Concept of lease
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This article is written by Vaibhav Pandey and Vaishnavi Pandey.

Introduction

In India, a person can enjoy someone’s tangible, intangible, movable and immovable property for a prescribed time, mentioned in a lease deed. 

Section 105, Chapter V of the Transfer of Property Act, 1882 provides for the definition of the term ‘lease’ as a transfer of a right to enjoy an immovable property for a certain time, or in perpetuity against consideration of a price paid or promised to the transferor by the transferee, who accepts the transfer on such terms. In other words, it is a kind of hindrance on a property in the form of enjoyment and possession owned by another person.

This section further defines the term ‘lessor’, ‘lessee’, ‘rent’ and ‘premium’. The person who transfers the property is known as lessor and the person to whom it is transferred is known as the lessee. There are various types of lease, for example, absolute, lease in perpetuity, periodic lease, lease for a fixed term and derivative. Section 106 of the Transfer of Property Act, 1882 provides for the duration of a lease, which is an essential element of every lease.

As given under Section 106, the duration of the lease is only where there is no contract or agreement expressly laid down in the lease. Section 107 of the Transfer of Property Act, 1882 deals with the procedure for execution of a lease. Section 108 provides for the rights and liabilities of the lessor and lessee. Since duties are correlative to rights, the liabilities of the lessee mean identical rights of the lessor. These rights and liabilities of the lessor and lessee apply in the absence of any contract to the contrary. This section is also subject to local customs or usages.

Section 111 deals with the determination of lease as specified from clause (a) to (h) in the section. Determination of lease can be defined as termination of the contract of lease. The legal relation between the lessor and lessee comes to an end after the determination of lease. Under the provision of this section, a lessor cannot forcibly eject the lessee from the property leased to him. 

This article will attempt to examine the concept of lease and will begin with the definition of lease as provided under Section 105 of the Transfer of Property Act, 1882 followed by the essential ingredients of a lease. The discussion will confine to the rights and liabilities of both lessor and the lessee as provided under Section 108 of the Act. In the next part of the discussion, the author has specifically dealt with the various modes of determination of lease as specified from clause (a) to Clause (h) of section 111 of the Transfer of Property Act, 1882. Further, the author will discuss the notice to quit and effect of holding over along with the various judicial decisions.

The last part of the article incorporates leading judicial remarks on the rights of the lessor and the lessee and the various modes of determination of lease.

Concept of lease: an introduction

Lease of an immovable property is defined under Chapter V of the Transfer of Property Act, 1882.

Section 105. Lease defined. – 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 specified occasions to the transferor by the transferee, who accepts the transfer on such terms.

Lessor, lessee, premium and rent defined.—The transferor is called the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service or other thing to be so rendered is called the rent.

A lease is a transfer of partial interest (and not absolute interest) in an immovable property and not a transfer of ownership. Lease is considered as transfer of property since, interest in an immovable property is considered as property. The right to enjoyment of property is transferred for some consideration for a fixed period. The person who transfers the property is called lessor (landlord) and the person to whom it is transferred is known as lessee (tenant), the price is called the premium and the money, service, share or any other thing to be rendered is called the rent.

Essential elements of a Lease

Following are the essential ingredients to constitute a ‘valid lease’ of an immovable property:

  1. The parties to the lease i.e., lessor and lessee, are necessary. Lease is based on an agreement between parties competent to contract. A lease granted by minor is void. The parties should be competent to enter into a contract. A lease granted by minor is void.
  2. The Demise: Lease is a transfer of an interest (right of enjoyment) in an immovable property. It is a transfer of limited estate and this limited estate or right of enjoyment, is called demise. 
  3. Duration of lease: The interest which is created in the property could be for a specified period or even in perpetuity. The parties to the lease are free to decide the duration of the lease i.e., the duration can be relaxed at the option of the parties. 
  4. Consideration: There should be a valid consideration paid to the lessor by the lessee, either periodically or on specified occasions.

Duration of the lease in the absence of lease agreement

Section 106 of the Act lays down that in the absence of a contract, both the parties can end the lease by issuing a notice to quit. The date when the notice to quit is received the prescribed time period commences. This notice should be written and conveyed to the party and the party is required to abide by it. The period of the lease is only where there is no agreement expressly laid down in the lease. 

In the case, Shanti Prasad Devi v. Shankar Mahto, the expiry before term and its subsequent renewal was provided in the agreement of lease. The apex court held that mere acceptance of rents on expiry of the period of lease would not amount to as an assent to the continuance of lease.

