This article has been written by Arkodeep Gorai, a 4th year student of Amity Law School, Noida. In this article he discusses the concept of lease and the rights and liabilities of lessor and lessee.
Lease is a very common term that is used in dealing with land or property. So if a person is interested in renting out his flat or his property then that person will opt for leasing it out. Surprisingly, people miss out on trivial aspects of a lease deed and it causes a ruckus. It would be wise for a tenant and a landlord to be wary of their rights and liabilities so that they can avoid any obstacle and can enjoy a seamless transition where a landlord protects his interests and a tenant gets to enjoy the property he rented.
Concept of lease
Lease basically means when one person through the means of a contract conveys or rents his property to another person for a specified amount of time in return for a periodic or a lump-sum payment.
e.g. A leases his house to B for 8 months for periodic payment of Rs. 10000 per month. This is the most basic example of a lease.
The term “lease” is defined under Section 105 of The Transfer of Property Act, 1882 and it states that-
“A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specific occasions to the transferor by the transferee, who accepts the transfer on such terms”.
There are 4 terms that we will come across this article which are related to lease of immovable property and they are as follows:
- Lessor- The transferor of the immovable property is called lessor.
- Lessee- The transferee of the immovable property is called lessee.
- Premium- The premium is the price paid for obtaining a lease of immovable property.
- Rent- The money or service that is rendered is known as rent.
Elements of a valid lease
For a lease to be valid it has certain prerequisites that are needed to be fulfilled and they are as follows:
- Competency of Lessor and Lessee- For a lease to be valid both the lessor and the lessee must be competent enough to constitute a contract. For a lessor and lessee to be competent they must be:
- The lessee must be a major.
- The lessor must hold the title and authority to make the lease.
- Both the lessor and lessee must be of sane mind.
- Subject matter- The subject matter of the lease must be immovable property like a flat, house or loft.
- Consideration- There must be a form of consideration involved in the contract. Without a consideration it would not be a valid lease rather it would be treated as a gift. The consideration is usually in the form of premium plus rent but sometimes it can be premium alone or rent alone.
- Duration- A lease for an immovable property shall be made for 11 months. In case the duration exceeds a year i.e 12 months or more then a lease agreement can only be made by a registered instrument as per Section 107 of the Transfer of Property Act, 1882.
- Delivery and Acceptance- The lessor must deliver the contract and the lessee must accept the contract without any form of undue influence, coercion. Once the lessee accepts the contract, the lease becomes valid.
Nature of lease
In case there is neither an oral confirmation or a registered document of a lease agreement accompanied by delivery of possession then there is no formation of a lessor and lessee relationship.
Absence of registration
If there is an absence of a registered deed when the duration of a lease agreement for immovable property is above 1 year then in that case Section 106 of the Transfer of Property Act applies and it states that:
- Immovable property for manufacturing or agricultural purpose- If there is an absence of a registered deed for an immovable property that is used for manufacturing or agricultural purpose then, in that case, it is considered to be under a year to year lease and the lease can be terminable on part of lessor or lessee by six months’ notice.
- Immovable property used for other purposes- If there is an absence of a registered deed for an immovable property that is used for some other purposes, in that case, it is considered to be under a month to month lease and the lease can be terminable on part of lessor or lessee by a fifteen day’s notice.
- Every notice that is delivered must be in writing and signed by the person delivering it. The notice must be delivered to the lessee personally or through the mail.
Agreement to lease and lease deed or lease agreement
There are certain differences between an agreement to lease and a lease agreement but both of these terms are often confusing for common people and it makes them vulnerable.
So basically an agreement to lease is the initial part of a lease agreement. Agreement to lease does not create any legal obligation, agreement to lease just implies the possibility of any future transfer. Agreement to lease just denotes the terms and conditions of a prospective lease agreement. It is just a stepping stone in the process of the lease.
On the other hand, a lease deed or a lease agreement is a final contract. A lease deed along with the delivery of possession creates a legal obligation upon a person. A lease deed transfers the rights from a lessor to lessee for a specific duration.
Lease and License
Lease and License are another two terms that confuse a lot of people. However, it does make sense because both lease and license share some common points but by no means, they can be substituted for each other as both of these terms are quite different.
A lease is generally a grant of property by one person to another in return for some consideration which is usually in the form of rent. A license is permission to do some act and without the permission doing such an act will be illegal.
A lease consists of a transfer of interest in the immovable property but in case of a license, there is no such transfer of interest in the property.
A lease is transferable and heritable whereas a license is non-transferable and it is based purely on personal privilege.
A lessee is permitted to uphold a suit in his own name against trespassers and strangers. A licence does not create an interest in the property in support of the licensee and so, he is not entitled to uphold suits in his own name.
Death of either party i.e. lessor and lessee does not affect a lease, whereas a licence is terminated in such situations.
Rights and Liabilities of a Lessor
We already know who is a lessor, so legally a lessor is granted certain rights and certain liabilities. Section 108A talks about the rights and liabilities of a lessor, so let’s further analyse the rights and liabilities of a lessor.
