This is written by Michael Shriney from the Sathyabama Institute of Science and Technology. This article describes Section 106 of the Transfer of Property Act, which deals with lease, their elements, agreements, tenure, the aims of composite and integrated tenancies, impacts, and other lease-related information.
It has been published by Rachit Garg.
A transfer of property is a gift, sale, mortgage, lease or exchange of immovable property from the owner to another living person, who can make use of the land or enjoy the possession of land for a period of time or permanently. In other terms, transfer of property is the act of transferring property from one person to another.
This article focuses on the term ‘lease’, which refers to the transfer of property from one person to another in exchange for money, for a set period of time. Without selling the property, another person can utilise it as his own property for the duration of the agreement. Even if the owner’s property is leased to someone else, the owner will always be the owner. For a fixed period of time, the other person may utilise that property as his own. The parties’ agreement might be written or verbal in their contract.
Section 106 of the Transfer of Property Act, 1882 governs the tenure of leases in the absence of a documented contract or local practice. Let us go through some more details concerning lease under the Transfer of Property Act of 1882.
Essential elements of lease under Section 105 of Transfer of Property Act, 1882
Section 105 of the Transfer of Property Act of 1882 addresses the essential elements of a valid lease of immovable property.
There are two parties in a lease: the lessor and the lessee. The word “lessor” refers to the party, who transfers the immovable property, i.e. the owner or transferor. The word “lessee” refers to the person, who receives the property from the owner, also known as the holder of the property or the transferee.
The term “demise” implies to transfer property by lease or to give a property at lease. It is the transfer of immovable property from the lessor to the lessee through a lease. The property obtained from the owner is enjoyed by the lessee. It is the right to enjoyment known as demise.
The term (duration)
The duration of time is limited to the time indicated by the owner or lessor. The lessor specifies a time frame for transferring his immovable property for lease. It is entirely up to the owner to reach an agreement with the lessee for a specific span of time, to use or enjoy a hold of his property.
The owner fixes the lease price, which is known as the premium, and the money or value, contribution, service, or other things that are delivered is known as rent. The immovable property is leased for a certain amount, determined by the owner as the consideration. Consideration is the price to be paid or the promised amount to be given to the transferor on a regular or specified basis by the transferee.
Agreement to lease
The lease agreement is a deed between two parties, the lessor and the lessee, who both enter into a lease agreement. The lessor is the person who rents out his immovable property to the lessee on a monthly or annual basis for a fixed cost that the owner has agreed to or set. Under this agreement, the owner retains ownership of his property but transfers it to the other person for his use or enjoyment in exchange for a premium or rent. It is up to the parties whether the agreement is written or implied. The owner may establish the rate of premium for the immovable property.
For example: When ‘A’ leases his house to ‘B’ for a year at a payment of Rs.50,000. This is an agreement between ‘A’ and ‘B.’ As a result, ‘A’ does not lose ownership throughout this one-year period.
Duration of certain leases : Section 106 of Transfer of Property Act, 1882
In the absence of a formal contract or local practice, Section 106 of the Transfer of Property Act, 1882 governs the lease. There are two uses, agricultural and manufacturing, that are made to be assumed to lease on a year-to-year basis and can be terminated by either the lessor or the lessee with six months’ notice. If it is for any other reason, it will be treated as a lease from month to month basis by giving 15 days’ notice.
The most common type of lease is for agricultural use. The land owner rents or transfers his land to a lessee or farmer who uses it for agricultural purposes. It is done on rent or cash basis that is fixed by the owner. They may also contribute agricultural materials such as rice, wheat, or anything that they produce on the land. This can be accomplished by a formal agreement or a verbal agreement reached between the parties, i.e., the lessor and lessee. They utilise the land on a monthly or annual basis, which must be cancelled by giving 15 days’ notice or 6 months’ notice respectively if a written agreement is not present.
The other lease is for the purpose of manufacturing. They make use of the property to produce certain commodities. It must have a manufacturing process that involves either labour or machines. After the manufacturing process is completed, the finished product is produced. In other words, during the manufacturing process, the commodity must be in its original state.This can be performed by a legal agreement or a verbal agreement between the parties, namely the lessor and lessee. They use the land on a monthly or annual basis, which must be terminated with 15 days’ notice or 6 months’ notice respectively if no formal agreement exists.
Composite tenancy and integrated tenancy for dual purposes
A composite tenancy is the letting of premises for specific purposes. They give the tenant, the premises, for more than one specific purpose, allowing the tenant to use the entire premises as one unit. Mixed tenancy is another name for composite tenancy. Integrated tenancy serves two functions by allocating different portions to different types of users. There will be two or more rooms in this tenancy, one for residential purposes and the other for non-residential purposes. Two or more users will share the same premises as a tenant.
