferred in favour of the lessee and he acquires this interest through the conveyance of lease. This interest that the lessee acquires is a transferable interest and can further be transferred by him in
favour of a sub-lessee or a sub-tenant.

It is not a bare permission that can be withdrawn by the lessor at his pleasure. The relationship of the lessee is created with the property and not merely with that of the owner. After the creation of the interest to possess and enjoy the property, a tenant or a sub-tenant is entitled to remain in possession thereof until the lease is duly terminated and eviction takes place in accordance with law.

Question 3

Lease Both Heritable and Transferable

Answer 3

The essential feature of a lease is that it is both heritable and transferable. A monthly tenancy is a heritable asset but a lease for life of the grantee terminates on his death.Though leasehold interest may be bequeathed by a testamentary disposition,
the landlord is not bound by it and a stranger cannot be thrust as a tenant on an unwilling landlord.

Question 4

Absolute and Derivative Lease

Answer 4

Leases can be of two types, absolute lease and derivative lease; or primary lease or sub-lease/under-lease. An absolute lease is granted by a person who has an absolute right over the property. It can be granted for any number of years or for any time.

A derivative lease or sub-lease is granted by a person who himself has a limited interest in the property. This kind of lease can never extend beyond the time period for which the primary lease was executed in favour of the lessee. For instance, A is the owner of
a house and grants a lease of it to B for a period of 10 years. This will be an instance of absolute lease. Here, B who is inducted into the premises as a tenant grants a sub-lease of the same premises in favour of C.

This sub-lease would also be called a derivative lease or under lease. It can never extend beyond ten years as this is precisely the entitlement of B in the property. A tenant, who himself has no right to occupy the premises after the determination of tenancy, such as a statutory tenant, has no right to
create a sub-tenancy. He cannot grant a valid sub-lease in favour of another.

Question 5

Lease for a Fixed Term

Answer 5

Where the duration of the tenancy is a specific time period, such as five years or ten years, it is a lease for a fixed term.

Question 6

Periodic Leases

Answer 6

A lease whose duration or the term is continuous from period to period is called a periodic lease. The period may be a year, a quarter, a month, or even a week, and the mode in which the rent is reserved may afford a presumption as to the period of the
lease. A lease from year to year is a periodical lease.

A lease for an indefinite period is generally construed as a lease for life, but if the rent is payable yearly it would be taken to be a lease from year to year. Similarly, it has been held that a lease for a year with a stipulation that it should remain in force
until another lease is granted is a lease from year to year.

Question 7

Leases in Perpetuity

Answer 7

A lease without a term is a permanent lease. In the Indian scenario, leases in perpetuity are granted with respect to agricultural property. A fixed rent indicates permanency but permanency does not necessarily imply both the fixity of rent and the fixity of occupation.

A slight increase in rent will not by itself destroy the permanent character of the tenancy. A contract of lease providing that the tenant is to continue in possession as long as he paid rent indicates a tenancy for the lifetime of the tenant and not a permanent tenancy.

The burden of proving permanency of tenancy is on the tenant. He is to prove the existence, the nature and the extent of the interest which the owner has granted to him. Whether the facts and circumstances of the case justify the inference of permanence is a mixed question of fact and of law.

Question 8

DUTIES OF THE LESSOR

Answer 8

(1) Duty to Disclose any Material Defect in the Leased Property
(2) Duty to Put the Lessee in Possession
(3) Covenant Against Interruption of Enjoyment of Lease

Question 9

Duty to Disclose any Material Defect in the Leased Property

Answer 9

In the absence of a contract or local usage to the contrary, the lessor of immovable property, as against the lessee with respect to the property leased is bound to disclose to the lessee any material defect in the property, with reference to its intended use, of which the former is and the latter is not aware, and which the latter could not with ordinary care discover.

Question 10

Duty to Put the Lessee in Possession

Answer 10

The interest transferred in a lease 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.

