In property related transactions, the concept of Lease under TPA 1882 is common term that is often used for renting immovable property. For example, if a person is interested in renting out his land or office to someone else, then it will be called as leasing out his property. But one should be aware of smallest aspects of Lease or else it can lead to commotion. So, it is always suggested that the tenant and landlord should be aware and cautious of their rights and liabilities especially when they are dealing with lease. It shall be a smoother transaction, if both the parties are clear on their terms of lease, wherein the landlord is able to protect his interest over the property and tenant can enjoy the property rented.
Lease can be understood in layman’s term as when one person enters into a contract to either rent or convey his property to another person for specified time duration in return for a periodic regular payment (rent) or lump-sum amount in one installment.
The term “lease” is defined under Section 105 of the Transfer of Property Act 1882, which states, “A lease of immovable property is a transfer of a right to enjoy the property, made for a certain period of time, express or implied or in perpetuity, in consideration for a price paid or promised, or of money, 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.”
Hence, it can be said in lease there is no change of ownership of the property, just the right to enjoy the property is leased out to some other party in exchange for a consideration which can be in cash or kind, periodic or in lump-sum amount as per the terms of the contract entered by the parties.
Essential Components of Lease
There are certain pre-requisites which need to be fulfilled to make it a valid Lease. They are as follows-
- Lessor and lessee should be competent- in order to have a valid lease, both the lessor and lessee should be competent to enter into a contract. The conditions to be competent are-
- Lessee should be a major (above 18 years)
- Lessor must hold the title and authority to make the lease (no change of ownership)
- Both lessor and lessee should be of sound mind
- Subject matter- the subject matter of the lease must be an immovable property only and not some movable entity. For example- flat, land, house etc.
- Consideration- there should be reasonable amount of consideration paid to the lessor in return for the land, flat rented. There can be no valid lease without a consideration, instead it would be treated as a gift. Section 105 of the Act, clearly mentions that the consideration can be in any form, money, cash crops, kind etc. And it can be either premium along with rent or just rent or premium.
- Duration- any lease made for an immovable property can be made maximum for a period of 11 months, and where the duration surpasses the given time frame i.e. 12 months or more, then a lease agreement has to be made by registered instrument mentioned under Section 107 of the Act 1882.
- Delivery and Acceptance- the lessor shall deliver the property as per the date fixed in the contract and lessee must accept the contract with free consent and not under some kind of fraud or influence.
Lease How Made (Sec 107)
As mentioned above, if a lease is to be made for more than 11 months, then the lease agreement should be made by registered instrument under Section 107 of the Transfer of Property Act 1882. The Section clearly states that when a lease of immovable property is made for a term exceeding one year and reserves an annual rent which is more than the value of rupees fifty shall be made only by a registered instrument.
Any other kind of lease of immovable property with lesser time duration can be made by a registered instrument or even by an oral agreement accompanied with the delivery of possession.
Although, there is proviso stating that Government of India may from time to time, direct the leases of the immovable property, other than the ones where the term exceeding 1 year, reserving an annual rent with value of more than rupees fifty or any such classes of lease may be made by the unregistered instrument or by oral agreement without the delivery of possession.
In the case of Atar Singh v. Jiledar Singh, AIR 2005 MP 157, it was held that principle of Section 107 envisions the mode in which a valid lease shall be made, but it doesn’t apply to the agricultural lands.
In another case of Chemical Sales Agencies v. Naraini Newar, AIR 2005 Del 76, it was observed that if a lease agreement is neither a registered document nor an oral agreement accompanied with delivery of possession, then it will not create the relation of Lessor and Lessee among the parties. Such documents presented shall not be affect the status of immovable property and it shall also not be received as an evidence of any transaction that took place between the parties regarding the property.
Rights and Liabilities of Lessor
Section 108A of the Act speaks about the rights and liabilities of lessor. Let’s have a look at them.
- Rights of Lessor
- Right to accretions- during the tenancy period, if there is any sort of accretions, additions or accumulation in the leased property then the Lessor is entitled to such additions. These accretions can be natural or even manually added by the lessee during the tenancy period. But after the tenancy period is over, the lessee must deliver the title to the lessor along with the accretions and additions.
- Right to collect rent from lessee- it is one of the primary rights of lessor to collect rent from lessee or any other form of consideration which was agreed upon in the contract without any kinds of interruption from the lessee.
The famous judgment of Paritosh Ghosh v. Ashim Kumar Gupta, stated that tenant made holes in the walls for fixing the air cooler, replaced the brass water taps with plastic cap ones, which led to violation of lease agreement and hence the eviction of the Tenant was held proper as he caused damage to the leased property without lessor’s prior permission.
