Lease of Immovable Property

Definition of Lease (Section 105)

A lease is a transfer of a right to enjoy immovable property for a certain period, 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. Section 105 of the Transfer of Property Act, 1882, provides the definition of a lease.

Section 105. "Lease", "lessor", "lessee", "premium" and "rent" defined:

Section 105. "Lease", "lessor", "lessee", "premium" and "rent" 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."

Explanation of the Definition:

The definition highlights the essential elements of a lease:

Transfer of a Right to Enjoy Property: A lease is not a transfer of ownership, but a transfer of a limited right – the right to possess and enjoy the immovable property. The ownership (reversionary interest) remains with the lessor.
In Immovable Property: The subject matter of a lease must be immovable property.
For a Certain Time: The duration of the lease must be specified or capable of being ascertained. It can be for a fixed period (e.g., 5 years), implicitly (e.g., month to month, year to year, based on how rent is paid), or even in perpetuity (though leases in perpetuity are rare and often treated differently).
In Consideration of a Price: The transfer of the right to enjoy is in exchange for a consideration. This consideration is usually in the form of 'premium' or 'rent'. The consideration must be of value, which can be money, share of crops, services, or other valuable things.
Acceptance: The transferee must accept the transfer on the specified terms.

Lessor and Lessee

Section 105 defines the parties to a lease transaction:

Lessor: The transferor who grants the right to enjoy the property. This is typically the owner, but can also be someone holding a superior leasehold interest. The lessor retains the ownership (or the remainder of their leasehold interest) and the right to receive rent/premium.
Lessee: The transferee who receives the right to enjoy the property. This is the tenant. The lessee acquires a leasehold interest in the property, which is a right in rem (enforceable against the world, subject to conditions like notice and registration).

Rent and Premium

The consideration for a lease is defined in Section 105:

Premium: This is defined as the price paid or promised to be paid for the transfer of the right to enjoy the property. It is typically a lump sum payment made at the beginning of the lease term, similar to a sale price for the leasehold interest. It is sometimes referred to as 'salami' or 'fine'.
Rent: This is defined as the money, share of crops, service, or other thing of value to be rendered periodically or on specified occasions to the transferor. This is the recurring payment made by the lessee for the continued enjoyment of the property. Examples include monthly rent payments, yearly rent, or a share of the agricultural produce from the leased land.

A lease can involve only premium, only rent, or a combination of both. For example, a long-term lease might involve a significant upfront premium and a relatively low periodic rent, while a short-term residential lease might only involve monthly rent.

A lease creates both a proprietary interest (the leasehold right) and a contractual relationship between the lessor and lessee. This dual nature is important when considering the rights and liabilities of the parties.

How a Lease is Made

The mode of creating a valid lease of immovable property is specified in Section 107 of the Transfer of Property Act, 1882. The formalities required depend on the duration of the lease.

Section 107. Leases how made:

Section 107. Leases how made.

"A lease of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent, can be made only by a registered instrument."

"All other leases of immovable property may be made either by a registered instrument or by oral agreement accompanied by delivery of possession."

"Where a lease of immovable property is made by a registered instrument, such instrument or, where there are more instruments than one, each of such instruments shall be executed by both the lessor and the lessee: Provided that the State Government may, from time to time, by notification in the Official Gazette, direct that leases of immovable property, other than leases from year to year, or for any term exceeding one year, or reserving a yearly rent, or any class of such leases, may be made by unregistered instrument or by oral agreement without delivery of possession."

Explanation of Modes of Creating a Lease:

Section 107 prescribes two main ways to create a lease:

By Registered Instrument: This mode is compulsory for certain types of leases.
By Oral Agreement accompanied by Delivery of Possession: This mode is permissible for other types of leases.

Lease from year to year or for a term exceeding one year to be made by registered instrument

The first paragraph of Section 107 mandates that the following types of leases can only be made by a registered instrument:

A lease from year to year. (Even if the term is not fixed, if the arrangement implies a tenancy from year to year, like paying yearly rent).
A lease for any term exceeding one year. (This includes leases for a fixed term of two years, five years, ninety-nine years, etc.).
A lease reserving a yearly rent. (Even if the term is less than a year, if the rent is agreed to be paid on a yearly basis, registration is required).

For these leases, a written lease deed must be prepared, properly stamped, and compulsorily registered under the Indian Registration Act, 1908. The lease deed must be executed by both the lessor and the lessee.

