PROJECT REPORT

On

PREMIUM ON RENEWAL OF LEASES

SUBMITTED BY: SUBMITTED TO: 

ADITI GHOSH Mr. VIJAY MISHRA

SEMESTER – IV, B.A., LLB (Hons.) D.G.M, LAW DEPARTMENT

HIDAYATULLAH NATIONAL BHILAI STEEL PLANT, SAIL

LAW UNIVERSITY, RAIPUR

BHILAI STEEL PLANT, SAIL

BHILAI, CHHATTISGARH (490001)

 DECLARATION

I, Aditi Ghosh, solemnly declare that the project report titled “Premium on
Renewal of Leases” is based on my own work carried out during the course of my internship
under the supervision of Mr. Vijay Mishra.

I assert that the statements made and conclusions drawn are an outcome of my research work.
I further certify that the work contained in the report is original and has been done by me
under the general supervision of my supervisor. I have followed the guidelines provided by
the organisation in writing the report. Whenever I have used materials (data, theoretical
analysis, and text) from other sources, I have given due credit to them in the text of the report
and giving their details in the references.

Aditi Ghosh

Semester – IV, B.A.LL.B. (Hons.)

HNLU, Raipur

1|Page
 CERTIFICATE

This is to certify that Ms. Aditi Ghosh of Hidayatullah National Law University, has
completed her project report on the topic “Premium on Renewal of Leases” under my
supervision. She has taken proper care and shown utmost dedication and sincerity in the
completion of this assignment.

I certify that this project is up to my expectations and as per the latest guidelines.

Supervisor’s signature

Mr. Vijay Mishra

2|Page
 ACKNOWLEDGEMENT

I feel highly elated to have worked on the topic “Premium on Renewal of Leases”. No
creation in this world is a sole effort, nor is this work of mine. The practical realisation of this
project has obligated the assistance of many persons. First of all, I want to thank my
supervisor Mr. Vijay Mishra for his invaluable suggestions and guidance. I would also like to
thank my mentors Mr. Apoorv Singh Chauhan and Mr. Utsav Bhagat, who constantly guided
me throughout the internship period. It would have not been possible for me to have framed
this project without their support.

Additionally, I would like to thank my family and friends, without whose support and
encouragement, this project would not have been a reality.

I take this opportunity to also thank Bhilai Steel Plant for providing this wonderful
opportunity. Some typing errors might have crept in, which are deeply regretted. I would be
grateful to receive comments and suggestions to further improve this project report.

Aditi Ghosh
Semester – IV, B.A.LL.B. (Hons.)

HNLU, Raipur

3|Page
 INDEX

DECLARATION......................................................................................................................1

CERTIFICATE........................................................................................................................2

ACKNOWLEDGEMENT.......................................................................................................3

INTRODUCTION....................................................................................................................5

RESEARCH QUESTION.......................................................................................................7

FACTS OF THE CASES.........................................................................................................8

ISSUES INVOLVED.............................................................................................................11

LAWS APPLIED...................................................................................................................12

ANALYSIS..............................................................................................................................14

CONCLUSION.......................................................................................................................17

REFERENCES.......................................................................................................................18

4|Page
 INTRODUCTION

One of the modes of transferring property for a particular period of time is Lease. In India, a
person can enjoy another person’s property for a prescribed time which is specifically
mentioned in a lease deed. Lease is a transfer of an interest in the property for a stipulated
period of time without transferring the ownership of that property. “In a lease, right of
possession is transferred instead of the right of ownership.”1 Transferor here is called the
lessor and the transferee i.e the one enjoying the property for a period is called lessee. Lease
is governed by the Transfer of Property Act, 1882 and it is given from Sections 105 to 117.
Section 105 states the definition of a lease which states that:

“A lease of immoveable 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.

Lessor, lessee, premium and rent defined. —The transferor is called the lessor, the
transferee is called the lessee, the price is called the premium, and the money, share, service
or other thing to be so rendered is called the rent.”2

Normally lessor charges two types of amounts from lessees, viz, one-time upfront lease
premium and consideration in the form of other charges against such provisioning of
lease/renting service. Consideration means any amount that is payable for any service
provided or to be provided. Lessor receives the amount in the form of upfront lease premium
and other charges as consideration for lease. Upfront lease premium is charges on one time
basis bit on the other hand other charges are charged on regular basis (annual or otherwise).
The premium is the price paid for obtaining the lease of an immovable property. While rent,
on the other hand is the payment made for use and occupation of the immovable property
leased. This project report particularly delves into the concept of the premium part of the
lease. Through the case study on two cases of the law department in relation to renewal of
lease and the payment of a fresh premium in accordance with the renewed land prices, the
author attempts to get a clearer understanding of the premium aspect of a lease and what role
it plays during the renewal of an existing lease.
1
Nishant Vimal, Understanding ‘Lease’ under Transfer of Property Act,1882, IPLEADERS, (Jul. 25, 2019,
02:19PM IST), https://blog.ipleaders.in/lease-under-tpa-1882/.
2
Section 105, The Transfer of Property Act, 1882.

