CONCEPT OF LEASE AND THE RIGHTS AND LIABILITIES

OF LESSOR AND LESSEE

Table of Contents
 Introduction
 Concept of lease
o Meaning
o Definition
o Elements of a valid lease
o Nature of lease
o Absence of registration
o Agreement to lease and lease deed or lease agreement
o Lease and License
 Rights and Liabilities of a Lessor
o Rights of a lessor
o Liabilities of a lessor
 Rights and liabilities of a lessee
o Rights of a lessee
o Liabilities of a lessee
 Termination of a lease
 Conclusion

Introduction

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. 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.

Concept of lease
Meaning

Lease basically means when one person through the means of a contract conveys or rents
his property to another person for a specified amount of time in return for a periodic or a
lump-sum payment.

e.g. A leases his house to B for 8 months for periodic payment of Rs. 10000 per month. This
is the most basic example of a lease.

Definition

The term “lease” is defined under Section 105 of The Transfer of Property Act, 1882 and it
states that-

“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 specific occasions to the transferor by the transferee, who accepts the
transfer on such terms”.

There are 4 terms that we will come across this article which are related to lease of
immovable property and they are as follows:

 Lessor- The transferor of the immovable property is called lessor.

 Lessee- The transferee of the immovable property is called lessee.
 Premium- The premium is the price paid for obtaining a lease of immovable
property.
 Rent- The money or service that is rendered is known as rent.

Elements of a valid lease

For a lease to be valid it has certain prerequisites that are needed to be fulfilled and they
are as follows:

1. Lease Parties - A lease agreement can be entered into by anybody who is eligible to
enter a contract under the Contract Act 12. The Lessor must have the right to transfer
the property, either explicitly or implicitly. Furthermore, a lease can be granted to
 many parties; nevertheless, unless an express provision is made, all lessees will be
treated as a single tenant.

2. Subject matter- The lease subject matter must be an immovable property, as

specified in Section 3. As a result, not only are land and other specified elements
immovable property, but also the advantages derived from them, according to the
definition. In addition, when a person signs a lease for a building, the lease
immediately includes the land on which the premises are located.

3. Transfer of Right - There is a partial transfer of possession and interest under a lease
agreement.

4. Consideration- In exchange for the enjoyment of the property by the lessee there
must an equivalent consideration paid to the Lessor. The consideration is usually in
the form of premium plus rent but sometimes it can be premium alone or rent alone.
5. Duration- A lease for an immovable property shall be made for 11 months. In case
the duration exceeds a year i.e 12 months or more then a lease agreement can only
be made by a registered instrument as per Section 107 of the Transfer of Property
Act, 1882.
6. Delivery and Acceptance- The lessor must deliver the contract and the lessee must
accept the contract without any form of undue influence, coercion. Once the lessee
accepts the contract, the lease becomes valid.

Nature of lease

In case there is neither an oral confirmation or a registered document of a lease agreement

accompanied by delivery of possession then there is no formation of a lessor and lessee
relationship.

Absence of registration

If there is an absence of a registered deed when the duration of a lease agreement for
immovable property is above 1 year then in that case Section 106 of the Transfer of
Property Act contemplates following circumstances:

Term Prescribed
Purpose Notice
(Deemed) End

Agricultural or Year to Year 6 1 year

manufacturing purpose.
 month

Month to
Any other purpose. 15 days 1 month
Month

In this table, there is a distinction of two purposes in regard to Section 106 i.e. Agricultural
or manufacturing and other purposes. Hence, two things can be derived from this table:

1. When a lease for Agricultural or manufacturing purpose is deemed to be of year

to year, then it will attract a 6-month notice that the lease will end on the expiry
of 1 year from the date of the commencement of the lease.
2. When a lease for any other purpose is deemed to be of the month to month,
then it will attract a 15-day notice that the lease will end on the expiry of 1
month from the commencement of the lease.
There is proviso to this section which states that the notice to quit in this section should be
written and conveyed to the party who is required to abide by it. If this is not possible then
it should be attached to a conspicuous place in that property.

How is a lease executed?