The lessor of immovable property, as against the lessee with respect to the to the property leased is bound on the lessee’s request to put him in possession of the property of the agreed portion
failing which, a cause of action arises in favour of the tenant from the date of the lease.

So long as lease of immovable property does not get determined, lessee has a right to enjoy the property and this right is a right to property and cannot be taken away without the authority of law as provided in Article 300A of the Constitution. Further, without the determination of a valid lease, the possession of the lessee is lawful and such lawful possession of a lessee has to be protected by all courts and tribunals.

Question 11

Covenant Against Interruption of Enjoyment of Lease

Answer 11

The lessor shall be deemed to contract with the lessee that, if the latter pays the rent reserved by the lease and performs the contracts binding on the lessee, he may hold the property during the time limited by the lease without interruption.

The covenant is unqualified and protects the lessee against interruption by the lessor, his heirs and
assignees, or other lessees of the lessor, or by any other person or persons, whomsoever. It is also the duty of a tenant under a perpetual tenure to protect himself against illegal encroachments by others.

Question 12

RIGHTS AND LIABILITIES OF LESSEE

Answer 12

(1) Right to Enjoy Accretions to the Property
(2) Right to Revoke Lease in the Event of Destruction of Property by fire, etc.
(3) Right to Repair Property and Claim Costs in the Event of its Neglect by the Lessor
(4) Right to Remove Fixtures
(5) Right to the Benefit of Crops Grown by him

Question 13

Right to Enjoy Accretions to the Property

Answer 13

A lease is a transfer of a right to enjoy the property and if during the continuance of the lease, any accession, i.e., addition or improvement is made to the property; such accession shall be deemed to be comprised in the lease.

If an addition is made to the land, it will form part of the demise of the lessee. As the accretion is with respect to the property, the tenant acquires a right to enjoy it in the same manner as he does the property, and cannot claim the right of ownership in it. He must surrender it to the lessor at the end of the term even where the lessee encroaches upon adjoining land and acquires title thereto by prescription.

Question 14

Right to Revoke Lease in the Event of Destruction of Property by fire, etc.

Answer 14

The primary purpose of creating a lease is to confer the right of enjoyment on the lessee. If by fire, tempest or flood, or violence of an army or of a mob, or other irresistible force, any material part of the property is wholly destroyed or rendered
substantially and permanently unfit for the purposes for which it was let, the lessee has a right to avoid the lease and it shall, at the option of the lessee, be void.

The complete destruction of the subject of the lease i.e., the building/superstructure and the destruction of the underlying land in a lease deed will affect leasehold rights but where a godown that was given on lease was destroyed by fire but the lessee did not opt for declaration of the lease deed as void, he would not be deemed to have exercised his rights under section 108 (e) as even as the godown was destroyed, the land on which it stood was still in possession of the lease.

Question 15

Right to Repair Property and Claim Costs in the Event of its Neglect by the Lessor

Answer 15

Since the lessor continues to be the owner of the property, it is his duty to care for it and carry out necessary repairs from time to time at his own expense. The property, due to the lessor’s neglect should not become unfit for enjoyment.

If the lessor neglects to make, within a reasonable time after notice, any repairs which he is bound to make to the property, the lessee may make the same himself, and deduct the expense of such repairs with interest from the rent, or otherwise recover it from the lessor, but he cannot terminate the tenancy by reason of the lessor’s default, or quit.

Question 16

Right to Remove Fixtures

Answer 16

During the continuance of possession of the property, the lessee may attach something to the land that becomes a fixture or part of the land belonging to the landlord.

Under this section, the lessee may, even after the determination of the lease remove, at any
time whilst he is in possession of the property leased but not afterwards, all things which he had attached to the earth; provided he leaves the property in the state in which he received it.

Question 17

Right to the Benefit of Crops Grown by him

Answer 17

When a lease of uncertain duration determines 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 growing upon the property when the lease determines, and to free ingress and egress to gather and carry them.