5|Page
RESEARCH QUESTION

6|Page
 This research focuses on answering the following questions:

1. Whether Premium once paid would be sufficient for all subsequent renewals of the
lease?

2. Does ‘renewal of lease’ translate to the formation of a fresh lease in accordance with
lease renewable clause in previous lease deed or the continuance of the same old
deed?

3. Can a fresh lease be formed without the Consideration part (Premium) of the lease?

FACTS OF THE CASES

1. Bhilai Education Trust v. Steel Authority of India Limited:

7|Page
Bhilai Education Trust (Lessee, Appellant), a trust under M.P Public trust, was given 14 acres
of land on lease by Bhilai Steel Plant, SAIL (Lessor, Respondent) to run Bhilai Mahila
College, in the year 1980, for a period of 30 years. This deed was executed on 07.04.1980.
The initial Premium that was paid at the time was Rs. 7500/- and an annual Rent of Rs.
600/acre for staff quarters plot, Re. 1/acre for college building, hostel building and
playground. The said lease was to expire on 14.09.2011. As per the terms of the lease deed,
an application for renewal of the lease was issued by BSP on 15.03.2010. However, there was
no response to this by the Appellant and as such another reminder for the same was issued on
29.01.2011 by the Respondent Company directing the lessee to submit its consent of renewal
and pay Rs. 2,50,000 as interest free valuation charges. The Board of the Respondent
Company in its 340th meeting on 21.07.2008, approved the terms for any further renewal of
leases to follow the given direction – Lease maybe renewed on applicable renewal charges of
“25% of the Applicable Land Premium (ALP) prevailing on the due date of renewal.” The
lessee submitted the amount of Rs. 2,50,000 for the land valuation charge on 18.02.2011. As
per the valuation, 25% of the APL amounted to Rs. 4,39,08,480. Adding this to Security
deposit (Rs. 35, 12, 678), Ground rent for 2013-14 (Rs. 43, 90, 848), and Service Charges
(Rs. 87,81,696) – gave a final valuation of Rs. 6,05,93,702 to be paid by the Appellant for
renewal of the lease. The Appellant rejected paying this claim and after multiple reminders
the Respondent Company filed suit for eviction in the estate court. To stop the same, a writ
was filed by the Appellant in the Bilaspur High Court which dismissed their claim for a stay
and through its order dated 16.03.2017. As such a reappeal was filed by the Appellant in the
High Court.

The relevant clauses of the Lease deed are as follows:

“Clause 5(1) – The lessor shall be entitled to enhance the rent after every ten years during
the period of the lease, provided that such increase shall in no event exceed 20% of the
previous rent.

(1A) – The lease shall be renewable at the option of either party for a further period of Thirty
years on the same terms and conditions as herein without the covenant for renewal provided
the party desiring such extension gives to the other party during the last year of the initial
term of this lease but not later than six months prior to the expiration of the said term notice
of its intension of such renewal.

8|Page
 (1B) – In case the lessee/the institution to whom. For the purpose of which this lease has
been granted cease to exist for any reason whatsoever the lease shall stand automatically
terminated and determined and the lessor shall be entitled to take possession of the land
without any liability on the part of the lessor for the refund of the premium or any part
thereof or any amount by the way of cost or compensation for any building, erection or
structure then standing on the demised premises. In the case of such determination of the
lease the lessor shall have the right to lease out the demised land to such person/s or
institution/s as the lessor may decide in its absolute discretion.”

