Lease of Immovable Property

LEASE OF IMMOVABLE PROPERTY
Section 105 of the Transfer of Property Act defines lease as

A lease of immovable property is a transfer of the right to enjoy such property, made for a period
of time, either expressly or impliedly, or in perpetuity, in consideration of a price paid or agreed
to be paid, or of monetary value, a share of crops, services or any other consideration, to be
rendered regularly or on specific occasions to the transferor by the transferee who accepts the
transfer under such terms.
For better understanding, let us look at the ingredients of this section;

i. Transfer of a right to possess such immovable property
ii. Allowed over a certain period of time
iii. Taking into account the consideration
iv. By the transferor to the transferee
v. Who agrees to transfer under those provisions.
The example of the relationship between Landlord and Tenant is the best way to explain Lease. It
is essential to have a lease for establishing the relationship between landlord and tenant. The
relationship can exist only in respect of immovable property such as buildings, mines, land etc. A
lease of livestock and other movable properties does not fall under the definition of s 105 and thus,
does not equate to the relationship of lessor and lessee.
Essential Conditions for a Lease

1. Availability of two parties – a single party cannot execute a lease agreement.
2. Both parties should be competent to contract – Essential conditions of a valid contract as
per section 10 of the Indian Contract Act, 1872 must be fulfilled.
3. A lease cannot be restricted around the explanation of a contract as it is also a transfer of a
right to enjoy the interest in such property. 1 Lease always creates a right in rem which
means that such a right is applicable against the whole world. 2
4. The term, duration or period of the lease should be defined – Section 106 of the Act
addresses the issue as to what should be done in case of the duration of the lease in the
absence of a contract. The provision states that a lease will have the duration of:-
 Year to year in case of immovable property for agricultural or manufacturing purposes.
 Month to month in case of immovable property for any other purpose.
5. Consideration is to be paid from time to time 3 – whether it is a price paid or agreed to be
paid or monetary value or share of crops or service or any other consideration.
6. Acceptance of transfer by the lessor and lessee on such terms and requisite formalities as
specified in the agreement.
1
Chori Onso v. Sasoon, AIR 1969 Ker 11.
2
Krishnaswamy Nadar v. Subbayya Pillai, (1976) 1 Mad LJ 151 (153) (Mad).
3
T. Ramakrishnaiah v. N. Seshadri, AIR 1972 Andh Pra 218 (220).
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Thus, a tenant is entitled to remain in possession of the leased property until the period of lease or
till the lease is duly terminated. It is pertinent to note that mere renewal clause to a lease does not
constitute that a lease is renewed. There has to be a fresh lease agreement to renew a lease. 4
Furthermore, the words ‘transfer of a right to enjoy such property indicate that all rights of
ownership’ is not transferred by a lease; whereas in ‘sale’, it is the transfer of ownership in
exchange for a price. 5
Conditional Leases
There may be leases, whose very existence would depend upon a contingency and condition. A
conditional lease may be distinguished from an unconditional one through the undertaking of any
of the party to perform his promise by confining the undertaking to the case where—
a. the condition happens
b. it does not happen.
If the condition happens or does not happen, as the case may be, the lease becomes good. But if
the condition cannot possibly happen, the lease is void from the outset.
Sub-lease
A sub-lease would imply parting with by the tenant of a right to enjoy such property in favour of
sub-tenant. 6 Sub-tenancy can be prohibited by parties as the law does not prohibit it.
The law does not prohibit the creation of sub-tenancy but the parties by agreement may prohibit
such creation of sub-tenancy. For example: If the consent for demolition of a building is given by
alleged sub-tenant, it would be immaterial and not binding upon the real tenant or his legal
representative and heirs. 7
This brings us to another question that how is a lease created? How is the relationship of tenant
and landlord made through a lease?
These questions are answered in s 107 of the Act. It states that;

A lease of immovable property can only be made by a legal instrument from any period exceeding
one year. All other leases of immovable property be made either through a legal instrument or by
oral agreement followed by the guarantee of possession. Where a legal instrument allows a lease
of immovable property, the lessor as well as the lessee shall execute such instrument.
Therefore, the relationship may be created in the following ways:
1. Express transfer
4
Bhagat Ram v. Keshav Deo, AIR 1965 Assam 55
5
S. 54, Transfer of Property Act
6
Mahendra Saree Emporium v. GV Srinivasa Murthy, AIR 2004 SC 4289 (4296).
7
Bholanath Mandal v. State of W.B., 2008 (1) CHN 219 (227).
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An express transfer of a right to enjoy certain immovable property can be by suitable operative
words which grant and conveys to the tenant (the lessee) a lease of a particular property/ estate in
the immovable property. This is generally done in case of a registered agreement.
2. Implied transfer
If a tenancy arises by implication of law, then it is an Implied Transfer. For example, An oral
agreement for a lease may be implied from payment and acceptance of rent, 8 and a lease is
constituted by transferring the possession.
RIGHTS AND LIABILITIES OF LESSOR AND LESSEE [SEC 108 (A) – (Q)]
(It is pertinent to note that s. 108 applies only in the absence of a contract or local custom usage to
its contrary.)
I. LESSOR
A. Liabilities of Lessor
 Duty to Disclosure [Clause (a)]
Provides that the lessor is obliged to report any material defect in the property to the Lessee
concerning its intended usage of which the lessor is conscious but which the Lessee does not know.
The defects could be visible and latent. The lessor is required to expose latent defects because
ordinary attention cannot discover such defects. The obligation to report is especially important
where there are defects which affect the right of enjoyment of e property for the Lessee.
To Give Possession [Clause (b)]