- Liabilities of Lessor
- Duty to disclose- it is the duty of lessor to disclose any kind of material defect present in the property. The defects can be described into 2 kinds. They are-
- Latent defect- this kind of defect is hidden and not easily seen or visible or discovered through nominal inspection. It needs specific inspection.
- Apparent defect- these kinds of defects are pretty visible and can be easily discovered through some inspection.
So, the lessor is bound to disclose any and all kinds of defects that are already existing in the property to the lessee and especially those which are important to know as they might intervene with the enjoyment of the property by the lessee in future.
- To give possession- the lessor should give possession of the property to the lessee on the decided date or on the request of lessee. This, liability usually arises when the request is specifically made by the lessee for delivering the possession of the property.
In the case of Munne Dutt v. William Cumbell, it was held by the Court that where there is an implied contract, it should be understood that the Lessor shall give peaceful possession of the property leased to the lessee.
- Conditions for quiet enjoyment- the lessee has all the rights to enjoy the property once the consideration is paid. And it is the duty of lessor to not create any unnecessary form of interruptions during the tenancy period. The High Court of Madhya Pradesh has mentioned that actions such as physical interference or direct interference in the premises shall be counted as breach of enjoyment and interruptions.
Rights and Liabilities of Lessee
- Rights of Lessee
- To charge for any Repairs made- if the lessor fails to make any repairs in the property which the lessor was bound to do so and the lessee has to go and make those repairs after taking the possession of the property by his personal expenses. Then such repairs need to be reimbursed by the lessor. It is the right of lessee to deduct the cost of such repairs from the rent money or ask for the specific amount of repair costs.
- Right to remove fixtures- the lessee has the right to remove the fixtures from the leased property during its tenancy period, even though once the tenancy period is over and with termination of lease the lessee shall leave the property in the same condition in which he received it. If the lessee fails to do so, then the lessor can sue him.
- Right to assign his interest- lessee has another prominent right to sub-lease the property to some third party or completely transfer his interests to some other party. However, if contrary is mentioned in the contract which restricts the lessee to assign his interest then the lessee shall be prohibited to do so and in case where he transfers his rights, he will still be liable towards his duties related to the lease deed.
- Right to have the benefit of crops- in certain leases, the time duration is not fixed and in those cases the lessee or his legal representative are given the rights to gain benefits from the crops and pulses that are grown on those leased property.
- Liabilities of Lessee
- Duty to disclose material defects- the lessee is also equally bound to inform the lessor about any kind of material defects and facts which the lessee is aware of and lessor is not. If the lessee fails to mention these facts to the lessor and lessor suffers any substantial losses, then the lessee shall be bound to compensate the lessor for the same.
- Duty to pay rent timely- the lessee is bound to pay the rent or premium to the lessor or his agent in the proper time and proper place as decided by the lease contract. If the lessee fails to pay the rent in the given time and place then, in that case the lessor can ask the lessee to evict the property on the grounds of non-payment of rent or file suit of arrears of rent.
- Duty to maintain the property- the lessee is responsible for maintaining the property, and make sure that it is in a good shape, and in the same condition when it was received by the lessee. The lessor or his representative are permitted to inspect the property on reasonable reasons. In this, only those changes that are made by natural forces or irresistible forces can act as an exception for this liability.
- Duty to give notices- if it comes under the knowledge of lessee that any person has tried or is trying to damage the rights of the lessor or affect the title of the property adversely, then the lessee must immediately notify the lessor about the same.
- Duty to use the property reasonably- the lessee is liable to use and enjoy the property in a prudent manner as if the property is his own.
- Duty to not erect any permanent structure- the lessee is not permitted to erect any permanent structures on the leased property except in case of agriculture land without the prior consent of lessor.
- Duty to restore possession- after the lease deed is terminated, the lessee must restore and return the possession of the property to the lessor. If the lessee doesn’t vacate the premises after the expiry of the lease deed, then the lessee shall be bound to pay the damages for the same.
Hence, the concept of lease can be seen as the most usual form of transfer of property among the immovable assets. People often prefer to lease out their properties rather than selling them, as they can earn from their spare investments. Hence, one should be wary of the terms and conditions of Lease given under the Transfer of Property Act 1882, along with the rights and liabilities of Lessor and Lessee to avoid any kind of interventions or damages in the deed. As stated above, if lessor or lessee fail to adhere to their liabilities, the aggrieved party may charge compensation from them or even evict them or file a suit against them.
This article is authored by Rhea Banerjee.