Lease under Transfer of Property Act

What is lease in Transfer of Property Act?

Meaning of Lease under Transfer of Property Act: – 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 price or promised, or of money, a share of crops, service or any other thing, of value, to be rendered periodically or on specified occasion to the transferor by the transferee who accepts the transfer on such terms. Lease under Transfer of Property Act, 1882 deals with sSection 105 to section 117. A lease can be done only of immovable property.

A lease under transfer of property act, is a contract by which one party transfer the right to enjoy the land, property, services, etc. to another for a specified time, usually in return for a periodic payment.

Lease under Transfer of Property Act

Section 105 of Transfer of Property Act says out the definition of a lease stating that it is a transfer of immovable property for a particular time period for consideration of which the transferee has accepted the terms and conditions mentioned in the agreement. The lease is governed by the Transfer of Property Act, 1882 and it is given from Sections 105 to 117.

Lessor: – In a lease, the right of possession is transferred rather than the right of ownership. Here the transferor is called the lessor.

Lessee: – The transferee i.e. the one who enjoys the property for a period is called the lessee.

What are the essentials of lease under Transfer of Property Act?

The essentials of lease under transfer of property act are as follows: –

  1. Parties must be Competent: – A lease agreement must enable parties to enter into a contract. A lessor should be entitled to a property and have full rights over that property. He must be of sound mind and should not be disqualified by the contracting law. Also he must be the true and absolute owner of the property which is grant in a lease.
  1. Right of Possession: In the lease ownership rights are not transferred, only the possession of the property is transferred. Lease is different from a sale. In lease there is only a transfer of possession to the lessee whereas the ownership is still remained to the lessor.
  1. Consideration: – A lease must be made of consideration which may be in the form of premium or rent. In a lease, consideration can be taken in the form of a rent or premium. The consideration for lease is either premium or rent, which is the price paid or promised in consideration of the demise. The premium is the consideration paid of being let in possession, such as Salami, even if it is to be paid in installments. It can be rent with premium or rent alone or premium alone.
  1. Acceptance: – The lessee, who is to receive interest in the property after the lease, must accept the lease agreement with the time period and the terms and conditions imposed on the transfer between the parties.
  1. Time Period: – The lease is always for a specific time period that is to be specified in the lease agreement. This can be relaxed at the option of the lessor. In a lease the right to enjoy the property is given for a certain period or in perpetuity. However, generally the time period is mentioned in the agreement.
  1. Right to Enjoy the Property: – In a lease, right to enjoy the property is transferred. A lessee having a right to enjoy the property for certain period of time but he does have right to further transfer that property because in lease merely possession is transferred not the ownership.

When there is no time period prescribed in the lease agreement

Section 106 provides for the duration of the lease in the absence of a lease agreement. It is given below that in the absence of a contract; the lease under transfer of property act can be terminated by both parties by issuing a notice of termination of the lease. The stipulated time period always starts from the date of receiving the notice to quit.

There is a distinction of two purposes in regard to Section 106 i.e. Agricultural or manufacturing and other purposes. Hence, two things can be derived from this: –

  • In the absence of a contract or local law or usage to the contrary, a lease of immovable property for agricultural or manufacturing purposes shall be deemed to be a lease from year to year, terminable, on the part of either lessor or lessee, by six months’ notice
  • When a lease of immovable property for any other purpose shall be deemed to be a lease from month to month, terminable, on the part of either lessor or lessee, by fifteen days’ notice.

Proviso: – There is proviso to this section which states that the notice to quit in this section must be in written and communicated to the party who is required to abide by it. If this is not possible then it should be attached to a conspicuous place in that property.

How is a lease under transfer of property act executed?

Section 107 states about lease how made. This section covers three aspects: –

lease agreement under transfer of property act
  • When there is a lease of immovable property for a period of 1 year or more – it can only be made by a registered deed.
  • All other leases of immovable property – either by registered deed or by transfer of possession of that property may be made by an oral agreement or settlement.
  • When the lease is of multiple properties, requiring multiple deeds, it will be made by both parties of the lease.

What are the rights and liabilities of lessor and lessee?

  1. Rights of the Lessor: –
    • A lessor has the right to recover rent from the lessee which was mentioned in the lease agreement.
    • If the lessee commits any breach of condition then the lessor has the right to take back possession of his property from the lessee.
    • If there is any damage to the property, the lessor has the right to recover the amount of the loss from the lessee.
    • The lessor has the right to take possession of his property at the end of the lease term prescribed in the agreement.
  1. Liabilities of the Lessor: –
    • The lessor has to disclose any material defects related to the property that the lessee does not know and cannot detect with ordinary supervision.
    • The Lessor is bound by the lessee’s request to give him the right to possession over his property.
    • The Lessor may enter into a contract with the lessee if he agrees to abide by all the terms and conditions prescribed in the agreement, and can enjoy the property for the rest of the time without interference with the obligation to pay the rent later.
  1. Rights of the Lessee: –
    • During the period, the lease is in effect if any change is done (alluvion for the time being in force) then that change will come under that same lease.
    • If a significant part of the property that has been leased is completely or partially destroyed by fire, by flood, by war, by violent acts of mob or by any other means resulting in its inefficiency of being a benefit for the lessee. If this happens, the lease is voidable at its option.
    • This section contains a proviso stating that if the damage is caused by any act of the lessee, the remedy will not be available for him.
    • The lessee has the right to deduct any expenses incurred for repairing the property from the rent if lessor fails in a reasonable time.
    • The lessee has the right to recover any payment which a lessor bound to make by deducting it from the interest of the rent or take it directly from the lessor. He has this right when the lessor has neglected to make that required payment.
    • The lessee has the right to detach all things that he may have attached to the property or the earth. His only obligation is to leave the property in the same condition he received it.
    • When a lease is of unspecified duration in the lease agreement, the lessee or his legal representative has the right to collect all profits or gains from the crops  that was sown by the lessee on that property. They have the right of free entry and exit of such property even after the lease ends.
    • Lessee has a right to tranfer the property absolutely or any part of his interest in that property through sub-leasing or through mortgaging. Lessee is not independent of the terms and conditions mentioned in the lease agreement.
  1. Liabilities of the Lessee: –
    • The lessee is under an obligation to disclose all related material facts that are likely to increase the value of the property for which the lessee has an interest and the lessor is not aware of it.
    • The lessee is under an obligation to pay the rent or premium which is settled upon the agreement to the lessor or his agent within the stipulated time.
    • The lessee is under an obligation to maintain the property in the condition that he initially received the property at the commencement of the lease and must return it in the same condition.
    • If lessee gets to know about any proceedings related to the property or any encroachment or any interference, then lessee is obliged to give notice to the lessor.
    • The lessee has the right to use all the assets and goods that are on the property as an owner, who will use it which is preserving it for the best of its nature. However he is obliged to prevent any other person from using that asset or good for any other purpose as stipulated in the lease agreement.
    • And the lessee cannot attach any permanent structure without the lessor’s consent except for the purpose of agriculture.
    • The lessee is under an obligation to return the possession of the property to the lessor after the expiry of the prescribed term of the lease.