Question 18

DUTIES OR LIABILITIES OF LESSEE

Answer 18

(1) Lessee’s Duty of Disclosure
(2) Obligation to Pay Rent
(3) Duty of Maintaining the Property

Question 19

Lessee’s Duty of Disclosure

Answer 19

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 and the lessor is not, aware, and which materially increases the value of such interest.

Question 20

Obligation to Pay Rent

Answer 20

The lessee is bound to pay or tender at the proper time and place the premium or rent to the lessor or his agent in this behalf.

The obligation to pay rent starts as soon as the lessor has fulfilled his obligation and the lessee has been put in possession.

Payment can be made by the lessee; but it cannot be made by a stranger unless he acts as an agent of the lessee. It is not necessary that the lessor should make a demand for rent. The lessee must seek out to the landlord to make the payment.

Question 21

Duty of Maintaining the Property

Answer 21

The lessee is bound to keep, and on the termination of the lease to restore, the property in as good condition as it was at the time when he was put in possession, subject only to the changes caused by reasonable wear and tear or irresistible force. He is also under a duty to allow the lessor and his agents, at all reasonable times during the term, to enter upon the property and inspect the condition thereof and give or leave notice of any defect in such condition; and, when such defect has been caused by any act or default on the part of the lessee, his servants or agents, he is bound to make it good
within three months after such notice has been given.

The obligation to restore the premises in good repair does not apply if the property is destroyed by a fire not caused by the negligence of the lessee, but he is liable for fire lighted intentionally or caused by
negligence.

Question 22

[s 113] Waiver of notice to quit.

Answer 22

Section 113 of the Transfer of Property Act says a quit notice is waived with the tenant’s consent, by any act of the landlord showing an intention to treat the lease as subsisting.

The court referred to the decision in Calcutta Credit Corporation Ltd. & anr. v. Happy Homes (P) Ltd., in which the bench stated that “when there is waiver of notice within the meaning of Section 113 of the T.P Act, the old tenancy is not resurrected and on issuance of quit notice the lease is determined, then by consent of parties all what happens is creation of new tenancy. Therefore, after issuance of quit notice, the tenancy can be terminated and thereafter the status of the tenant is that of a tenant at sufferance, that is, a trespasser”.

Question 23

NOTICE TO QUIT

Answer 23

1. There is a procedural requirement of “giving a notice” under Sections 106 and 111(g) of the Act, by the landlord, of his intention to determine the jural relationship of tenancy before filing a suit for eviction under the various state rent acts.
2. Section 106 of the Act was incorporated as an equitable provision so that the tenant could arrange for himself another roof.
3. Ordinarily, a contract between the parties would regulate all the relevant terms including the duration of the tenancy, however, there might be a case where
   the contract mentions no date of termination of such relation. In such cases, the lease is determined by serving a notice to quit.

Note: The provisions of the Rent Act supersede the provisions of the TPA.

Question 24

[s 114] Relief against forfeiture for non-payment of rent.

Answer 24

A close reading of Section 114 would show that the rights of landlord and tenant are balanced by the aforesaid provision.

This is because where a lease of immoveable property has determined by forfeiture for non-payment of rent, and at the hearing of the suit, the lessee pays or tenders to the lessor the rent
in arrears, together with interest thereon and his full costs within 15 days, the Court in its discretion may relieve the lessee against the forfeiture.

This shows two things – one that the landlord’s interest is secured not only by the deposit of rent in arrears but also interest thereon and full costs of the suit.

The option given, of course, is that security may also be given but what is important is that the Court is given a discretion in making a decree for ejectment if this is done. The discretion may be exercised in favour of the tenant or it may not. This itself shows that Section 114 cannot be said to be a provision conceived for relief of tenants as a class as a matter of public policy.