Rights of a lessor
- Right to accretions- If during the tenancy period or during the duration of the tenancy any further accretion, accumulation or addition is made in the property then the lessor is entitled to such property. Such addition can be natural or by the expense of the lessee but after the termination of the tenancy period, the lessee must deliver the title to the lessor.
- Right to collect rent- The lessor has the right to collect rent or any form of consideration as mentioned in the terms and conditions of the contract from the tenant without any form of interruptions.
Liabilities of a lessor
- Duty of disclosure- The lessor is bound to disclose any form of a material defect in the property. There are two kinds of defects:
- Latent defect- Latent defect cannot be discovered rationally or through inspection by the lessor.
- Apparent defect- Apparent defect can be easily discovered through some inspection.
So basically a lessor shall disclose any apparent defect to the lessee and it is vital to disclose such defects as they interfere with the enjoyment of the property by the lessee.
- To give possession- The lessor must give possession of the property to the lessee on lessee’s request. However, this liability only arises when there is a request on behalf of the lessee.
- Covenant for quiet enjoyment- The lessee has all the rights to enjoy the property. It is the duty of the lessor to not cause any form of interruptions during the tenancy period. The Madhya Pradesh HC stated that actions such as physical interference or direct interference in the premises lead to a breach of enjoyment and interruptions.
Rights and liabilities of a lessee
Just like a lessor, a lessee has also some rights and liabilities which are granted to him by the Transfer of Property Act. So now we will analyse the rights and liabilities of a lessee.
Rights of a lessee
- To charge for repair- If the lessor fails to make any repairs in the property which the lessor is bound to do in that case the lessee can make such repairs by his personal expenses. If a lessee makes such repairs by his personal expenses then, in that case, it is the right of the lessee to deduct the cost of such repairs from the rent or the lessee may simply charge the lessor for such repair.
- Right to remove fixtures- The lessee has the right to remove any fixture in the property during the time period of the lease, however, after the termination of the lease deed the lessee must leave the property in the condition in which he received it. In case the lessee fails to do so, the lessor can sue the lessee.
- Right to assign his interest- The lessee can sub-lease the property or the lessee can absolutely transfer his interests. However, if the lease deed restricts a lessee to assign his interest then the lessee is prohibited to do so and even after the transfer of his rights, the lessee is still subject to all the liabilities related to the lease deed.
- Right to have benefits of crops- When the lease is of uncertain duration then, in that case, the lessee or his/her legal representative has been given the right to gain benefits from all the crops grown by them.
Liabilities of a lessee
- Duty to disclose material facts- The lessee is bound to inform the lessor of any material fact which the lessee is aware of and the lessor is not. In case the lessee does not disclose such fact and the lessor suffers any loss then the lessee is bound to compensate the lessor.
- Duty to pay rent- The lessee is bound to pay the rent or the premium to the lessor or his agent in the proper time and proper place as decided by the lease deed. In case the lessee fails to pay his/her rent then, in that case, the lessor can eject the lessee on the ground of non-payment of rent or file a suit for arrears of rent.
- Duty to maintain the property- The lessee is bound to maintain the property in a good condition as it was when he was given the possession of the property. The lessor or his agent are allowed to inspect the property at the reasonable ground. Only the changes caused by irresistible forces can act as an exception for this liability.
- Duty to give notice- If the lessee becomes aware that any person has tried or is trying to damage the rights of the lessor or the title of the lessor is endangered then, in that case, the lessee must give notice to the lessor.
- Duty to use the property in a reasonable manner- The lessee must use the property in a manner as if it was his/her own property.
- Duty not to erect any permanent structure- A lessee cannot erect any permanent structures except in the case of agriculture without the consent of the lessor.
- Duty to restore possession- After the determination of the lease, the lessee must restore the possession of the property to the lessor. If the lessee does not vacate the premises even after the expiry of the notice, the lessee is then bound to pay the damages.
Termination of a lease
A lease is terminated in eight different ways that are discussed below:
- A lease is terminated after the expiry of the specified time period.
- If the length of the lease is until the happening of some event and when that event happens the lease is terminated.
- If the lessor’s interest in the property is to terminate the lease on the happening of some event and when the event happens the lease is terminated.
- When the lessee surrenders by implying.
- When both the lessor and lessee mutually agree to end the contract.
- On the expiry of a notice which expressly conveys the intention to terminate the vacancy and such notice must be unconditional.
- Through forfeiture which legally allows a lessor to re-enter and reclaim his property.
- If the interest of both the lessor and the lessee in the whole property becomes vested at the same time in one person in the same right, then by the operation of law merger takes place.
In this article, we analysed the concept of lease and how a lease is different from a license. We also discussed the rights and liabilities of both lessor and lessee who are integral and indispensable part of a lease deed.
Through the rights and liabilities, it is clear that a lessor must disclose facts and shall avoid interruptions while the lessee is leased the property. A lessee, on the other hand, is bound to take reasonable care of the property and at the same time pay his/her rent. A lease of a property is certainly different from a sale of a property and this article clarifies that aspect of property law.
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