2. Prahlad Tiwari v. Steel Authority of India Limited:

Mr. Prahlad Tiwari (Petitioner) was allotted a shop by Bhilai Steel Plant (Respondent) and a
lease for a period of 30 years was executed for the same on 30.09.1982. A Premium of Rs.
6,667 was paid at the time and an annual rent of Rs. 67 was fixed. The expiration date of the
lease was 29.09.2012. The Petitioner alleged that a letter for renewal was sent to the
Respondent Company on 17.10.2011. However, this claim has been rejected by the
Respondent. The Respondent pointing towards the renewal clause of the lease claim that a
fresh lease is to be formed for the renewal and for that the Petitioner needs to pay a fresh
Premium as well as Security deposit. As per the 340th Board meeting of SAIL (previously
mentioned), a valuation of the shop plot was done by a third party and they presented the
market rate (or APL) of the shop as on date of renewal as Rs. 62,50,000. As such, a total of
Rs. 16,87,500 (Premium of Rs. 15,62,000 (25% of APL) and Rs. 1,25,000) was demanded by
the Respondent for the renewal. The Petitioner denied the payment of this amount claiming
that the initial Premium paid should be considered and that an increase of 50% to the rent
should be the only change made. Following the Petitioner’s non-payment, the Respondent
Company demanded eviction from the premises as the lease had already expired. The
Petitioner was additionally running computer classes where the shop was given on lease for
running Officer of Advocate & Notary, in violation of the terms of the lease deed. To stay the
eviction proceedings the Petitioner made a writ petition in the High Court of Bilaspur.

Relevant terms of the lease:

“5(1) – The lessor shall be entitled to enhance the rent after every thirty years during the
period of the lease, provided that such increase shall in no event exceed 50% of the previous
rent.
9|Page
5(6) – If the lessee wants to retain the demised land for a further term of 30 years, the lessee
shall give notice of his intention to do so to the lessor six months prior to the date of expiry of
such period to the date of expiry of such period and the lessor may grant a fresh lease in
respect of the land herein demised for a further period of 30 years on the terms and
conditions as may be decided by the lessor. In case the lessee wants to retain the demised
land for a further term of 30 years subsequent to the expiry of the term of the first renewal as
above, the lessee shall give notice of his intention to do so six months prior to the date of
expiry of the period of such renewal and the lessor may grant a further lease in respect of the
land herein demised for a further period of 30 years on the terms and conditions as may be
decided by the lessor.”

10 | P a g e
 ISSUES INVOLVED

Out of the several issues raised by parties in both the cases, the issue being dealt by this
research report are:

1. Whether Premium once paid would be sufficient for all subsequent renewals of the
lease?

2. Does ‘renewal of lease’ translate to the formation of a fresh lease in accordance with
lease renewable clause in previous lease deed or the continuance of the same old
deed?

3. Can a fresh lease be formed without the Consideration part (Premium) of the lease?

11 | P a g e
 LAWS APPLIED

The following are the laws involved in the context of the cases being dealt with:

Section 105 of the Transfer of Property Act, 1882 -

“105. Lease defined. – A lease of immoveable 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. Lessor, lessee, premium and rent defined. – The
transferor is called the lessor, the transferee is called the lessee, the price is called the
premium, and the money, share, service or other thing to be so rendered is called the rent.”

Section 106 of the Transfer of Property Act, 1882 -

“106. Duration of certain leases in absence of written contract or local usage.—(1) In the
absence of a contract or local law or usage to the contrary, a lease of immovable property
for agricultural or manufacturing purposes shall be deemed to be a lease from year to year,
terminable, on the part of either lessor or lessee, by six months’ notice; and a lease of
immovable property for any other purpose shall be deemed to be a lease from month to
month, terminable, on the part of either lessor or lessee, by fifteen days’ notice.

(2) Notwithstanding anything contained in any other law for the time being in force, the
period mentioned in sub-section (1) shall commence from the date of receipt of notice.

(3) A notice under sub-section (1) shall not be deemed to be invalid merely because the
period mentioned therein falls short of the period specified under that sub-section, where a
suit or proceeding is filed after the expiry of the period mentioned in that sub-section.

(4) Every notice under sub-section (1) must be in writing, signed by or on behalf of the
person giving it, and either be sent by post to the party who is intended to be bound by it or
be tendered or delivered personally to such party, or to one of his family or servants at his
residence, or (if such tender or delivery is not practicable) affixed to a conspicuous part of
the property.”

12 | P a g e
Section 10 of the Indian Contract Act, 1872 –

“10. What agreements are contracts. —All agreements are contracts if they are made by the
free consent of parties competent to contract, for a lawful consideration and with a lawful
object, and are not hereby expressly declared to be void.

Nothing herein contained shall affect any law in force in [India] and not hereby expressly
repealed by which any contract is required to be made in writing or in the presence of
witnesses, or any law relating to the registration of documents.”