Question 25

116. Effect of holding over.—

Answer 25

Mere continuance in possession after determination of the term of the lease does not create a tenancy by holding over and the lessee must also prove that the lessor accepted rent or otherwise assented to his continuance in possession. The consent of the lessor may be inferred from the acceptance of rent, preceded by an offer from the tenant for renewal or payment of enhanced rent demanded by the landlord or a suit for rent, but mere payment and acceptance of rent by themselves cannot be taken as evidence of a new lease arrangement in cases of continuation of statutory tenancy and there must be independent evidence of assent by the landlord.

Question 26

Associated Hotels of India Ltd. v. R.N. Kapoor [AIR 1959 SC 1262]

Answer 26

Facts : In this case, a person was conducting the business of hair dresser in a hotel. He applied for fixation of standard rent. Issue: The question before the court was whether this occupancy was under a lease or a license? Ruling : If the 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 license. Where the transferee is entitled to exclusive possession of property, it is lease. But permission to use the land without the right of exclusive possession is license. The legal possession in license, therefore, continues to be with the owner of the property, but he is permitted to make use of the premises for a particular purpose. But for the permission, his occupation would be unlawful. It does not create in his favor any interest in the property. The dividing line is clear though sometimes it becomes very thin or even blurred. Held : Based on the tests, the transaction was a lease in this case.

Question 27

Parameters to distinguish between a lease and a license

Answer 27

(1) To ascertain whether a document creates a license or lease, the substance of the document must be preferred to the form. (2) The real test is the intention of the parties whether they intended to create a lease or a license. (3) 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. (4) 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.

Question 28

Ashok Harry Pothen v. Premlal 2023 SCC OnLine (Ker) 345

Answer 28

Facts: Petitioner is claiming that he is not liable to pay the rent amount because he is a licensee and not a lessee. He argues that the premises were handed over to petitioner for the specific purpose of conducting a car showroom and parking facilities. There were certain restrictions imposed on the use of the premises as well. Hence, he had no exclusive possession. Respondents countered that although the nomenclature of the agreement was of a license agreement, the terms in which possession of the premises was handed over constituted a rental arrangement. They also contended that the petitioners were granted the right to uninterrupted enjoyment. Hence it would be a lease and not a license. Held: There cannot be a single litmus test to decide whether the transaction is a lease or license. To distinguish between a lease and a license one has to consider the agreement between parties as a whole and the intention of the parties involved rather than the nomenclature used in the document and reading a few isolated provisions. The Bench noted that the complete document indicated that the premises were given for a specific purpose (running a car showroom) and exclusive possession was not handed over to the petitioner. Also, the intention of the parties was to create a license, not a lease, Thus, the Court concluded that the relationship between the parties was that of a license and not a lessee.

Question 29

Following factors must be taken into account while determining whether there is a lease or license

Answer 29

(1)Exclusive possession is itself an indication of a lease, however, such possession may be subject to certain reservation or to a restriction of the purposes for which it may be used. (2) Whether the agreement contains terms usually found in a lease eg. restriction on assignment or sub- letting. (3) Expression actually used by the parties to describe the transaction. (4) Existence of some special relationship between the parties; thus, no tenancy intended in relations like family relation, employer-employee relation, friendships, etc. (5)A servant in occupation of premises belonging to his master may be a tenant or a licencee. A service occupation is a particular kind of licence whereby a servant is required to live in the premises for the better performance of his duties. (6) Degree of control exercised by the owner over the premises. (7) Degree of formality surrounding the transaction, greater the formality the more the inference of tenancy.

Question 30

Importance of Lease Agreement

Answer 30

1) The written document which governs relationship between the parties is called the Lease Agreement. 2) The written document for the purpose of lease is seen as a contract between two parties. This contract is an important piece of evidence establishing the lessor as the owner of the property as well as it lays down the rights and liabilities of the parties and is necessary for establishing the legitimacy of a lease between two parties to be recognized in a court of law in the event of a dispute. 3) Additionally, the rights and duties so imposed fall under the concept of privy to contract and as the two parties are privy to the agreement, they have to abide by all such duties and liabilities as stated under the lease agreement. 4) The agreement is not a valid piece of evidence until two witnesses or non-beneficiaries of each party sign the lease agreement as witnesses. An additional requirement is that the document as the case may be should be a registered agreement under the Registration Act, 1908.