If a lease falling under this category is not made by a registered instrument (e.g., it's made by an unregistered deed or just an oral agreement), it is generally invalid as a lease for the specified term. However, such a transaction might be treated as a month-to-month tenancy or a yearly tenancy depending on the purpose and payment of rent, and may be saved under the doctrine of part performance (Section 53A TPA) to some extent, providing limited protection to the lessee in possession.

Lease from year to year or for a term exceeding one year requires registration

This sub-heading reiterates the primary requirement of the first paragraph of Section 107. For the specified categories of leases (year to year, term exceeding one year, reserving yearly rent), registration of the lease deed is not optional, but mandatory.

Other Leases:

The second paragraph of Section 107 deals with "All other leases". This refers to leases of immovable property that are not from year to year, or for a term exceeding one year, and do not reserve a yearly rent. The most common example is a lease from month to month (as is typical for many residential tenancies where rent is paid monthly and there is no fixed term exceeding a year). Such leases may be made either:

By a registered instrument, OR
By oral agreement accompanied by delivery of possession.

For a month-to-month tenancy (or any lease not covered by the mandatory registration requirement), it can be created simply by an oral agreement where the lessor hands over possession of the property to the lessee, and the lessee takes possession (usually with the understanding of periodic rent). A written document is not legally required, though it is always advisable for clarity.

Execution by Both Parties:

The third paragraph clarifies that where a lease is made by a registered instrument, it must be executed (signed) by both the lessor and the lessee. This is a requirement for validity, unlike some other instruments which may primarily need the signature of the transferor. This reflects the contractual nature of a lease, involving mutual obligations.

The proviso in the third paragraph allows State Governments to relax the formalities for leases *other than* those requiring mandatory registration, permitting them to be made by unregistered instruments or oral agreements even without delivery of possession in specific cases. However, this is a power of the State Government to be exercised by notification.

In practice, for any lease of significant duration or value, getting a registered lease deed is the most secure and legally sound method, even if not strictly mandatory for month-to-month tenancies in non-notified areas.

Rights and Liabilities of Lessor and Lessee (Sections 108-116)

Section 108 of the Transfer of Property Act, 1882, details the rights and liabilities of the lessor and the lessee in the absence of a contract to the contrary. These are implied covenants that govern the landlord-tenant relationship unless the lease agreement explicitly modifies or excludes them.

Section 108. Rights and liabilities of lessor and lessee:

Section 108 is divided into two parts: Part A lists the rights and liabilities of the lessor, and Part B lists the rights and liabilities of the lessee.

Lessor's Duties and Rights

Lessor's Duties (Implied):

(a) Duty to disclose material latent defects: The lessor is bound to disclose to the lessee any material defect in the property, with reference to its intended use, of which the lessor is aware and which the lessee is not, and could not with ordinary care discover. (Similar to seller's duty).
(b) Duty to put lessee in possession: The lessor is bound to put the lessee in possession of the property on the lessee's request.
(c) Implied covenant for quiet enjoyment: The lessor is deemed to contract with the lessee that, if the lessee pays the rent reserved by the lease, and performs the contracts binding on the lessee, he may quietly enjoy the property during the term without interruption by the lessor or any person claiming under him, or by any person claiming paramount title. (This guarantees peaceful possession).

Lessor's Rights (Implied):

Right to recover rent/premium: The lessor has the right to receive the rent or premium as agreed upon in the lease.
Right to recover possession: Upon lawful determination of the lease (expiry of term, notice, forfeiture, etc.), the lessor has the right to recover possession of the property from the lessee (Section 108(q)).
Right to forfeiture: The lessor has a right to forfeit the lease and re-enter the property in case of certain breaches by the lessee (e.g., denial of lessor's title, breach of express condition allowing re-entry, insolvency - detailed in Section 111(g)).
Right to inspect: While not explicitly listed as a right in 108, it is often implied or expressly agreed that the lessor can enter the property for inspection or repairs after giving reasonable notice (derived from lessee's duty in 108(m)).
Right to accretions: If an accession is made to the property during the lease, the lessor is entitled to it at the end of the term (Section 108(d)).