Section 107 states about lease how made. This section covers three aspects:

1. When there is a lease of Immovable property for a term of 1 year or more – This
can only be made by a registered deed.
2. All other leases of Immovable property – Can be either made by a registered
deed or an oral agreement or settlement along with the transfer of possession of
that property.
3. When the lease is of multiple properties that require multiple deeds, it will be
made by both the parties of the lease.

In the case of Punjab National Bank v. Ganga Narain Kapur (Allahabad HC, 1993), Court
held that if the lease is done through an oral agreement, then the provisions of Section 106
will apply.

Agreement to lease and lease deed or lease agreement

There are certain differences between an agreement to lease and a lease agreement but
both of these terms are often confusing for common people and it makes them vulnerable.
So basically an agreement to lease is the initial part of a lease agreement. Agreement to
lease does not create any legal obligation, agreement to lease just implies the possibility of
any future transfer. Agreement to lease just denotes the terms and conditions of a
prospective lease agreement. It is just a stepping stone in the process of the lease.

On the other hand, a lease deed or a lease agreement is a final contract. A lease deed along
with the delivery of possession creates a legal obligation upon a person. A lease deed
transfers the rights from a lessor to lessee for a specific duration.

Lease and License

Lease and License are another two terms that confuse a lot of people. However, it does
make sense because both lease and license share some common points but by no means,
they can be substituted for each other as both of these terms are quite different.

A lease is generally a grant of property by one person to another in return for some
consideration which is usually in the form of rent. A license is permission to do some act and
without the permission doing such an act will be illegal.

A lease consists of a transfer of interest in the immovable property but in case of a license,
there is no such transfer of interest in the property.

A lease is transferable and heritable whereas a license is non-transferable and it is based

purely on personal privilege.

A lessee is permitted to uphold a suit in his own name against trespassers and strangers. A
licence does not create an interest in the property in support of the licensee and so, he is
not entitled to uphold suits in his own name.

Death of either party i.e. lessor and lessee does not affect a lease, whereas a licence is
terminated in such situations.

Rights and Liabilities of a Lessor (Section 108A)

We already know who is a lessor, so legally a lessor is granted certain rights and certain
liabilities. Section 108A talks about the rights and liabilities of a lessor, so let’s further
analyse the rights and liabilities of a lessor.
Rights of a lessor

1. Right to accretions- If during the tenancy period or during the duration of the
tenancy any further accretion, accumulation or addition is made in the property
then the lessor is entitled to such property. Such addition can be natural or by the
expense of the lessee but after the termination of the tenancy period, the lessee
must deliver the title to the lessor.
2. Right to collect rent- The lessor has the right to collect rent or any form of
consideration as mentioned in the terms and conditions of the contract from the
tenant without any form of interruptions.

Liabilities of a lessor

1. Duty of disclosure- The lessor is bound to disclose any form of a material defect in
the property. There are two kinds of defects:

 Latent defect- Latent defect cannot be discovered rationally or through

inspection by the lessor.
 Apparent defect- Apparent defect can be easily discovered through some
inspection.
So basically a lessor shall disclose any apparent defect to the lessee and it is vital
to disclose such defects as they interfere with the enjoyment of the property by
the lessee.

2. To give possession- The lessor must give possession of the property to the lessee
on lessee’s request. However, this liability only arises when there is a request on
behalf of the lessee.

Munne Dutt v. William Cumbell, it was held by the Court that where there is an
implied contract, it should be understood that the Lessor shall give peaceful
possession of the property leased to the lessee.

3. Covenant for quiet enjoyment- The lessee has all the rights to enjoy the property.
It is the duty of the lessor to not cause any form of interruptions during the
tenancy period. The Madhya Pradesh HC stated that actions such as physical
interference or direct interference in the premises lead to a breach of enjoyment
and interruptions.