Question 31

ESSENTIAL ELEMENTS OF A LEASE AGREEMENT

Answer 31

1) Parties: In any agreement all the parties should have the competence under law to enter into a lease agreement. Competence for the purposes of any lease agreement refers to competence to contract as envisaged under Section 11 of the Indian Contracts Act, 1872. 2) Description of the Property: The property should be clearly showcased within the lease agreement for the purposes of ultimate clarity and to avoid any type of fraud by either party. 3) Term and Termination: The duration for which the agreement shall be valid or the duration for which the lessor agrees to lease out the property to the lessee shall be clearly mentioned. Additionally, all extensions to the term, terminations and rights of the parties post termination shall clearly be indicated in the lease agreement for the benefit of the parties to the contract. 4) Consideration: The most general form of consideration for the usage of property is called rent, which is paid in definitive instalments. Rent can be set up by the Lessor in consideration with his own costs to maintain such property and other charges that property might face such as taxes, duties, etc. There are other methods of payment of consideration such as premium, tender, etc. which might depend from contract to contract. 5) Representations and Warranties: Representation is a statement of past or present fact made by one party to induce another party to enter into a contract. A warranty is a promise that a condition or an assertion of fact is true and is typically supported by an implied promise of indemnity if the condition or assertion is false. A warranty may apply to the present and future. All the parties should be responsible in certain ways for the leased property and shall maintain the property based on such representations and warranties. 6) Covenants: An agreement or promise to do or provide something, or to refrain from doing or providing something, which is meant to be binding on the party giving the covenant. Generally, the lessor being the owner of the property makes covenants to be followed by the lessee for the purposes of maintenance of the property.

Question 32

Registration of a lease

Answer 32

Section 17(1)(d)[2] of the Registration Act and Section 107 of the TOPA mandate registration of lease deeds in case an immovable property is leased  from year to year, or  for any term exceeding one year, or  reserving a yearly rent. Thus, a lease for a period exceeding one year can only be made by way of a registered instrument. All other leases of immoveable property may be made either by a registered instrument or by oral agreement accompanied by delivery of possession. Similarly, Section 18(c) of the Registration Act exempts a lease deed granting lease of an immovable property for any term less than one year from compulsory registration.

Question 33

Period within which lease is to be registered

Answer 33

Section 23 of the Registration Act provides a window of four months from the date of execution for presenting the document for registration before the competent authority. However, the competent authority is empowered to condone such delay (not exceeding four months from the expiration of the aforesaid time period) on account of an urgent necessity or an unavoidable accident. In such cases, the party in delay is required to pay a fine not exceeding ten times the amount of the appropriate registration fee.

Question 34

Duration of lease in certain cases

Answer 34

Section 106 of the TOPA clarifies that in the absence of a written contract or local law or usage, a lease of immovable property (except for agricultural and manufacturing) shall be deemed to be a lease from month to month, terminable, on the part of either lessor or lessee, by 15 days’ notice. Recently, the Supreme Court in Siri Chand (Deceased) thr. L.Rs. v. Surinder Singh observed that in cases where a lease deed does not mention the period of tenancy, other conditions in the lease deed as well as intention of the parties have to be gathered to find out the true nature of the lease deed.

