Lease Deed

This article is written by Yashika Saxena, an intern under Legal Vidhiya

INTRODUCTION

A lease deed is a legally binding document between landlord and tenant that establishes the terms and conditions of the lease. It contains details of issues like the duration of the lease, rent, security deposit, etc. A lease is important for both parties as it helps in preventing any future disputes and misunderstandings.

Keywords: Lease agreement, Transfer of Property Act, Landlord, Tenant, Registration, Force Majeure, Stamp duty.

Lease Deed

Section 105 of the Transfer of Property Act, 1882 [1]as –

“A lease of immovable property is a transfer of a right to enjoy the 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 and Lessee

There are usually two parties involved in the contract of lease. Lessor is the person who transfers the property to another person and Lessee is the transferee of the property. Both of the parties enter into a contract as a lease Deed is a contract deal between two parties as stated in Section 2 (h) of The Indian Contract Act, 1872, [2] therefore the essentials of contracts should be fulfilled for the contract to be legally enforceable.

Key Elements of a Lease Deed:

Parties

A lease deed should contain the parties involved i.e., the landlord and the tenant in the lease agreement, and should also include their full names, addresses, and contact details. In the case Rye vs. Rye[3], it was held that there should be two parties and that a man cannot grant a lease to himself.

Property Description

The lease should describe the property being leased including the size, location, and condition of the property. In the case Bengal A&I Corporation v. Corporation of Calcutta[4], the court held that there is a need to define the subject matter of the asset being leased.

Terms of Lease

 The Lease deed should specify the duration of the deed i.e., the start and the end date of the agreement for which the person has the right to occupy the property. In case of Makali Engg. Works Pvt. Ltd. v. Dalhousie Properties Ltd.[5], Court mentioned that the commencement of a lease must be certain for it to be valid and that the duration of the lease was a key factor in the eviction suit being decreed on admission. 

Rent and security deposit

The deed should specify the amount of rent, the due date, the method of payment, and any late fees. It should also contain information about the security deposit and terms and conditions for its return. It was held in Kamal Kumar Jain v. Secretary (Urban Dev Urban Development Department)[6] that landlords are entitled to charge security deposits of more than three months’ worth of rent if agreed upon by both the tenant and landlord.

Maintenance and Repairs

The lease deed should specify who is responsible for the maintenance and repair responsibilities as well as the fixtures and fittings.

Termination and Renewal

 The deed should include clauses regarding the termination or renewing the lease, including notice periods and penalties in case of breach of the agreement. The terms should be clear and not vague. In the case Shanti Prasad Devi v. Shankar Mahto[7], the court agreed that the lessee’s mere acceptance of rent for upcoming months after the expiration of the lease deed could not be considered as an assent for the continuance of the lease.

How to register a Lease deed?

According to Section 17 (D) of the Indian Registration Act, 1908[8], registration of lease deeds is mandatory in India. However, one should register the deed as it makes it legally binding and enforceable. To register a lease deed, the landlord and tenant must appear before the Sub-Registrar’s office and sign the document The process of registration includes paying registration and stamp duty which varies from state to state. After the registration, it becomes a legal document and can be used as evidence.

The state of Maharashtra has more stringent laws for tenancy or leave and license agreements, as per Section 55 of the Maharashtra Rent Control Act, 1999, which mandates that such agreements must be in writing and registered, irrespective of the duration of the tenancy.[9]

What is Stamp Duty:

Stamp duty is a tax levied by the government on the execution of documents, including lease deeds. The amount of stamp duty that needs to be paid on lease deeds differs from state to state. For instance, in West Bengal, the stamp duty for lease deeds is Rs. 200. However, in Maharashtra, stamp duty is calculated as 0.25% of the total rent and is levied accordingly. [10]

Types of Leases:

There are several types of lease agreements, some of them are:

Financial lease

A finance lease is a long-term lease agreement where the lease bears all the costs and rewards related to the property of the lessee. The burden of maintenance of the property is on the lessee and not on the lessor.

Operating lease

An operating lease is a short-term lease agreement where typically lessor bears the costs and rewards relating to the property. The burden of maintenance in this case is on the lessor not on the lessee.

Sale and Lease Back Leasing

In this type of leasing, the lessor gets the property sold by the lessee with an advance agreement between them for a fixed rental per period. This type of leasing is also known as Bipartite lease.

Net lease

 A net lease is a lease agreement in which the tenant pays for some or most property expenses in addition to the rent, such as taxes, insurance, and maintenance.

Non-net lease

A gross lease or non-net lease is a lease agreement in which the landlord pays for all property expenses, such as taxes, insurance, and maintenance.

Domestic Lease

A domestic lease is a lease where both parties reside in the same country.

International Lease

In this type of lease, either the parties reside in a different country or the supplier resides in different countries. There are two types of international lease: Cross border lease and Import lease.

Rent Control Laws:

Rent control laws protect the exploitation of tenants in case of excessive rent increases and ensure that landlords do not unfairly evict the tenants. The Rent Control Act was introduced in India in 1948, and since then many states have implemented their rent control laws. These laws generally include provisions for rent stabilization, rent increase limit, and eviction protection.