The lessor is under an obligation to place Lessee in possession of the land, upon the request of the
Lessee. Unless he grants the lessee possession, he will not be able to recover the rent or execute
Lessee’s obligations under the lease. However, the lessor’s duty to give possession emerges only
when the Lessee requests in this regard.
The Directive for Quiet Enjoyment [Clause (c)]

The Clause specifies that if the Lessee pays rent reserved by the lease and executes the contract
binding on him, the Lessee may hold the property without interruption within the period specified
by the lease.
B. Rights of Lessor
 Right to Accretions [Clause (d)]
If any accession or addition to the property is rendered by way of a contract during the duration of
a contract, then that accession or addition shall be considered to be included in the original lease.
The addition could be natural or on the Lessee’s cost. The Lessee may, however, have no title to
8
Batakala Budhia Patra v. Durgasi Devdasi, AIR 1978 Orissa 103 (105).
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such accretion and the Lessee should return the same at the termination of the lease or after the
due duration of the contract.
II. LESSEE
A. Rights of Lessee
 Right to Avoid Lease [Clause(e)]
When the property/object of the lease is damaged, the Lessee may terminate the lease at his
discretion if he is not to be blamed for such loss. Where the entire rent has been paid in advance,
and the property is lost before the lease period ends, the Lessee shall have the right to recover the
proportionate part of the rent previously deposited.
 Right to Charge for Repair [Clause (f)]

This provision provides that if the lessor fails to make any repairs that he is bound to make after
notice within a reasonable period, the tenant may make the repair himself and deduct the cost of
such repairs with interest from the rent or otherwise reclaim it all from the property owner.
 Right to Make Payments [Clause (g)]

This provision provides that if the lessor fails to make any payment which he is obliged to make
and which is recoverable from the Lessee or against the property if he does not cause it, the Lessee
can make such payment himself and deduct it from the rent with interest or otherwise reclaim it
from the leaseholder.
 Right to remove fixtures [Clause (h)]

The Lessee may remove all things that he has attached to the land, even after the lease has been
decided, at any time while he owns the leased property, but not afterwards. However, the property
must be returned in the state in which he acquired it.
 Right to have the benefit of Crops [Clause (i)]

Each Lessee is entitled to everything grown, cultivated or harvested by him to his/her benefit.
 Right to Assign his Interest [Clause (j)]

This provision empowers the Lessee to pass the entire or any part of his interest in the land, entirely
or by way of mortgage or sub-lease. Similarly, the transferor or assignor can further transfer his
interest. Remember, that all these provisions are in the exemption of a contract or local custom.
B. Liabilities of Lessee
 Duty to disclose facts material to increase the value of the property [Clause (k)]
Under this Clause, the Lessee is obliged to report any defect to the lessor of which he is aware, but
lessor is not aware and which significantly increases the value of that interest. Where the Lessee
refuses to report the reality, and the lessor thus loses, he will sue for compensation.
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 Duty to pay rent [Clause(l)]
Lessee is under a duty or obligation to pay in due time or place the payment or rental to the lessor
or his agent. The responsibility to pay rent occurs after the Lessee has been put in charge of
everything. Where the Lessee refuses to pay the rent and is in arrears, the lessor is entitled to file
a claim for rent arrears or to commence the eviction on the ground of unpaid rent.
 Duty to maintain the property [Clause (m)]

The Lessee is obliged to hold the property in as good condition as it was when he was put in charge
until the lease is terminated. He is obliged to allow the lessor and his agents to access property and
examine its conditions at all appropriate times.
 Duty to Give Notice [Clause (n)]

When the Lessee is aware that another person has launched proceedings to reclaim whole or part
of the land, or has infringed on it or interfered with the lessor’s right, he must bring such a fact to
lessor’s awareness.
 Duty to use the property Reasonably [Clause (o)]

This provision specifies that if the property were his own, the Lessee would use the property and
its goods as a person of ordinary prudence. He must not cut down the trees or sell the wood, or tear
down or destroy the house.
 Duty not to erect permanent Structure [Clause (p)]

A lessee shall have no duty to erect any permanent structure on the land, except for agricultural
purposes or without the lessor’s permission. Within this provision, the prohibition is against
creating a permanent structure only.
 Duty to restore possession [Clause (q)]

This provision provides that the Lessee is obliged to place the property back in the hands of the
lessor upon the termination of a contract. If the occupant does not vacate the property, he is liable
to pay damages as well as mesne profits to the lessor.
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Lease of Immovable Property

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LEASE OF IMMOVABLE PROPERTY

Section 105 of the Transfer of Property Act defines lease as

For better understanding, let us look at the ingredients of this section;

Essential Conditions for a Lease

These questions are answered in s 107 of the Act. It states that;

To Give Possession [Clause (b)]

The Directive for Quiet Enjoyment [Clause (c)]

 Right to Charge for Repair [Clause (f)]

 Right to Make Payments [Clause (g)]

 Right to remove fixtures [Clause (h)]

 Right to have the benefit of Crops [Clause (i)]

 Right to Assign his Interest [Clause (j)]

 Duty to maintain the property [Clause (m)]

 Duty to Give Notice [Clause (n)]

 Duty to use the property Reasonably [Clause (o)]

 Duty not to erect permanent Structure [Clause (p)]

 Duty to restore possession [Clause (q)]

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