Question 35

Effect of non- registration

Answer 35

Section 49 of the Registration Act, 1908, sets out the consequences of non-registration of documents, which are required to be compulsorily registered. Section 49 makes it clear that a lease deed which is compulsorily registerable, if not registered, will not affect the immovable property comprised therein in any manner. Such a lease deed will also not be received as evidence of any transaction affecting such property, except for two limited purposes (i) as evidence of a contract in a suit for specific performance; and (ii) as evidence of any collateral transaction which by itself is not required to be effected by a registered instrument. In this regard, the Supreme Court in K.B Saha And Sons Private Limited v. Development Consultant Limited has inter alia set out the following: (i) a document required to be registered, if unregistered is not admissible into evidence under Section 49 of the Registration Act; (ii) such unregistered document can, however, be used as an evidence of collateral purpose as provided in the proviso to Section 49 of the Registration Act; (iii) a collateral transaction must be independent of, or divisible from, the transaction to effect which the law required registration; (iv) a collateral transaction must be a transaction that will not require to be effected by a registered document, that is, a transaction creating any right, title or interest in immovable property of the value of one hundred rupees and upwards; (v) if a document is inadmissible in evidence for want of registration, none of its terms can be admitted in evidence; and to use a document for the purpose of proving an important clause would not be using it as a collateral purpose.

Question 36

ESSENTIAL ELEMENTS TO CONSTITUTE LEASE:

Answer 36

1. **The Lessor** - He must be competent to contract and he must have title or authority. 2. **The Lessee** - He also must be competent to contract at the date of execution of the lease. A sale or a mortgage to a minor is valid. But a lease to a minor is void, as the lease is to be executed both by the lessor and the lessee. 3. The subject matter of the lease must be immovable property. 4. **There must be a transfer of a right to enjoy such property.** 5. **Duration of the lease** - A lease must be made for a certain time, express or implied, or in perpetuity. 6. Consideration, which may be premium plus rent, as well as premium alone. Premium is the price paid or promised in consideration of a transfer by way of lease. Any payment by the lessee that is part of the consideration of the lease is rent. 7. The lessee must accept the transfer. 8. The interest that the lessee acquires is a transferable interest and can further be transferred in favor of a sub-lessee or a sub-tenant. The relationship of the lessee is created with the property and not merely with that of the owner. 9. A lease is both heritable and transferable. A monthly tenancy is a heritable asset but a lease for the life of the guarantee terminates on his death.

Question 37

License (Section 52) Indian Easements Act

Answer 37

1. A licensee is a privilege to do something on the premises which otherwise would be unlawful. 2. In a license, there is no transfer of interest. Hence, it is not a transfer of property. (Licensee only acquires a right to occupy the land) 3. A license is usually terminated by death of either party since it is a personal contract. 4. A licence being a personal privilege, is non transferable and non-heritable. 5. A licensee is usually revocable by pleasure. 6. A licensee cannot take action against any trespasser.

Question 38

Rights of the lessor

Answer 38

1. A lessor has a right to recover the rent from the lease which was mentioned in the lease agreement. 2. Lessor has a right to take back the possession of his property from the lessee if the lessee commits any breach of condition. 3. Lessor has a right to recover the amount of damages from the lessee if there is any damage done to the property. 4. Lessor has a right to take back the possession of his property from the lessee on the termination of the lease term prescribed in the agreement.

Question 39

Determination of Lease by forfeiture: Section 111(g)

Answer 39

For determination of lease by forfeiture two elements are necessary: (i) express condition laid down by lessor and (ii) the lessor's right to resume possession upon breach of condition. The condition must be expressly stated so as to become part of the stipulation between the parties. The words 'express condition' itself stipulates that condition must be clear, explicit, unambiguous and there is no question of drawing any inference. But such condition alone is not sufficient. There must also be provision that on breach of condition, the lessor is entitled to re-entry i.e. take back the possession.

Question 40

Tenant at Sufferance

Answer 40

After the determination of tenancy, a lessee has no right to continue possession. But if he continues to be in possession, his status would be that of a tenant at sufferance. It would not be that of a trespasser. It’s a legal fiction created to protect the possession of the tenant till the decree of eviction is passed against him.