13 | P a g e
 ANALYSIS

The definition of the lease under Section 105 of TPA, postulates that besides other essential
elements of a lease, i.e., the parties being the lessor and the lessee; the subject-matter being
an immoveable property; demise being a transfer of a right to enjoy; and the consideration
being a price paid or promised being the premium or the rent, the time or the term or period
of the said lease is an essential requisite of a valid lease. A valid lease may be granted for a
certain time, express or implied, or in perpetuity. A lease which is silent as to the duration of
its term will not be lease within the meaning of Section 105 of TPA. The commencement of a
lease must be certain or capable of being ascertained with certainty afterwards, so that both
the time when it begins and the time when it ends, is fixed. A provision in the lease relating
to duration thereof may be implied by law or usage. Even Section 106 of TPA, inter alia
provides that in absence of a contract or local law or usage to the contrary, a lease of
immoveable property for agricultural or manufacturing purposes shall be deemed to be lease
from year to year and that a lease of immoveable property for any other purpose shall be
deemed to be lease from month to month.

Although a lease renewal and lease extension may have the same practical effect, when
drafting a renewal clause or an extension clause in a lease agreement, it is important to be
aware that the courts have concluded that there is a separate and distinct legal difference
between the two. There is a technical distinction between a renewal and an extension. An
extension is a stretching or spreading out of the term of the lease. A renewal, on the other
hand, creates a new and distinct tenancy and is not merely a perpetuation of the old tenancy.
An instrument of lease may contain a provision to the effect that on the expiry of the term of
the lease, it is to be renewed or extended. Such a provision may not ipso facto renew or
extend the term of the lease but it entitles the lessee to obtain a new lease in their favour after
the expiry of the original term. The Supreme Court in its judgment in Hindustan Petroleum
Corporation Ltd. v. Dolly Das3, observed that, “Covenant for renewal is not treated as part of
terms prescribing the period of lease but only entitles a lessee to obtain a fresh lease.” Further
the court noted that, renewal and extension of lease are two different concepts. They are not
defined in TPA. As per Webster dictionary, ‘to renew’ means ‘to make like new’ or ‘to
restore to existence’; and ‘to extend’ means ‘to stretch out to fullest length’. As such, the
3
(1999) 4 SCC 450.

14 | P a g e
distinction between these two concepts has often been a subject of discussion and has been
considered by the Supreme Court in its judgment in Provash Chandra Dalui. v. Biswanath
Banerjee,4 while observing that, “It is pertinent to note that the word used is ‘extension’ and
not ‘renewal’. To extend means to enlarge, expand, lengthen, prolong, to carry out further
than its original limit. Extension, according to Black’s Law Dictionary, means enlargement
of the main body; addition to something smaller than that to which it is attached; to lengthen
or prolong. Thus, extension ordinarily implies the continued existence of something to be
extended. The distinction between ‘extension’ and ‘renewal’ is chiefly that in the case of
renewal, a new lease is required, while in the case of extension the same lease continues in
force during additional period by the performance of the stipulated act.” The distinction
between the said two concepts was reiterated by the Supreme Court in the judgment of State
of U.P.    Lalji Tandon,5 where the court was of the view that, there is a difference between an
extension of lease in accordance with the covenant in that regard contained in the principal
lease and renewal of lease, again in accordance with the covenant for renewal contained in
the original lease. In the case of extension, it is not necessary to have a fresh deed of lease
executed; as the extension of lease for the term agreed upon shall be a necessary consequence
of the clause for extension. In the celebrity case of Caltex (India) Ltd. v. Bhagwan Devi
Marodia,6 the Supreme Court held that, at common law stipulations as to time in a contract
giving an option for renewal of a lease of land were considered to be of the essence of the
contract even if they were not expressed to be so and were construed as conditions precedent.
Equity followed the common law rule in respect of such contracts and did not regard the
stipulation as to time as not of the essence of the bargain. “As stated in Halsbury’s Laws of
England,7 “An option for the renewal of a lease, or for the purchase or re-purchase of
property, must in all cases be exercised strictly within the time limited for the purpose,
otherwise it will lapse.”

Application of the concepts in the present cases

As per the observations of the courts in the above-mentioned cases, we can infer that a clause
for renewal entails with it the formation of a new lease altogether. As such, it is pertinent to
note that renewal of lease is nothing but a fresh lease to be executed in accordance with the
lease renewal clause of the first lease. As per the court’s decision in Life Insurance
4
1989 Supp (1) SCC 487.
5
(2004) 1 SCC 1.
6
(1969) 2 SCR 238.
7
3rd Edn., Vol. 3, Art. 281, p. 165.

