Terms and Conditions for Leasing a Property

The act of leasing (sub leasing) of property is fundamental to most business transactions throughout the world. In the Transfer of Property Act, 1882 which is the governing Act for transfer of property in India, Lease is defined under Section 105 as ‘a transfer of the right to use the property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised.’ Therefore in general terms Lease is the transfer of the right to use the property for some money. The person who transfers the property is called a lessor and the person to whom the property is transferred is called the lessee. The price involved in the transaction is called the premium and the money, share, service or other things to be so rendered is called the rent.

How are Leases Made?

Section 107 of the Transfer of Property Act lays down the requirements of making a lease. A registered instrument (known as the lease deed) is necessary for a lease of immovable property for any term exceeding one year or reserving a yearly rent. For all other leases of immovable property, they may be made either by a registered instrument or by an oral agreement accompanied by delivery of possession. Thus, a lease may be granted for any purpose, say, commercial, residential, manufacturing purpose or agricultural purpose and can be made only by a registered instrument if the duration of the lease is for more than one year.

It is also important to remember that a mere agreement to lease without any written document or any oral agreement accompanied by delivery of possession will not create any binding right in favor of any party, whether lessor or lessee. A Deed of Lease i.e. the agreement to lease must be registered with an authority known as the Sub-Registrar of Assurances under Section 17(1) of the Indian Registration Act, 1908.

When is a Lease Constituted?

There are certain prerequisites that must be fulfilled before a lease is constituted . As per the section:

  1. There should be an immovable property.
  2. The lessor and the lessee should be competent to contract.
  3. There should be a transfer of right to the lessee from the transferor lessor
  4. Such right should be obtained through the consideration to be paid
  5. Such consideration should be paid by the lessee either periodically or as agreed upon between the parties.

The transfer of the limited right to use or possess the property during the period of lease is bestowed upon the lessee and the lessor cannot thereafter seek to retain any share in the right of possession albeit the ownership right rests with him.