Lessee's Duties and Rights

Lessee's Duties (Implied):

(d) Duty to disclose facts increasing value: If any accession is made to the property, the lessee is bound to give notice thereof to the lessor. (Less common, related to accessions).
(e) Duty to pay rent/premium: The lessee is bound to pay the rent or premium to the lessor.
(f) Duty to maintain property: If the property is destroyed or damaged by fire, tempest, or flood, or violence of an army or of a mob, or other irresistible force, the lessee is not bound to restore it unless the lease expressly makes him liable. However, this clause is often read with the general duty to maintain.
(g) Duty to give notice of encroachment: If the lessee becomes aware that proceedings are being taken for the recovery of the property or any part thereof, or of any encroachment made upon, or interference with, the lessor's rights concerning the property, he must give notice to the lessor.
(h) Duty to use property reasonably: The lessee may use the property and its products as a person of ordinary prudence would use it if it were his own; but he must not use it for a purpose different from that for which it was leased, or fell, sell, or carry away any timber trees, or work mines, quarries, etc., unless authorised by the lease. (Duty against destructive use/waste).
(i) Duty not to erect permanent structures without consent: The lessee must not, without the lessor’s consent, erect on the property any permanent structure, except for agricultural purposes.
(j) Duty to restore possession: On the determination of the lease, the lessee is bound to deliver up possession of the property to the lessor.

Lessee's Rights (Implied):

(d) Right to accretions: If an accession (addition) is made to the property during the lease, such accession is comprised in the lease. (Though lessor gets it at the end of the term).
(f) Right to suspend rent/avoid lease in case of destruction: If the property is wholly destroyed or rendered substantially and permanently unfit for the purpose for which it was let, by fire, tempest, or flood, or violence of an army or of a mob, or other irresistible force, the lease shall, at the option of the lessee, be void. (This is the doctrine of frustration related to leases).
(g) Right to deduct expenses of repairs: If the lessor neglects to make any necessary repairs which he is bound to make, and the lessee makes such repairs himself, the lessee may deduct the expense of such repairs, with interest at six per cent. per annum, from the rent, or otherwise recover it from the lessor. (Requires lessor's failure and necessity of repairs).
(h) Right to remove fixtures: The lessee may remove, at any time during the continuance of the lease, all things which he has attached to the earth; provided he leaves the property in the state in which he received it. (Right to remove tenant's fixtures).
(k) Right to have lease continued: Subject to contract, the lessee is entitled to all products of the property during the continuance of the lease.

Transfer of Lessor's or Lessee's Interest

Both the lessor and the lessee have transferable interests in the property.

Transfer of Lessor's Interest (Assignment of Reversion): The lessor's interest (the ownership subject to the lease, also called the reversion) can be sold, gifted, mortgaged, or leased further (sub-lease of reversion). Section 109 of the TPA deals with the rights of the transferee of the lessor's interest. The transferee of the reversion steps into the shoes of the original lessor and acquires all the rights and liabilities of the lessor as against the lessee. For example, the new owner (transferee of lessor) can collect rent from the lessee. Notice of such transfer should be given to the lessee.
Transfer of Lessee's Interest (Assignment of Leasehold): The lessee's interest (the leasehold right) is also generally transferable, assignable, or sub-leasable unless there is an express restriction in the lease deed (as saved by the proviso to Section 10, regarding absolute restraint). If the lessee assigns the entire remaining term of the lease, the assignee becomes the direct lessee of the original lessor (subject to privity of estate). If the lessee sub-leases, they become a sub-lessor, and the original lessor cannot directly enforce the covenants against the sub-lessee, though the sub-lease terminates when the main lease terminates.

When interests are transferred, the covenants (rights and liabilities) under Section 108 that "touch and concern the land" generally run with the land and become enforceable by and against the assignees of the lessor and lessee.

Determination of Lease (Section 111): A lease comes to an end in several ways listed in Section 111, including efflux of time, happening of a specified event, termination of lessor's interest, merger, express surrender, implied surrender, forfeiture (for breach of condition, denial of title, or insolvency), and expiry of a notice to quit.

Holding Over (Section 116): If a lessee remains in possession after the determination of the lease, and the lessor accepts rent or otherwise assents to his continuing in possession, the lease is, in the absence of an agreement to the contrary, renewed. If the lease was for a term exceeding one year, it is renewed as a lease from year to year; in other cases, it is renewed as a lease from month to month. This is called 'holding over'.

The implied rights and liabilities under Section 108 form the basic legal framework for leases, but parties are largely free to modify these by express agreement in the lease deed, subject to mandatory legal requirements and public policy.

