Thursday, 12 March 2015

LEASE DEED AND TYPES OF LEASE

Leading advocate in Bangalore | Advocate at Koramangala | Real estate lawyers India

A Lease is a transfer of an interest in an immovable property which is the subject of the lease and that interest is the right to occupy and use the property for which the lease is given for the period and on the terms and conditions agreed upon between the parties.

The provisions or contents of a Lease deed regarding the  date and place of the deed, the parties, the recitals, testatum, description of property are more or less the same as in the case of a Sale Deed. The date of the lease is not necessarily the commencement date of the term.  It may commence at a future date  also, in which case it is called a ‘future lease’.

With regard to the recitals, it may be stated that it is not necessary to include all sorts of recitals tracing the title, as in SaleDeed, and in fact, it is sufficient to recite that the Lessor/Owner is absolutely seized and possessed of the property agreed to be leased and he has agreed to demise the same to the Lessee/tenant on certain mutually agreed terms and conditions, besides other covenants mentioned in the said Lease Deed.

In the operative part, the word used for indicating transfer, is ‘demise’ or ‘grant by way of lease’ and no other words are necessary.

The commencement of the lease and the duration of the lease – are known as ‘Habendum’.

The amount of premium or rent is known as ‘Reddendum’.
Infact the ‘Reddendum’ creates an implied covenant to pay rent and the word ‘demise’ contains an implied covenant of title or for quiet enjoyment/use.

The Lease deed should invariably contain (i) covenants by the Lessee/tenant; (ii) covenants by the Lessor/Owner; (iii) special terms and conditions agreed upon between the parties; and (iv) the usual covenants, for title, against encumbrances, for quiet possession and for further assurances.    

In Leave and Licence, the Owner of the property does not transfer any of his rights in respect of the property.However, in case of Sale, Gift, Exchange, the owner transfers his entire rights, possession and ownership.  While, in case of Lease, the owner simply part with his right of possession, but retains the right of ownership. 

The person who transfers the possession (owner) is called as Lessor and the person who get the right of possession is called as Lessee. The consideration paid by the Lessee is known to be either rent or premium. In English Law, the transfer of interest in the property is called demise.  The words ‘Landlord’ and ‘Tenant’ are also used instead of the words  Lessor and Lessee respectively.

Section 105 of Transfer of Property Act defines about ‘Lease’.  Without bothering about the legal jargons, we shall understand some important ingredients of Lease.  They are:-

1. It involves only transfer of right to use the property (possession).
2. The period of lease should be certain along with the dates of commencement and expiry.
3. The consideration for lease shall be periodical payment termed as rent or premium or both.

There is a  distinction between rent and premium. While the premium is a consolidated amount payable in lump sum, and where as the amount payable on certain intervals say either monthly or quarterly, during a pre-decided tenure, is known as rent.  Even after the grant of lease, the Lessor/Owner remains the Owner subject to the rights of the Lessee/tenant and assumes full ownership again when on the termination of the lease, the Lessee’s rights revert back to the Lessor/Owner.  That is why the rights during the lease period is called as ‘Reversionary rights’ or ‘reversion’.  All his rights as Owner including the right of such ‘reversion’ can be a subject matter of sale or other transfer to any other person. 

In other words, lease is form of encumbrance on property in the form of a right to possession and enjoyment  of property owned by some other person.  This is legal separation of ownership from possession. There are different types of Lease depending upon the duration.  Perpetual Lease, Tenancy at will, Tenancy by sufferance, Tenancy by holding over, periodical Lease and Lease for fixed term.

English Law does not recognize the Perpetual Lease, but Indian Laws have given legal validity as per Section 105 of the Transfer of the Property Act, according to which lease may be for a certain time or in perpetuity.  Tenancy at will is lease, which is terminable at with at pleasure of both the parties.  If a person is lawfully in occupation of a property, he is not a tress passer and does not become a tenant holding over and such tenancy is by sufferance.  There is a fine distinction between tenancy by sufferance and tenancy by holding over. A tenant who continuous to be in possession of the property after determination of lease without consent of Landlord is tenancy by sufferance.  In contrast, if it is with the consent of the Landlord it is a tenancy holding over.  Section 116 of the Transferof Property deals with tenancy by holding over.  The determination of the lease means  termination of the lease period.  The Landlord, after such termination may consent for continuance of the lease by accepting the rents though without any agreement.  Periodical lease is for certain period which is determinable by due notice.  The lease for fixed period is granted for certain period which may be long or short.

The transfer of Property Act has prescribed the mode of computing lease period.  The Section 110 is the relevant section. When the lease is limited by time and said to commence from a particular day. Such particular day should be excluded while calculating the lease period. But this rule do not have application in month to month tenancy and there is no need to omit the first day of the month while calculating the lease.

If the lease is mentioned year or years and if the agreement does not contain any condition of commencement of lease, the lease will run during the full anniversary of the day from which such time commences.  If the agreement does not mention the date of commencement, the lease starts from the date of execution. In general, the day of the commencement has to be excluded, while its anniversary is to be included in calculating the lease period.

The Transfer of Property Act provides the procedure for determining the lease period; if the agreement does not specifically contain any such condition.The lease for agricultural or manufacturing purpose is year to year.This can be termination by six months notice by either of parties.The lease for any other purpose is month to month terminable by fifteen days notice by either of the parties.  The period mentioned in the notice commences from the date of the receipt of the notice.The notice should be in writing and signed by the Lessor or lessee or his representative. The notice may be sent by post (Registered post for purpose of records) or may be delivered personally to the other party or his family, servants against acknowledgement. In case the delivery by post or in person is not possible, the notice may be affixed to conspicuous part of the property.  The notice of fifteen days stipulated should end by the end of the tenancy month. 

Any lease of immovable property for any term exceeding one year has to be made only by a registered deed and lease less than one year my made by a registered instrument on unregistered or oral agreement followed by delivery of possession.  However in all cases, the agreements attract stamp duty, which varies from state to state and also depending upon the lease period and amount.  In simple words, payment of stamp duty is must and registration of instrument is optional in case of tenancy of less than one year and is a must if it is more than one year.

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