15 | P a g e
Corporation v. The State Of U.P,8 premium on the leased property needs to paid on renewal
of a lease as a fresh lease is made. Therefore, the lessee will be required to pay fresh
consideration (Premium) for the execution of the lease for subsequent period. This is in
accordance with Section 105 of TPA, which views the premium of the lease as its
consideration, without which the lease would not be valid. In the case of Prahlad Tiwari, the
right of BSP to collect Premium is evidently present considering the clear wording of Clause
5(6) of the original lease deed, which made it a requirement for the formation of a fresh lease
deed with T&Cs decided by the lessor on renewal of the lease after a period of 30 years.
However, such terminology is not present in the case of Bhilai Education Trust, where the
renewal clause puts down that similar T&Cs as have been followed till now, would be done
after the renewal too. This brings in forth the question of whether a Premium is to be paid
while following the previous T&Cs. BET argues that the payment of the exorbitant Premium
as well as fresh service charges and security deposit is unnecessary and against the accepted
terms. It should be noted that irrespective of the T&Cs being carry forwarded in the renewal
of the lease, a fresh lease is always formed between the parties when the terms talk about the
“renewal” of lease and not “extension”. Hence, for a fresh lease, payment of premium is not
one of the T&C of the lease but it forms the consideration part of the contract, which is
mandatorily required for the deed to be legally valid.

A few observations made keeping in mind the present scenario of high number of litigations
related to non-payment of premium:

1. Short term benefits – settlement/middle ground to be arrived at, since there is no

revenue being gained at all from these properties involved in litigation at present.
2. Long term benefits – continuation of litigation till granted right to evict and then fresh
bidding be arranged for the concerned property, based on enhanced prices.
3. Suggestion – Future grant of lease should be made for shorter terms of 3-5 years for a
more regularized and efficient system of revenue generation. This would be beneficial
considering the change in land prices.

8
AIR 1973 All 516.

16 | P a g e
 CONCLUSION

In conclusion, we note the distinctive contrast between the understanding and application of
the clause of renewal and extension. Where the lease deed provides for a renewal clause, it
has been widely interpreted and accepted by the judiciary that it would translate to the
formation of a fresh lease which the same or fresh clauses in the deed. This clears up the
answers for the research questions that this project aimed to find:

i. Renewal of lease being a fresh lease altogether would require for a new
consideration. Premium for the same being the consideration for it, needs to be
paid afresh as well, for it to be legally valid and binding. Therefore, the previous
premium paid for the earlier lease would not be sufficient to fulfill the renewed or
fresh lease.
ii. The clear distinction in the terminologies used in an existing lease deed regarding
the intention of a clause to be a renewal clause or that for an extension is to be
interpreted and the furtherance of the deed would be treated accordingly. As such,
where the wording of the clause is apparent of it being a renewal clause, as in the
case of Prahlad Tiwari, a new or fresh lease would be required to be created for
the lessee to continue occupying the property. However, as in the case of Bhilai
Education Trust, although the clause is termed as a renewal clause, the ambiguity
in the wording can be interpreted as an extension clause as well. Irrespective of
that, the fact that the notice for renewal was not made on time which resulted in
the expiration of the original lease deed, would result in the need to form a fresh
lease on the price of a fresh consideration or premium,
iii. As payment of premium is not one of the T&C of the lease, it forms the
consideration part of the contract. Therefore, consideration and performance of
contract are separate and distinct. As per Section 105 of TPA, premium is the
price of the lease, or in other words the consideration for forming the contract
between the parties. According to Section 10 of the Indian Contract Act, lawful
consideration is an essential element in formation of a contract. Hence, for a fresh
lease to be lawful and enforceable, consideration or the premium is an essential
part that needs to be paid.

17 | P a g e
 REFERENCES

1. Achal Gupta, Lease: Renewal Thereof, SCC ONLINE, (Aug. 12, 2020),
https://www.scconline.com/blog/post/2020/08/12/lease-renewal-thereof/.

2. Dr. Sanjiv Agarwal, Taxability of Up-Front Lease Premium, TMI, (Mar. 24, 2018),
https://www.taxmanagementindia.com/visitor/detail_article.asp?
ArticleID=7933#:~:text=The%20premium%20is%20the%20price,of%20the
%20immovable%20property%20leased.&text=Tax%20is%20payable%20on
%20renting%20of%20immovable%20property.

3. RBS Lawyers, Renewing or Extending a Lease – There is a Difference, RBS, (Sept.

10, 2014), https://www.rbs.ca/publications/renewing-or-extending-a-lease-there-is-a-
difference/.

4. The Transfer of Property Act, 1882.

5. The Indian Contract Act, 1872.

18 | P a g e