Law > Civil Laws > Transfer of Property Act > Introduction to Lease
One of the modes of transfer of immovable property for a particular period of time is Lease. A lease is a transfer of an interest in the property for a stipulated period of time without transferring the ownership of that property. In a lease, right of possession is transferred instead of the right of ownership. Transferor here is called the lessor and the transferee i.e. the one enjoying the property for a period is called lessee. A lease is governed by the Transfer of Property Act, 1882 under Sections 105 to 117.
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.
The definition of a lease is explained by the Supreme Court in the following case. In State Bank of Hyderabad v. Nehru Palace Hotels, AIR 1991 SC 2130 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.
Essential Elements of a Lease:
Requirement of Two Parties:
There should be two parties in a lease agreement.
In Rye v. Rye, 1962A.V. 496 the Court held that a man could not grant a lease to himself.
Competency:
The lessor (The transferor, who is able to make a lease) and the lessee (The transferee) must be competent. A lease to a minor is void. Agreement of lease is a contract. Hence it must satisfy all the criteria of a valid contract.
In Shri Narain Gosain v. Collector, Cuttack, AIR 1986 Ori 46 case, the Court held that the lessor and the lessee must also be persons who are competent to contract. A lawful agreement of lease of immovable property is a contract within the meaning of Section 10 of the Indian Contract Act, 1872.
The Lessor:
The owner or the titleholder of the leased asset or property is called the lessor. He is the transferor in the lease arrangement. He must have title or authority or absolute right of the property being transferred under leases. He must be competent to execute the lease.
In Rentala Lachaiah v. Chimmapudi Subrahmanyam, AIR 1967 SC 1793 case, the Court held that tenancy right cannot be created by a person who has no title in the property.
In Lov Raj Kumar v. Daya Shankar, AIR 1986 Del 364 (368) case, the Court opined that a person who himself is not possessed of any right or title in the property cannot pass any interest and cannot create a lease.
The Lessee:
User or renter of the leased asset or property is called lessee. He is the transferee in the lease arrangement. He must be competent to execute the lease.
Subject Matter:
The subject matter of the lease must be transfer of immovable property.
In Bengal A & I Corporation v. Corporation of Calcutta, AIR 1960 Cal 123 (133) 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.)
Transfer of Right of Enjoyment:
Ownership rights are not transferred in a lease, only the possession of the property and right to enjoy such property is transferred. In a lease, there is a separation of ownership (with lessor) and possession (with lessee).
In Ramdas Bansal v. Kharak singh Baid, 2007 (3) Cal HN 851 (858) case, the Court held that lease is a doctrine of separation of possession from ownership. By virtue of the execution of a lease deed, the title remains with lessor while the right of enjoyment passes to the lessee.
In Associated Hotels of India v. R. N. Kapoor, AIR 1959 SC 126 case, the Court opined that A lease is a transfer of an interest in the land. The interest transferred is called the leasehold interest. The lessor parts with his right to enjoy the property during the term of the leases and the lessee get that right to the exclusion of the lessor.
In Jaswant Singh Mathura Singh v. Ahmedabad Municipal Corporation, AIR 1991 SC 2130 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.
Duration of Lease:
The lease must be made for the specific period (a certain time), express or implied or in perpetuity.
In Makali Engg. Works Pvt. Ltd. v. Dalhousie Properties Ltd. 2006 (1) Cal HN 419 case, the Court held that to execute legally binding lease agreement, one of the essential elements is that it has definite period unless it is a lease in perpetuity.
Consideration:
The consideration which may be premium or rent or both. A lease premium is a non-refundable lump sum payment made or a price paid by the tenant to the owner upon the signing of the tenancy agreement.
In NIIT v. West Star Constructions Pvt. Ltd. 2009 (2) ArbLR 535 (Del) (DB) case, the Court held that a transfer of right to enjoy a property in consideration of a price paid or promised to be rendered periodically as on specified occasion is the basic fabric for a valid lease. Such a transfer can be made expressly or by implication. Once there is such a transfer of the right to enjoy the property, a lease stands created.
Acceptance:
Lessee, who is to get the interest in the property after lease, has to accept the lease agreement along with the time period and terms & conditions imposed on the transfer.
Legal Aspect:
The lease must be created as per the provision prescribed in section 107 of the Transfer of Property Act, 1882.
Other Case Laws:
In Vijay Kumar v. Inder Sain, AIR 1982 Del 260 Case, the Court opined that the rate of rent, duration of a lease, the purpose of letting, etc. are all governed by the terms of the contract entered into. Thus under the ordinary law, the landlord can evict his tenant on the expiry of the period for which premises were let out.
In Ram Prakash v. Shambhu Daya Agarwal, AIR 1960 All 395 case, the Court held that a paying guest is not a tenant nor a sub-tenancy is created by inducting a paying guest. To prove sub-tenancy there must be cogent evidence that exclusive possession of premises was given.
Types of Lease of Immovable Property:
In Sky Land International Pvt. Ltd. v. Kavita P. Lalwani (2012) 191 DLT 549 (Del) case, the Court opined that the leases of immovable properties are of various types, namely, lease in perpetuity, lease for a fixed term, leave from month to month term, and tenant at sufferance.
- Perpetual Lease: A perpetual lease is a regular lease except for one aspect – the right of renewal rests with lessee (the individual who has taken the lease) and not with the lessor.
- Term Lease: This lease is for a specific period say for 10 years or 20 years, etc.
- Periodic lease: These leases are to be renewed on monthly or yearly bases. A lease for an agricultural or manufacturing purpose is presumed to be a yearly lease. A lease for any other purpose is presumed to be a monthly lease.
- Tenancy at will: In this either party may put an end to the lease at any time.
- Tenancy by holding over (Tenant at Sufferance): When a lease for a term comes to an end, if the tenant continues in the possession and the lessor has received rent or otherwise agrees to his continuing in possession, the lease is renewed, in the absence of a contract to the contrary. The renewed lease is a periodic lease. It is yearly if the lease is for agricultural or manufacturing purposes and monthly if the lease if for any other purpose.
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