This section has classified the lease into two categories to ascertain the term of a lease:

  1. When a lease is made for agricultural or manufacturing purpose and is deemed to be of year, then it will attract a 6-month notice regarding the end of the lease on the expiry of 1 year.
  2. When a lease is made for some other purpose and is deemed to be of month to month, then it will attract a 15-day notice regarding the end of the lease on the expiry of 1 month. 

Term of Lease

Section 107 of the Transfer of Property Act, 1882, provided for the two modes of creation of leases (a) Leases which can be made only by registration and (b) Where registration is optional. In the event, the same is not made through a registered instrument, then, contrary to what is mentioned in the said lease, the duration of the lease will be assumed to be of a month, and the same may be terminated by either party by providing a fifteen days’ notice. However, in case the term is less than a year, then the said lease may be made either by oral agreement accompanied by delivery of possession of the immovable property, or by a registered instrument.

The Section read as follows:

  1. Leases how made.—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 may be made either by a registered instrument or by oral agreement accompanied by delivery of possession.

Where a lease of immovable property is made by a registered instrument, such instrument or, where there are more instruments than one, each such instruments shall be executed by both the lesser and the lessee.

Provided that the State Government may from time to time, by notification in the official Gazette, direct that leases of immovable property, other than leases from year to year, or for any term exceeding one year, or reserving a yearly rent, or any class of such leases, may be made by unregistered instrument or by oral agreement without delivery of possession.

In simpler words, Section 107 of the Act covers three aspects:

  1. Registered Deed: When the lease of immovable property is for a term of 1 year or more.
  2. Other leases of immovable property can be either made by a registered deed or by an oral agreement accompanied by the transfer of possession.
  3. A lease will be made by both the parties when the lease is of multiple properties that require multiple deeds.

The court in the case, Punjab National Bank v. Ganga Narain Kapur held that the provisions of Section 106 of the Act will apply if the lease is done through an oral agreement. 

Rights and liabilities of lessor and lessee

The rights and liabilities of lessor and lessee are governed by any contract between the parties and the local custom or usage and by the provisions of Section 108 of this Act. These rights and liabilities are subject to a contrary-contract, i.e., where the lessor and lessee make an agreement to be governed by their terms and conditions during the subsistence of lease, their respective rights and liabilities are determined by their own agreement. Section 108 does not apply in such a case. In the absence of any contract to the contrary, the mutual rights and liabilities of lessor and lessee arise. These mutual rights and liabilities are explained below.

Rights and Liabilities of Lessor

Rights of Lessor

The section does not provide for any specific right of the lessor. However, there are few rights of the lessor that can be inferred from this section. 

  1. Right of the lessor to recover the rent from the lease as mentioned in the lease agreement.
  2. In case of any breach of condition by the lessee the lessor has the right to take back the possession. This right arises from the exception to Section 10 of this Act. 
  3. In case of any damage done to the property the lessor is entitled to recover the amount of damages from the lessee.
  4. On the termination of the lease term as prescribed in the agreement, the lessor has the right to take back the possession of his property from the lessee.

Illustrations

  • A has leased his land to B for a period of three years with a condition that B shall not cause damage to the property. B breaches this condition. A is entitled to recover damages from B for the damage done to his land. 
  • A has leased his house to B for one year through an agreement. On the termination of the lease term (one year), A has a right to take back the possession of his property.

Liabilities of Lessor

Clause (a), (b) and (c) of Section 108 of the Act, lays down the liabilities of the lessor.

1. It is the duty of the lessor to disclose any material defect in the property which the lessee under ordinary supervision cannot find out or does not know. This defect should of such nature that the if the lessee would have known about it, he would have not accepted it at all and if accepted, he would have imposed certain terms and conditions. 

There are two kinds of defects:

  1. Latent defect- Latent defect cannot be discovered rationally or through inspection by the lessor.
  2. 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.

In the case, Radha Krishna v. O Faherty, the lessor was held liable for not disclosing the fact that the furniture of the tenant was destroyed by the fire caused by the defect in the chimney, which was not disclosed to the tenant.

2. The lessor is bound by the duty to transfer the right of possession over his property as without having the possession the lessee cannot have the enjoyment of the property.

Illustration

  • A has leased his land to B for a period of three years but he fails to put B in possession of the property. B can sue A for obtaining possession or may sue for the rent already paid to him.

3. If the lessee agrees to abide by all the terms and conditions as prescribed in the agreement, then a lessor can enter into a contract with the lessee, and the lessee can enjoy the property without any interference and he would be under an obligation to pay the rent.