How does a lease gets terminated?

Section 111 deals with the termination of the lease, which explains the methods for terminating the lease: –

  1. Lapse of Time: – When the time of the lease is expired. When the stipulated time of the lease expires, the lease is terminated.
  1. Specified Event:When a condition occurs at the time of the lease based on the happening of an event. Where such time is limited which is based on the happening of some event.
  1. Interest: – When the interest of the lessor gets terminated or his power disposed of towards the property. The interest off lessor to lease the property may cease, hence resulting in the termination of the lease.
  1. Same Owner: – It gets terminated when the interest of the lessee and lessor gets vested on the one person at the same time. When the interests of both the lessor and the lessee are transferred or vested in the same person.
  1. Express Surrender: – This is when the lessee stops having interest in the property and comes to a mutual agreement with the lessor.
  1. Implied Surrender: – When the lessee enters into a contract with another to lease the property, it is an implied surrender of the existing lease.
  1. Forfeiture: Gets terminated by the way of forfeiture like if there is a breach of any condition on the part of the lessee or like lessee given or setting the title in the name of third person or by himself. There are three ways by which a lease can be terminated: –
    • When an express condition is breached by the lessee. The lessor may get possession of the property back.
    • When the lessee gives the title of property or renounces his character to a third person.
    • When the lessee is declared bankrupt by banks, and if conditions are provided for it, the lease will stand terminated.
  1. Expiry of Notice to Quit: – When the notice to quit expires given by the lessor to the lessee, then the lease will also expire.

What is notice to quit and what happens after it?

Meaning of Notice to Quit: – The notice to quit is a formal written statement issued to the lessee if the lessee wishes to terminate the lease agreement, whether on the expiry of the duration as stated under section 106 or on the grounds specified in section 111. Any lease can be forfeited as mentioned in the sub-clause (g) of Section 111, by accepting the notice to quit.

But Section 112, 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 understood that the lease still exist and the notice to quit and termination has been waived.

Section 113 provides two ways in which a notice can be waived, that is, expressly or implicitly: –

  • Express waiver of notice to leave: – When a lessor accepts rent from the lessee after the notice has been served it is called express waiver of notice to quit.
  • Implied waiver of notice to quit: – When a lessor gives a notice to quit to the lessee, and at the expiration of that notice, lessor issues another notice to quit to the lessee, and the first notice to quit is impliedly waived.

The waiver of the notice also shows the intention to continue the existing lease.

Effect of Holding over

Section 116 states the effect of holding overlay that if a waiver of notice to quit is granted, it will not be called a new lease, rather than a lease on sufferance or tolerance without objecting to it. The term ‘holding over’ stands for retained possession on a property that has been leased. Thereafter, the lease is as renewable as any ordinary lease and is in the manner prescribed in section 106.

This section states that if the lessor agrees to the holding over of the property by the lessee, it will be renewed. But if the lessor does not entertain the retained possession by the lessee, he may initiate the proceedings against the trespasser or tenant at sufficient.

Case laws of Lease under Transfer of Property Act

  1. State Bank of Hyderabad vs. Nehru Palace Hotels, AIR 1991 SC 2130

In this case, the Court held that a lease entails transfer of right to enjoy such property in respect of which a lease is made out for a defined time which is express or implied or even in perpetuity in consideration of price paid or promised to be paid in cash or anything of value which is to be rendered periodically or on specified occasions.

  1. Bengal A &I Corporation vs. Corporation of Calcutta, AIR 1960 Cal 123 (133)

In this case, the Court held that the subject matter of lease must be ascertained, and clearly defined. If the land is yet to be ascertained and carved out of a larger parcel of land, there cannot be a demise. (Demise refers to premises that have been transferred by lease, as opposed to the ‘retained parts’ which are not transferred but are retained by the landlord.)

  1. Jaswant Singh Mathura Singh vs. Ahmedabad Municipal Corporation, AIR 1991 SC 2130

In this case, the Court held that a lease creates a right or an interest in enjoyment of demised property and a tenant or a subtenant is entitled to remain in possession of the demised property until the leases are dully terminated and eviction takes place in accordance with the law.

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