A lease gets defined as a transfer of rights over an immovable property from the transferor to the transferee in consideration of money, shares or service, etc., for the enjoyment of such property.
Rent gets defined as a payment made under any lease, sub-lease, tenancy or any other agreement or arrangement in return for enjoying a land, building, machinery, plant, equipment, furniture, fittings, etc.
A house for lease in India will get governed under TPA (Transfer OF Property Act), and a house for rent will get treated under the respective state’s rent control act.
The property law in India gets dealt with under the transfer of property act 1882, Indian easement act 1882, Real estate (regulation and development) Act 2016, Right to fair compensation and transparency in land acquisition, rehabilitation and resettlement act 2013, etc.
Section 105 of the transfer of property act (TPA) 1882 defines ‘lease’ while,
Section 194I of the income tax act 1961 and section 105 of the transfer of property act 1882 defines ‘rent’.
Rent control act
The central rent control act 1948 was an act of the legislature. The central rent control act aims to protect the interest of both the tenants and landlords.
The central rent control act faced difficulty in the growth of real estate just because of it being tenant favouring.
Instead of increasing inflations and property valuations, tenants are paying the same less rent as previous times.
Considering this, each state brought their rent control act to regulate and protect the rights of tenants and landlords from exploitation.
The rent control act does include some properties. These are:-
- Property rented to public limited and private limited companies with a minimum paid-up share capital of 1 crore.
- Property rented to any PSU, Bank, or corporation under state or central act and,
- Property rented out to international companies, international missions and agencies.
Essentials of Immovable Property Including house for lease
Some essential ingredients need to get followed to establish a good house for lease or immovable property in India. These are:-
- Transfer of rights:- An interest in immovable property must get transferred from the lessor to the lessee. Interest will get transferred to the lessee on the date of execution.
- Duration:- The lease duration must get decided in the lease agreement for a certain period or until perpetuity. The parties to the lease agreement have the liberty to determine the duration of the lease.
- Consideration:- A valid consideration is paid to the lessor in the form of money, services, shares, etc., in return for enjoyment of the property.
- Parties:- In a house for lease, there must be a transferor and the transferee in a lease agreement. The immovable property transferor is called the lessor. The transferee to the property is called the lessee.
- Sub-lease:- A lessee can sub-lease his interest in the property by transferring his interest to the sub-lessee. This right of the lessee is subject to the terms of the lease deed. The sub-lessee gets the rights by act of sub-letting by a lessee, subject to the terms and conditions of the lease deed.
The period in the absence of a lease deed
The duration for the house for lease in the absence of a written contract is under section 106 of the transfer of property act 1882.
If the period of a lease is not prescribed in a lease agreement of a house for lease then, it should get deemed that the lease is terminable every year on a six months notice for a property used for agricultural or manufacturing purposes and,
For any other purpose lease deed is maintainable for one month and can get renewed monthly, which can further get terminated on a fifteen-day notice.
Any parties can terminate a lease deed for a house for lease to the deed by issuing an advance notice for the same.
The notice must be issued in written form and should get conveyed to the concerned party; otherwise, conveyed to the party personally or attached at a conspicuous place in the property of the concerned party.
Execution of a lease
Some steps need to get followed in the execution of a lease deed. These are:-
- Primary Step: After preparing the lease deed, the duration of the lease, consideration, mode of payments, terms and conditions should get discussed clearly without concealing material facts.
- Documentation: The parties should formulate a Memorandum of Understanding (MOU) concerning the commercial aspects, duties and other related obligations.
- Due Diligence: The lease deed must get conveyed to the lessee. The lessee should go through it. If any doubt arises in the deed, it must be clarified, and the property details should get verified like the documents concerned.
- Drafting, Notarisation, registration: After depositing the required amount of money and consideration, the possession of the property should get transferred to the lessee. The deed should be signed and dated by the lessor and lessee. And, the deed should get attested in the presence of witnesses for the execution of the deed.
The deed, once executed, must be notarized on the stamp paper and can be put up for registration at the Office of the concerned Sub-Registrar of Assurances having relevant jurisdiction over the property.
- Post Registration: After the possession of the property is transferred to the lessee, the lessee must inform the various governmental and semi-governmental bodies having jurisdiction over the concerned property in writing about the change of holder and transfer of the property.
Rights and liabilities of lessor and lessee
Rights and Liabilities of a Lessee and Lessor get defined under section 108 of the transfer of property act, 1882.