Notice to terminate the lease (Section 106 of the Transfer of Property Act,1882)
In the absence of a written lease contract, the lessee will be given 6 months’ notice to terminate the lease, if it is used for agricultural or manufacturing purposes on a yearly basis. In the case of other purposes on a monthly basis, the lessee will be given 15 days’ notice to terminate the lease. The notice period will begin from the date when the lessee receives the notification.
Shanthi Prasad Devi and Anr. v. Shankar Mahto and Ors. (2005)
The appellant secured possession on lease for the purpose of running a petrol pump for a term of fifteen years under a registered lease deed in this case. Although the lease was for a year, the payments were made monthly. After the period of fifteen years has passed, the lessee issued a notice under Section 106 of the Transfer of Property Act of 1882, to renew the lease deed. Even after the lease time had expired, the lessee continued to pay the rent, which the lessor accepted. The lessee took the acknowledgement of rent as an assent to the notice and remained on the premises. The Supreme Court concluded that Section 106 of the Transfer of Property Act, 1882, was not required for the renewal of the deed, hence, the appellant was ordered to depart the premises within two months in the same condition.
Service of notice
The lessor will serve notice to the lessee in the absence of a formal contract for the following reasons.
- Every notice must be in writing, signed by or on behalf of the person providing it, or it must be personally given to such party or his family or servants at his attached address.
- After the notice time has expired, a suit or procedure may be filed. The notice will remain effective even after the expiry date has passed.
- During agricultural or manufacturing purposes on a yearly basis, notice will be given to the lessee to terminate within 6 months.
- During other purposes on a monthly basis, notice will be given to the lessee to terminate within 15 days.
Acceptance of rent after notice
The acceptance of rent after notice is not accepted as the notice is given to terminate the lease. In other ways, by giving rent, the lease contract will not be renewed.
Munnar Lavten Yadav v. Ashok Dalvi (2021)
In this case, the petitioner was the owner of a plot of land, while the respondent was a monthly tenant. The respondent owed rent and refused to pay inspite of repeated reminders. The petitioner gave notice of eviction under Section 106 of Transfer of Property of 1882, and thus, the tenancy was cancelled. Ignoring the fact, the respondent failed to pay the arrears and did not vacate the land. According to the Bombay High Court bench, the respondent must hand over unoccupied and peaceful custody of the suit premises to the petitioner within two months of the date of the judgement.
Deposit of rent in court
The tenant cannot be made to deposit rent in Court all of a sudden. There are various requirements required in the Rent Control Act, 1948 for depositing rent in court, if the particular state has to be fulfilled with the following.
- When the landlord refuses or fails to deliver the receipt
- When the landlord does not accept the rent given by the tenant
- When the tenant is unsure to whom the rent is payable
In certain cases, the tenant may deposit his rent in Court. The Court receives the rent and transfers it to the landlord through registered post acknowledgement, as well as sends copies of the application and a copy of the notice to the landlord.
Giving permission to reside in a given area is what the term “permissive occupation” refers to. The word ‘permissive’ implies tolerance, and the term ‘occupation’ means being habituated to or living in it. This occupation of premises is permitted, allowing the lessee to utilise the property for an extended period of time. This has no impact on the owner’s rights or ownership. This is approved or permitted to the tenant on the basis of rent or lease to the tenant by expanding the term or by the landlord’s implied authorization. It is a legal right that can be claimed against any third party.
Effect of redemption on tenant-mortgagee
- When a tenant-mortgage is redeemed, there is no relationship between the landlord and the tenant. If a tenant is to be formed beyond the period of the mortgage, specific statements of intent must be made.
- After taking ownership, the mortgagor will be entitled to receive future rent payments. This was the impact of a mortgagee in possession on a tenant. A mortgagee cannot develop an interest in the mortgaged property that will survive beyond the end of his mortgage interest.
Rent control legislation
The legislature established the Rent Control Act, 1948. It governs the laws of rental property and guarantees that neither the landlords’ nor the tenants’ rights are abused by the other.
Rental Agreement: In India, renting or leasing any property for residential or commercial use is subject to a variety of rules and regulations. There must be a formal agreement between the two parties describing all of the tenancy terms and conditions.
Tenant’s rights: The legislation is in place, not just to protect the landlord and their property, but also to safeguard the tenant. The landlord cannot evict the tenant unless there is a valid reason or cause. The landlord cannot demand more than the agreed-upon rent for the lease. The tenant has access to vital utilities such as water, electricity, and so on.
Landlord’s rights: The purpose of the Act is to protect property against unfair exploitation from the tenant. When the landlord is dissatisfied with the tenant, he has the authority to remove him. He has the right to charge rent to the tenant. He can also temporarily repossess the property in order to enhance its condition or change it.