Termination of Lease

Termination of Lease (Sections 111)

A lease of immovable property creates a legal relationship between the lessor (landlord) and the lessee (tenant) for a specified or ascertainable period. The termination of this relationship, meaning the cessation of the lease, can occur due to various events or actions as enumerated in Section 111 of the Transfer of Property Act, 1882.

Section 111. Determination of lease:

Section 111. Determination of lease.

"A lease of immovable property determines—

(a) by efflux of time limited thereby:

(b) where the interest of the lessor in the property terminates on, or his power to dispose of it extends only to, the happening of any event-by the happening of such event:

(c) where the interest of the lessor and the lessee in the whole of the property becomes vested at the same time in one person in the same right-by merger:

(d) by implication or express surrender:

(e) by express forfeiture; that is to say, (1) in case the lessee commits a breach of any express condition which provides that, on breach thereof, the lessor may re-enter or the lease shall become void; or (2) in case the lessee renounces his character as such by setting up a title in a third person or by claiming title in himself; or (3) the lessee is adjudicated an insolvent and the lease provides that the lessor may re-enter on such insolvency; and in ^*each of these cases the lessor or his transferee ^* gives notice in writing to the lessee of his intention to determine the lease:

(f) in case, before the expiration of the time fixed in the lease, an event happens which renders the continuance of the lease unlawful or impossible (such as destruction of the property);

(g) in the case of a lease of immovable property, for any purpose other than an agricultural or manufacturing purpose, by a notice to determine the lease, or to quit, or of intention to quit, the property leased, duly given by one party to the other.

..."

^* Amendments have replaced "either of these cases" with "each of these cases" and added "gives notice in writing to the lessee of his intention to determine the lease" in clause (e), making notice compulsory for forfeiture.

Explanation of Grounds for Termination:

By efflux of time

This is the most common way a lease terminates. If the lease is granted for a fixed term (e.g., 5 years, 99 years), the lease automatically comes to an end upon the expiry of that period. No notice is required from either party. For example, if a lease is for a term of 10 years from 1st January 2020, it automatically terminates on 31st December 2029.

By happening of specified event

If the duration of the lease is linked to the happening of a future event that is certain to happen (e.g., death of a person), or if the lessor's interest or power to lease is limited by such an event, the lease terminates when that event occurs. For example, a lease granted by a person holding a life interest in a property would terminate upon the death of that person.

By merger

Merger occurs when the interest of the lessor and the lessee in the whole property become vested in the same person at the same time and in the same right. Since a person cannot be both landlord and tenant of the same property simultaneously, the lesser interest (leasehold) merges into the greater interest (ownership or superior leasehold), and the lease is extinguished. For example, if a tenant buys the leased property from the landlord, the lease is terminated by merger.

By express surrender

Surrender occurs when the lessee yields up their leasehold interest to the lessor, and the lessor accepts it. Express surrender happens when the lessee and lessor mutually agree in writing to terminate the lease before the expiry of the term. If the unexpired term of the lease is for more than one year, an express surrender requires a registered instrument (similar to how such a lease is created).

By implied surrender

Implied surrender (or surrender by operation of law) occurs when the relationship between the lessor and lessee changes in a manner inconsistent with the continuation of the lease, indicating an intention by both parties to terminate it. This happens due to the conduct of the parties, even without a formal written agreement.

Examples of implied surrender:

The lessee accepts a new lease of the same property from the lessor, intended to replace the old one. The old lease is impliedly surrendered.
The lessee abandons possession, and the lessor takes back possession or grants a new lease to a third party with the knowledge and consent of the original lessee.

By forfeiture

Forfeiture is a right of the lessor to terminate the lease prematurely due to a fault of the lessee. Section 111(g) lists the grounds for forfeiture:

Breach of express condition: When the lessee breaches an express condition in the lease deed, and the deed contains a clause allowing the lessor to re-enter or stating that the lease will become void upon such breach.
Denial of lessor's title: When the lessee disputes the landlord's ownership or title by claiming title in themselves or in a third party. This is a serious breach of the landlord-tenant relationship.
Insolvency: When the lessee is adjudicated an insolvent, and the lease deed contains an express condition allowing the lessor to re-enter upon such insolvency. (This applies only if the lease provides for it).

In all cases of forfeiture (Clause (g)(1), (2), and (3)), the lessor must give a notice in writing to the lessee expressing their intention to determine the lease. The lease terminates upon the date specified in the notice or upon service of the notice if no date is specified.