Rights and liabilities of a lessor
Section 108, part A prescribes the rights and liabilities of the lessor. The transfer of property act, 1882 deals with the lease laws in India.
Rights Of A Lessor
- Right to accretions- If a lessee increases the property any further or has any accretion or addition, the lessor is entitled to such accretion after lease determination. The lessee has to deliver such additional property to the lessor.
- Right to collect rent- The lessor can collect rent, premium or any other form of consideration as per the terms and conditions of the lease deed.
Liabilities Of A Lessor
Rights and liabilities of a lessee
The rights and liabilities of a lessee get prescribed under section 108 part B of the transfer of property act, 1882. Let’s discuss it further:-
Rights of a lessee
- To charge for repair- If the lessor is bound to repair the property and fails to do it and the lessee does so on behalf of the lessor out of his expense, then it is the right of the lessee to charge the lessor for such repair or deduct the amount from the rent.
- Right to remove fixtures- The lessee gets the right to remove any fixture in the property during the lease period. However, after the lease deed termination, the lessee must leave the property in the same condition in which he received it. If the lessee fails to do so, the lessor has the right to sue the lessee.
- Right to assign his interest- The lessee can sub-lease the property, or the lessee can transfer his interests to a sub-lessee.
If the lease deed prohibits a lessee from assigning his interest over the property, then the lessee is prohibited from the same. Even after transferring his rights, the lessee is subject to all the liabilities mentioned in the lease deed.
- Right to have production benefits- When the lessee has started production on that property, he has a right to benefit from that production. Still, that production should not result in damage or harm to the property.
Liabilities of a lessee
- Duty to disclose material facts- The lessee is bound to disclose any material facts that the lessee is unaware of. If the lessee cannot do so and the lessor suffers any loss, the lessee is bound to compensate the lessor.
- Duty to pay rent- The lessee should pay the rent or the decided premium to the lessor or his agent as specified in the lease deed. If the lessee cannot do so, the lessor can remove the lessee from the concerned property based on non-payment of rent or file a suit for arrears of rent.
- Duty to maintain the property- The lessee is bound to maintain the property in good condition when he gets possession of the property.
The lessor or his agent can inspect the property on reasonable ground from time to time. Only the changes caused by unforeseen or natural force can act as an exception for this liability.
- Duty to give notice- In case the lessee becomes aware that any third person has tried or is trying to damage the lessor’s rights or claim the lessor’s title, the lessee must inform the lessor through a notice.
- Duty to use the property reasonably- The lessee ought to use the property reasonably as he is the actual owner of the property. The lessee should not damage the property and use it to remain the same when it gets back to the lessor.
- Duty to avoid building any permanent structure- A lessee cannot build any permanent structure on a property without the lessor’s consent. In the case of agricultural work, it gets permitted with the consent of the lessor.
- Duty to restore possession- After the lease is determined, the lessee must hand over the possession of the property to the lessor.
If the lessee refuses to leave the premises after the expiry of the notice, the lessee is bound to pay the damages, or the lessor can move to court to seek damages.
How does a lease end?
Talking for hours for lease, a lease ends by termination by any of the parties or after the expiry of the term period. Here are some conditions mentioned as the criteria for termination of a lease.
This process of ending a lease is called the determination of the lease. The conditions for lease get mentioned under section 111 of the transfer of property act.
- A lease is terminated automatically after the duration of the lease period is over.
- If the lease got entered into for a specific project or service and that project or specified task is over, the lease ends.
- If the interest of the lessor in the property is terminated after the happening of some specified event or his power to dispose of such interest extends to the happening of such event.
- When the lessee impliedly surrenders the lease.
- When there’s a mutual agreement between the lessor and lessee to terminate the lease, the agreement gets determined.
- A lease can be determined when a notice expressly conveying the intention to terminate the vacancy gets expired. Such notice must be unconditional.
- A lease can further get determined by forfeiture.
It can get done when,
- When the lessee breaks an express condition providing that the lessor may re-enter the property on breach of such condition
- When the lessee renounces his character by setting up a title in a third person or by claiming the title in himself
- When the lessee is declared insolvent by an appropriate adjudicating authority, the lease prescribes that the lessor has the right to re-enter such property on the happening of such an event.
- In any of the cases mentioned above, the lessor or his transferee have to give notice in writing to the lessee of their intention to determine the lease.
- If the interest of the lessor and the lessee in the whole property becomes vested in one person in the same right, the value of property is determined.