‘Tenancy- at- will’ refers to a situation in which either the landlord or the tenant can freely terminate the lease or rent at any moment. This occurs even in the absence of a contract or lease that specifies the duration of the tenant’s tenure or the payment exchange. The landlord does not compel tenants to remain for an extended period of time.
Tenancy of sufferance
Landlords generally sign a lease agreement that permits the tenant to stay in the property for a fixed period of time. Tenancy at sufferance occurs when a tenant does not vacate the property after the expiry date. In other words, the renter remains in the rental property after their lease time has expired. This gives rise to a tenancy at sufferance.
Sample of lease agreement
(This is just a sample lease agreement template for your reference. This agreement can be modified to meet the interests of both the landlord and the tenant.)
State of _____________
This lease agreement (this “Agreement) is made this_________, 20__, (the “Effective Date”) by and between __________, an individual located at _____________(‘Landlord’) and ____________, an individual located at ____________ (‘tenant’). Each landlord and tenant may be referred to in this agreement individually as a “Party” and collectively as the “Parties.”
WHEREAS Landlord owns and desires to lease to Tenant, and Tenant desires to lease, the Site (as defined herein); and
WHEREAS Landlord and Tenant wish to enter into this Agreement for the lease of the Site for use by Tenant as per the terms of this agreement.
NOW, THEREFORE for good and valuable consideration stated herein, the sufficiency of which is hereby acknowledged, the Parties agree as follows:
- Agreement to Lease. Landlord agrees to lease to Tenant and Tenant agrees to lease from Landlord, according to the terms and conditions set forth herein, the real estate described in Exhibit A attached hereto (the “Site”).
- Purpose. The Site may be used and occupied only for the following purpose (the “Permitted Use”): ________________. Nothing herein shall give Tenant the right to use the Site for any other purpose without the prior written consent of the Landlord. Landlord makes no representation or warranty regarding the legality of the Permitted Use, and Tenant will bear all risk of any adverse change in applicable laws.
- Term. This agreement will be for a term beginning on _____________ and ending on ____________ (the “Term”). The Parties hereto may elect to extend this agreement upon such terms and conditions as may be agreed upon in writing and signed by the Parties at the time of any such extension.
- Rent. Tenant will pay Landlord rent in advance on the Effective Date in the amount of Rs ______________..
- Late fee. Rent paid after the ______day of each month will be deemed as late; and if rent is not paid within _______ days after such due date. Tenant agrees to pay a late change of Rs _____________.
- Additional rent. There may be instances under this agreement where the Tenant may be required to pay additional charges to the Landlord. All changes are considered additional rent under this agreement and will be paid with the next regularly scheduled rent payment. Landlord has the same rights and Tenant has the same obligations with respect to additional rent as they do with rent.
- Security Deposit. Upon signing this agreement, Tenant will pay a securely deposit in the amount of _________to the Landlord. The security deposit will be retained by the Landlord as security for Tenant’s performance of its obligations under this agreement. If Tenant does not comply with any of the terms of this agreement, Landlord may apply any or all of the security deposit to remedy the breach, including to cover any amount owed by tenant and / or any damages or costs incurred by Landlord due to Tenant’s failure to comply. Within ___________days after the termination of this agreement, the Landlord will return the security deposit to Tenant. Any reason for retaining a portion of the security deposit will be explained in writing.
- Utilities. Landlord/ Tenant shall pay the cost of all utility services during the term, including but not limited to gas, water, and electricity used on the site.
- Acceptance. Both the parties, Landlord and the tenant should have read and understood this agreement and have agreed to sign the same without any pressure from any side.
In WITNESS WHEREOF the lessor/owner and the tenant/lessee have hereunto subscribed their hand at ____________ (place) on this the ________ (date of rent agreement) year first above mentioned in presence of the following witnesses.
_____________ (name of the landlord)
_____________ (name of the tenant)
Lease is the transfer of property from the owner to the tenant through an agreement, which may be in written or verbal form, for a certain length of time with a fixed premium or rent. The tenant may use the property for a limited time for an agreed amount. The owner’s ownership rights cannot be taken away. He is still the same as the owner.
When a documented lease agreement is missing, the tenant may be terminated by giving 6 months’ notice for agricultural and manufacturing purposes. Lease will be cancelled for other purposes by giving 15 days’ notice. Both are covered under Section 106 of the Transfer of Property Act, 1882. The effective enforcement of the law will begin the day after the notice is received. Even though the notice period has expired, the suit or proceedings can be filed. The notice must be in writing, signed by the lessor, and delivered to the lessee by post, personal delivery, or other ways to his family members or servants at the lessee’s residence.
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