There would be a breach of lessor’s duty to the implied covenant for the enjoyment of the property by the lessee if the lessor does not himself has no title over the leased property. 

Rights and Liabilities of the Lessee

Rights of the Lessee

The clauses (d) to (j) of Section 108 of the Act provide for the rights of the lessee in the absence of any contract or local usage to the contrary.

(d) If any alteration is made during the duration when the lease is in effect then that change will come under that same lease.

(e) The lease is voidable at the option of the lessee if the property that has been leased is destroyed wholly or partly by fire, by war, by flood, violence, mob or by any other means thus, making it impossible for the lessee to enjoy the property. 

If the property so destroyed can be made fit to use then the lessee cannot avoid the lease. Also, if the lessee himself causes some damage to the property then the remedy to avoid the lease will not be available for him.

(f) Lessee has the right to deduct expenses from the rent that he made for any repairs done in the property if the lessor, bound under some local law or customs, fails to repair the tenanted property. 

(g) The lessor has the right to recover any payment which a lessor is bound to make either by making a deduction in the interest of the rent or directly from the lessor, which a lessor is bound to make.

(h) After the termination of the lease, the lessor has the right o remove/detach all the things that he may have attached to the land during the time period of the lease. Although, he has an obligation to leave the property in the same condition as he has received it.

(i) When the duration of the lease is not specified in the lease agreement, all the benefits or profits arising from the crops sown by the lessee at that property will belong to the lessee or his legal representative.

(j) By subleasing or mortgaging the leased property, the lessee has a right to transfer absolutely the property or his interest in that property. 

Illustrations

  • A leases his property to B. After sometimes A adds some land to the leased property and dies B to enjoy that property. B has the right to sue A and enjoy the increased property along with the main property. 
  • A, the lessor, will be held responsible for the death of the person visiting the leased property due to the defect in the electric wiring of the house.

Liabilities of the Lessee

The clauses (k) to (q) of Section 108 of the Act provide for the liabilities of the lessee.

(k) It is the duty of the lessee to disclose all the related material facts known to him which are likely to increase the value of the leased property. The breach of this duty does not mean that the lease agreement will be terminated. However, the lessor can sue him for the damages.

(l) The lessee is under an obligation to pay the rent or premium to the lessor or his agent within the prescribed time as stipulated in the agreement. When there are more than one lessee, then the rent paid by any one of them is sufficient. Likewise, if there are more than one lessor then rent paid to any one of them is sufficient. If the lessee breaches his duty, then the lessor may sue the lessee for the rent with the interest.

(m) It is the duty of the lessee to maintain and return the property as he got it initially from the lessor on the commencement of the lease.

(n) It is the duty of the lessee to give notice to the lessor about any proceedings related to the property or any encroachment or any interference. 

(o) Lessee is under an obligation to prevent any stranger from using all the assets and goods which are on the property different from the purpose as described in the lease agreement. He must use the property reasonably.

(p) The lessee is under an obligation to not erect any permanent structure, except for agricultural purposes, without the consent of the lessor. And if these permanent structures constructed by the lessee are not removed, then on the expiry of the term it will belong to the lessor. 

In the case of Purushottam Das Bangur v. Dayanand Gupta, the tenant was held liable for replacing the tin roof of the house with a concrete slab and for the construction of the passage, as these changes could not be removed without damage to the other structure.

(q) It is the duty of the lessee to give back the possession of the property back to the lessor after the duration of the lease agreement expires. And if the lessee does not return the property after the expiry of the term he will be held liable to pay damages and mesne profits to the lessor.

Illustrations

  • If the lessee, B discovers any gold mine in the property leased to him by A. He is under an obligation to inform A about it as it is likely that the gold mine will increase the value of the property. 
  • The lessee B must not cut the trees on the land leased to him by the lessor,A, and sell the timber.