Rights of a tenant and landlord
Rights of a Tenant
The Rent Control Act got formulated to protect the landlord’s interest and property and protect the tenant’s interest. There are some rights of tenants given to them. These are:-
- Right Against Unfair Eviction: There must be sufficient cause for eviction of the tenant. The landlord cannot evict the tenant without any just and fair reason.
There must be sufficient cause for eviction of the tenant. The eviction rules vary from state to state as per their respective rent control act.
- Fair Rent: The property tenant cannot get charged with an unfair or unjust rental amount. The rent charged to the property must depend on the value of the property.
If the landlord charges an extraordinary amount in terms of rent to the tenant, the tenant has the right to approach the court to seek redress.
- Essential Services: A tenant is entitled to enjoy essential services such as electricity, water, etc., and the landlord cannot curtail these rights by his act. In such a case of curtailment, the tenant has the right to move the court to seek redressal.
Rights of a Landlord
The Rent Control Act provides for landlord rights under section 108 of the transfer of property act. These are:-
- Right to Evict: The landlord has the right to evict a tenant. This right varies from state to state as per their rent control act.
The eviction must be just and reasonable and should be according to the law procedure and the conditions prescribed under each state’s respective rent control act.
The landlord should notify the tenant about the same before approaching the court by sending a notice.
- Charge Rent: The landlord has the right to charge fair and reasonable rent from the tenant. There is no legislation to provide for the ceiling on the rental amount. The landlord has the right to increase the rent as per the conditions of the rent agreement.
The landlord can decide this increment in rent, but the tenant should also agree to those terms and conditions as in the rental agreement.
- Temporary Re-possession of Property: The landlord is entitled to repossess the property to improve its condition by conducting repair and maintenance work or making any required changes. The changes done on the property must not result in any loss or discomfort to the tenant.
Purshottam Das Bangur & Ors. v. Dayanand Bangur
Whether a permanent structure made by damaging the original property or parts of the property in a house for lease is permitted?
The apex court observed in the case of Purshottam Das Bangur & Ors. v. Dayanand Bangur that a structure erected on a leased property by damaging the original structure is not permissible. The lessee is liable to pay the damages to the lessor.
Ramdas Bansal v. Khaark Singh Baid
Does the execution of a lease deed transfer the property’s title to the lessee till that period?
In the case of Ramdas Bansal v. Kharak Singh 2007 (3) Cal HN 851 (858), the court held that a lease deed gets defined as a doctrine of separation of possession of ownership.
The execution of the lease deed states that the titles of the property remain with the lessor while possession is given to the lessee for the property enjoyment.
Raptakos Brett And Co. Ltd v. Ganesh Property
Does a tenant have to be treated at sufferance akin to a trespasser having no independent right to continue in possession?
In the case of Raptakos Brett And Co. Ltd v. Ganesh Property civil appeal no. 4657 of 1998, held that the expiry of the lease deed would not entitle the landlord to remove the lessee out of the possession of the property, and the lessee can remain on the property till the lessor gets his claim possession from a competent adjudicating authority.
‘The status of an erstwhile tenant has to be treated as a tenant at sufferance akin to a trespasser having no independent right to continue in possession.’
A lease is different from rent, as rent refers to the monthly payment for the use of a property. In contrast, a lease refers to the transfer of immovable property for a certain period to the lessee in return for a specified consideration amount or premium. A lease can be made till perpetuity.
A lease deed can get executed only by registering the document under section 107 of the transfer of property act 1882.
The formulation of various laws in terms of lease or rent aims to resolve the disputes between the parties landlord and tenant in case of rent or lessor and lessee in case of lease.
Mostly, it is preferred to have a lease deed formulated in case of commercial purpose to avoid any hassle related to a lessor-lessee dispute with the use of property and payment of consideration.
While in the case of residential purposes, rent agreements mostly get preferred.
Suppose a house for lease is given, and any dispute arises between lessor and lessee. In that case, the lessee will not get entitled to retain the possession of the property after the deed gets determined by the expiry of the period of the lease.
Which part of the transfer of property act deals with the lease of immovable property?
Chapter V, from sections 105 to 117, deals with leases of immovable property.
Under which section of TPA does the effect of holding over get prescribed?
The effect of holding over immovable property gets prescribed under section 116 of TPA 1882.
'Rent' is defined under which section of which act?
Rent gets defined under section 194I of the income tax act 1961 and section 105 of the transfer of property act 1882.