Section 114 and 114A provide for relief against forfeiture in certain cases (e.g., for non-payment of rent or breach of other covenants), where the court may allow the lessee to remedy the breach and save the lease.

By notice to quit

This method applies primarily to periodic tenancies where the term is not fixed (like month-to-month or year-to-year) and for leases for agricultural or manufacturing purposes (where the period is presumed to be yearly, terminable by 6 months notice) or other purposes (where the period is presumed to be monthly, terminable by 15 days notice), as specified in Section 106 (which works in conjunction with Section 111(h), though the prompt mentions (g)).

Section 106 dictates the duration and requirements for such notices:

A lease for agricultural or manufacturing purposes is presumed to be from year to year, terminable by 6 months' notice expiring with the end of a year of the tenancy.
A lease for any other purpose is presumed to be from month to month, terminable by 15 days' notice expiring with the end of a month of the tenancy.

The notice must be in writing, signed by or on behalf of the person giving it, and served properly on the other party. The lease terminates upon the expiry of the period specified in the notice.

Other less common modes mentioned in Section 111 include (f), which refers to the lease becoming unlawful or impossible due to an event before the expiry of the term (related to doctrine of frustration). For instance, if the leased property (a building) is completely destroyed by a natural calamity and the lease covers only the building, the lease may terminate.

Effect of IOError or Holding Over

The term "IOError" is not a legal concept related to the termination or continuation of leases under Indian property law. It typically refers to an 'Input/Output Error' in computing. Assuming this is a typo and the user intended to discuss the effects that arise *after* a lease terminates, specifically the situation where a tenant remains in possession, we will discuss the concept of "Holding Over" as dealt with in the Transfer of Property Act, 1882.

Holding Over (Section 116)

Section 116 of the Transfer of Property Act, 1882, deals with the effect of a lessee continuing in possession after the determination of the lease. This situation is commonly referred to as "holding over".

Section 116. Effect of holding over:

Section 116. Effect of holding over.

"If a lessee or under-lessee of property remains in possession thereof after the determination of the lease granted to the lessee, and the lessor or his representative in interest accepts rent from the lessee or under-lessee, or otherwise assents to his continuing in possession, the lease is, in the absence of an agreement to the contrary, renewed from year to year, or from month to month, according to the purpose for which the property is leased, as specified in section 106."

Explanation of Holding Over:

Holding over occurs when three conditions are met:

Determination of Lease: The original lease must have come to an end by any of the modes mentioned in Section 111 (e.g., efflux of time, notice to quit).
Lessee Remains in Possession: The lessee (or sub-lessee) continues to occupy the property after the lease has terminated. This continuance of possession is without the initial consent arising from the determined lease, essentially making the lessee a tenant by sufferance (a tenant who was initially lawful but remains without the landlord's permission).
Lessor's Assent: The lessor (or their representative) must either:
- Accept rent from the lessee for the period after the determination of the lease, OR
- Otherwise assent to the lessee continuing in possession. This assent can be express (e.g., verbally agreeing to let them stay) or implied (e.g., by conduct, though mere inaction is generally not considered implied assent).

Effect of Holding Over:

When these conditions are met, a new tenancy is created by implication of law. This new tenancy is called a "tenancy by holding over" or a "tenancy at will" (though it converts into a periodic tenancy based on rent payment). The nature of this renewed lease depends on the purpose for which the property was leased, as per Section 106:

If the original lease was for agricultural or manufacturing purposes (presumed yearly), the new tenancy created by holding over is a lease from year to year, terminable by 6 months' notice.
If the original lease was for any other purpose (presumed monthly), the new tenancy created by holding over is a lease from month to month, terminable by 15 days' notice.

This renewed lease incorporates, as far as possible, the terms and conditions of the original lease, but it is a new lease created by the conduct of the parties, distinct from the expired one. It can then be terminated by giving the appropriate statutory notice (6 months for yearly, 15 days for monthly).

If the lessor does NOT accept rent or assent to the continued possession, the person remaining in possession is merely a trespasser (or a tenant by sufferance until the landlord takes action), and the lessor can file a suit for eviction and mesne profits (compensation for wrongful occupation) without needing to give a notice under Section 106.

Section 116 is a significant provision that gives legal recognition to a common practical scenario where tenants remain in possession after their lease expires, regularizing the relationship when the landlord acquiesces by accepting rent.