Determination of lease

Determination of lease means termination of the contract of lease. After the determination of lease, the legal relation between the lessor and lessee comes to an end. Section 111 deals with the various situations in which a lease is determined. Section 111 of the Transfer of Property Act, 1882 reads as follows:

  1. Determination of lease.—A lease of immoveable property determines—

(a) by efflux of the time limited thereby;

(b) where such time is limited conditionally on the happening of some event—by the happening of such event;

(c) where the interest of the lessor in the property terminates on, or his power to dispose of the same extends only to, the happening of any event—by the happening of such event;

(d) in case the interests of the lessee and the lessor in the whole of the property become vested at the same time in one person in the same right;

(e) by express surrender; that is to say, in case the lessee yields up his interest under the lease to the lessor, by mutual agreement between them;

(f) by implied surrender;

(g) by forfeiture; that is to say, (1) in case the lessee breaks an express condition which provides that, on breach thereof, the lessor may re-enter; or (2) in case the lessee renounces his character as such by setting up a title in a third person or by claiming title in himself; or (3) the lessee is adjudicated an insolvent and the lease provides that the lessor may re-enter on the happening of such event; and in any of these cases the lessor or his transferee gives notice in writing to the lessee of his intention to determine the lease;

(h) on the expiration of a notice to determine the lease, or to quit, or of intention to quit, the property leased, duly given by one party to the other. 

A lease may be determined in the following situations:

  • By Lapse of Time

At the expiration of the time period a lease of immovable property comes to an end. This is known as determination by lapse of time. There is no requirement of any notice or formality for the determination of the lease. A lease made for an indefinite period does not mean that his heirs will have interest in the property unless the agreement has words that indicate a hereditary interest.

  • By happening of Specified Event

If the term of the lease is dependent on the happening of certain event and if any part of the term fixed remains unexpired, it is of no consequence. In the case, Juthika Mulick v. MY Bal, it was held that it is not necessary that the term ‘certain’ need not be certain on the date of the lease.

Illustration

  1. A lease shall come to an end if the lessee dies before the expiry of ten years, the time till which the lease was made.
  • By termination of Lessor’s Interest

When the lessor has a limited interest in the property then with the termination of the lessor’s interest, the lease also comes to an end. If a lessee sublets the property, the sublease comes to an end upon the death of the lessee. 

In the case, Atyam Veeraju v. Pechettti Venkamma, the Supreme Court held that the lease granted by the manager of the temple comes to an end with the expiry of the office of the manager or his successor.

  • By Merger

In simple terms, in a merger, a greater estate coincides with a lesser estate (the lesser estate is said to be merged in the greater) and meets in one and the same right and in the same person, without any intermediate estate. This doctrine is applicable only when the entire interest of both the lessor and the lessee becomes vested in the same person.

In Parmeshwar Singh v. Sureba Kuer, it was held that the doctrine of merger is only applicable in the case where the entire interest of the lessor and the lessee becomes vested in the same person and in the same time.

  • By Express Surrender

In surrender, the smaller interest unites with the larger interest. It becomes effective at once and the lease is determined immediately. The surrender of the estate may be express or implied. 

The lessee’s right to enjoyment of the property reverts back to the owner when he vacates the property before the expiry of the month. 

  • By Implied Surrender

In simpler words, it means that when a lessee accepts the same property already leased to him by the lessor, there is implied surrender of the former lease. If the surrender takes place by the operation of law, it is implied surrender. 

  • By Forfeiture

It is another mode for the determination of the lease. If the lessee losses the right to use the property by his own fault, forfeiture is said to take place. Notice is mandatory for the forfeiture.

This clause provides that a lease terminates by forfeiture in the following circumstances:- (a) in the case lessee breaks on express condition which provides that on breach of it, the lessor may re-enter the property, or (b) in case the lessee renounces his character as such by setting up a title in a third person or by claiming title in himself, or (c) the lessee is adjudicated an insolvent and the lease provides that the lessor may reenter on the happening of such event.

  • By expiry of notice to quit

When there is a requirement to terminate the lease, then the lease is determined after the expiry of the notice to quit. When the lease is for year to year, the notice expires after six months and when it is for month to month, the notice expires after 15 days. It is not mandatory to state any ground for the notice to quit.

Notice to quit and its effects

A formal statement that is issued to the lessee if the lessor desires to end the lease agreement whether on the grounds as specified under Section 106 or 111 of the Act, is known as a Notice to quit. The lease can be forfeited as mentioned in the sub-clause (g) of Section 111, by accepting the notice to quit.

Section 112 of the Act states that if the lessor accepts any rent from the lessee after initiating the process of termination of the lease on the grounds of forfeiture, it will be assumed that the notice to quit has been waived and the lease still exists.

Section 113 of the Act, provides the ways, i.e., expressly or impliedly  in which a notice can be waived.

  1. Impliedly Waiver of notice to quit: When a lessor issues notice to quit to the lessee and on the expiry of that notice, another notice is issued to quit to the lessee by the lessor. The first notice to quit is impliedly waived.
  2. Express Waiver of notice to quit: The acceptance of rent by the lessor from the lessee after the notice to quit has been served is called expressly waived.