Rights of Both Parties:

Both tenants and landlord have certain rights under a lease agreement, some of the rights of the landlord include:

• Right to receive rent on time
• Right to evict tenants in case of breach of contract
• Right to claim damages for any loss or damages caused to the property by the tenant.

Some of the rights of tenants include:

• Right to challenge any unlawful eviction

It was seen in the case Manujendra Dutt vs Purendu Prosad Roy Chowdhury & Ors,, [11]The Supreme Court ultimately decided that the respondents did not give six months’ notice as required by the provision to clause 7 as mentioned in the lease agreement.

• Right to challenge an unlawful rent increase
• Right to privacy and the right to peaceful possession of property.

In the case of Standard Chartered Bank v. Andhra Bank Financial Services Ltd, the Supreme Court ruled that the clause of quiet enjoyment is a fundamental aspect of a lease agreement. This clause guarantees that the tenant can enjoy the property without any disturbance from the landlord and ensures their peaceful use and possession of the property.[12]

• Right to receive basic amenities and services like water and electricity

Difference between Lease and Rent Agreement:

Even though lease and rent are often used interchangeably, there are differences between the two. Rent agreements usually have a shorter duration, and the rent is paid monthly. While lease agreements are for a longer duration and the rent is paid in advance for the lease term. Lease agreements also include clauses for renewal and termination while rent agreements do not.

What is Force Majeure and why is it important for a lease deed?

A force majeure clause in a lease agreement addresses circumstances beyond the control of parties, such as natural disasters, war, and government regulations that make it impossible for both parties to fulfil their obligations. The most recent event of force majeure we all have experienced is Covid-19.

The force majeure clause should specify the rights and obligations of both parties in such situations. The force majeure clause typically excuses the affected party from the performance of its obligations for the duration of the force majeure event, without liability for damages or other penalties. As seen in the case, case Oberoi Realty Limited V. Godfrey Phillips India Ltd[13], where the court discussed the importance of a force majeure clause in the lease agreement. The court ruled that a force majeure clause is a crucial component of a lease agreement as it considers unforeseeable events such as natural disasters, strikes, pandemics, and more. It also ruled that if such an event prevents the tenant from utilizing the property, the lease agreement can be put on hold, and the tenant is not obligated to pay rent for that duration.[14]

The clause is an exception in cases where the affected party is unable to perform its obligation due to a force majeure event, without any liabilities or penalties. It protects both landlords and tenants, but it must be carefully drafted.

Cancellation of Lease:

A lease deed can be cancelled by mutual agreement between landlord and tenant or by the breach of contract where the other party can cancel the lease deed by giving notice as instructed in the deed or state laws. The grounds for cancellation of the lease agreement include non-payment of rent, subletting the property without permission, and using the property for illegal activities.

In Pheroze Framroze Taraporewala v. Arvindbhai Kalyanji Gandhi,[15] the issue of terminating a lease was addressed. The Supreme Court concluded that when a lease agreement expires, the tenant is required to vacate the property. If the tenant fails to do so, it would be considered as trespassing. Moreover, the landlord has the right to repossess the property if there is any violation of the terms of the lease.

Conclusion

In conclusion, A lease deed is an essential legal document that establishes the terms and conditions of the lease between landlord and tenant and ensures that the transaction is legally binding and enforceable. It is important for both parties to review the terms and conditions so that there are no conflicts or disputes. It is important to ensure the lease deed is comprehensive and covers all the aspects of the agreement.

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[1] [1] S. 105, Transfer of Property Act, 1882.

[2] S. 2(h), The Indian Contract Act, 1872.

[3] Rye v. Rye, 1962.V. 496

[4] Bengal A&I Corporation v. Corporation of Calcutta, AIR 1960 Cal 123

[5] Makali Engg. Works Pvt. Ltd. v. Dalhousie Properties Ltd., 2006 (1) Cal HN 419

[6] “Important Terms in a Lease Agreement,” CorpBiz, https://corpbiz.io/learning/important-terms-in-a-lease-agreement/, last seen on 08/05/2023

[7] State of Maharashtra v. Madhavrao Damodar Patil, MANU/SC/0404/2005

[8] S. 17, The Registration Act, 1908

[9] “Lease Agreement,” LegalRaj,https://www.legalraj.com/articles-details/lease-agreement, last seen on 08/05/2023

[10] “All About Lease Deed,” 99acres, https://www.99acres.com/articles/all-about-lease-deed.html , last seen on 08/05/2023

[11] Manujendra Dutt v. Purendu Prosad Roy Chowdhury & Ors, 1967 AIR 1419

[12] “Important Terms in a Lease Agreement,” CorpBiz, https://corpbiz.io/learning/important-terms-in-a-lease-agreement/ , last seen on 08/05/2023

[13] Oberoi Realty Limited v. Godfrey Phillips India Ltd., AIR 2011 Bom 65

[14] “Important Terms in a Lease Agreement,” CorpBiz,  https://corpbiz.io/learning/important-terms-in-a-lease-agreement/, last seen on 08/05/2023

[15] “Important Terms in a Lease Agreement,” CorpBiz,  https://corpbiz.io/learning/important-terms-in-a-lease-agreement/, last seen on 08/05/2023