Illustrations

  • A, the lessor, gives B, the lessee, notice to quit the property leased. After the expiry of the notice, the lessor accepts the rent by B. The notice in this case is waived.
  • A, the lessor, gives B, the lessee, notice to quit the property leased. After the expiry of the notice, the lessee remains in the possession of the property. A issues another notice to quit to B. Here, the first notice to quit is impliedly waived.

Effect of holding over

Section 116 of the Transfer of Property Act, 1882, provides for the effect of Holding Over. It states that if a lessor allow the lessee to have the possession of the property, the lease will be renewed. But, if he does not agrees to the holding over of the property by the lessee, a suit can be initiated against the lessee on the grounds of trespass. 

Two conditions are important for the application of Section 116 of the Act:

  • After the determination of the lease, the tenant or the lessee must be in possession of the property.
  • The lessor or his legal representative, must either accept the rent from the lessee or agrees to the holding over of the property by the lessee.

This section is applicable only when the original lease was fixed for year to year or month to month and not when the lease was for life.

Illustrations

  • Rakesh lets a house to Ramesh for three years. Ramesh further underlets the house to Rajesh at a monthly rent of Rs. 1000. After the expiry of the three years, Rajesh continues in possession of the house and pays the rent to Rakesh. Here Rajesh’s lease is renewed from month to month.
  • Mohan lets his house to Madan for the life of Mahesh. After the death of Mahesh, Madan continues to have possession with Mohan’s assent. Here Madan’s lease is renewed from year to year.

In Padmanabh Pillai v. Sankaran Vishwambharam, the court held that, if the lessor receives rent from the lessee and is protected by the Rent Acts then a new tenancy is not created under this section. Here, mere acceptance would nit amount to assent of the lessor about the new tenancy. The lessor must have independent evidence of assent.

Conclusion

After reviewing the provisions laid down in the Act, along with the various judicial pronouncements on the subject, it maybe concluded upon that, lease is a very important aspect of life and therefore, it becomes necessary for every individual to know about the concepts and the essentials of the lease and also about the rights and the liabilities of the lessor and the lessee and also to know about how the contract of lease may be terminated. 

The provision of lease begins from section 105 of the Transfer of Property Act, 1882 and continues till Section 117 of the Act. From this article, one can see that the duration is considered as an important element of every lease. The lease provides for the duration during which the lessor can enjoy the property. When the term is not given, the lease is fixed on the basis of local laws and customs. And, in the absence of the term or local laws and customs, Section 106 of the Act ascertains the term of the lease. 

In a lease agreement, there are two parties, the lessor and the lessee. These parties have certain rights and since duty is correlative to rights, hence, the lessor and the lessee also owe certain duties to each other and on the infringement of these rights and liabilities they have the remedy to either sue or claim damages from the other party. Therefore, a lessor has the duty to disclose all the material facts to the lessee and avoid interruptions in the lessee’s right to enjoyment of the property and on the other hand, the lessee should pay the rent on time and must not cause damage to the property leased to him.

Furthermore, under Section 111 of the Transfer of Property Act, 1882, the topic determination of lease is very wide and covers the day-to-day life issues. It specifies different modes by which the lease may be determined. Whatever may be the grounds of determination of a lease, the person who is in the possession of the property, even after the lease has expired, cannot be disposed of by the lessor or his legal representatives without recourse of law as given under Section 111 of the Transfer of Property Act, 1882. This section does not apply to a lease created by the will and to the agricultural leases, exempted from its operation by Section 117 of the Act.

After the lease is determined, the lessee loses his right to possession over the property. But when the lessee still continues to hold possession with the consent, either by express or implied, the lessee is called a tenant by holding over. 

In this time when people are career-oriented thus, it is their need to leave their native place and move to a new city or state. People are emotionally attached to their property and hence, they cannot sell of them. In order to protect their property or there are times when people are in urgent need of money, at that point of time people prefer to lease out their property instead of selling it off. Simultaneously, there may be times when people moved to new place may require a place to live in or land to cultivate then, to take a property on lease may be a feasible option for them. Henceforth, lease may play a very significant role in today’s time. 

In past few years, it is evident that the government is focusing too much on lease for many important purposes. Thus, according to the author, there must be some initiative taken by the governmental and non-governmental organizations to ensure or to impart knowledge about lease so that there may not be any kind of infringement of rights on part of lessor and lessee. It is very common that lease is generally of agricultural land in India, and almost 99% of the farmers are poor and illiterate so, the education regarding lease will safeguard their interest.


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