Rights and liabilities of a lessee (Section 108B)

Just like a lessor, a lessee has also some rights and liabilities which are granted to him by the
Transfer of Property Act. So now we will analyse the rights and liabilities of a lessee.
Rights of a lessee

1. To charge for repair- If the lessor fails to make any repairs in the property which
the lessor is bound to do in that case the lessee can make such repairs by his
personal expenses. If a lessee makes such repairs by his personal expenses then,
in that case, it is the right of the lessee to deduct the cost of such repairs from the
rent or the lessee may simply charge the lessor for such repair.
2. Right to remove fixtures- The lessee has the right to remove any fixture in the
property during the time period of the lease, however, after the termination of
the lease deed the lessee must leave the property in the condition in which he
received it. In case the lessee fails to do so, the lessor can sue the lessee.
3. Right to assign his interest- The lessee can sub-lease the property or the lessee
can absolutely transfer his interests. However, if the lease deed restricts a lessee
to assign his interest then the lessee is prohibited to do so and even after the
transfer of his rights, the lessee is still subject to all the liabilities related to the
lease deed.
4. Right to have benefits of crops- When the lease is of uncertain duration then, in
that case, the lessee or his/her legal representative has been given the right to
gain benefits from all the crops grown by them.

Liabilities of a lessee

1. Duty to disclose material facts- The lessee is bound to inform the lessor of any
material fact which the lessee is aware of and the lessor is not. In case the lessee
does not disclose such fact and the lessor suffers any loss then the lessee is
bound to compensate the lessor.
2. Duty to pay rent- The lessee is bound to pay the rent or the premium to the
lessor or his agent in the proper time and proper place as decided by the lease
deed. In case the lessee fails to pay his/her rent then, in that case, the lessor can
eject the lessee on the ground of non-payment of rent or file a suit for arrears of
rent.
3. Duty to maintain the property- The lessee is bound to maintain the property in a
good condition as it was when he was given the possession of the property. The
lessor or his agent are allowed to inspect the property at the reasonable ground.
Only the changes caused by irresistible forces can act as an exception for this
liability.

Paritosh Ghosh v. Ashim Kumar Gupta (Calcutta HC, 2002)

Tenant made holes in the walls for fixing the air cooler, replaced the brass
water taps with plastic cap ones, which led to violation of lease agreement
 and hence the eviction of the Tenant was held proper as he caused damage
to the leased property without lessor’s prior permission

4. Duty to give notice- If the lessee becomes aware that any person has tried or is
trying to damage the rights of the lessor or the title of the lessor is endangered
then, in that case, the lessee must give notice to the lessor.
5. Duty to use the property in a reasonable manner- The lessee must use the
property in a manner as if it was his/her own property.
6. Duty not to erect any permanent structure- A lessee cannot erect any permanent
structures except in the case of agriculture without the consent of the lessor.
7. Duty to restore possession- After the determination of the lease, the lessee must
restore the possession of the property to the lessor. If the lessee does not vacate
the premises even after the expiry of the notice, the lessee is then bound to pay
the damages. 

Determination of a lease
 Section 111 states about the determination of the lease, which lays down the ways in which
lease is terminated:

1. Lapse of time – When the prescribed time of the lease expires, the lease is
terminated.
2. Specified event – When there is a condition on time of lease depending upon a
happening of an event.
3. Interest – Lessor’s interest to lease the property may cease, hence resulting in
the termination of the lease.
4. Same owner – When the interest of both lessor and lessee are transferred or
vested in the same person.
5. Express Surrender – This happens when the lessee ceases to have an interest in
the property and comes into a mutual agreement with the lessor.
6. Implied Surrender – When the lessee enters into a contract with another for the
lease of property, this is an implied surrender of the existing lease.
7. Forfeiture – There are three ways by which a lease can be terminated:

 When there is a breach of an express condition by the lessee. The lessor may get
the possession of the property back.
 When lessee renounces his character or gives the title of the property to a third
person.
  When the lessee is termed as insolvent by the banks, and if the conditions
provide for it, the lease will stand terminated.

However, this forfeiture is waived by acceptance of rent which has become due since
the forfeiture or during the distress for rent. By waiving the lessor shows his
intention to treat the lease as subsisting.

8. Expiry of Notice to Quit – When the notice to quit by the lessor to the lessee expires, the
lease will also expire. This notice can be by express or implied consent of the noticee.

What is notice to quit and what happens after it?

Notice to quit is a formal written statement that is issued to the lessee if the lessor desires
to end the lease agreement, whether on the expiry of the duration as stated under Section
106 or on grounds specified in Section 111.

Any lease can be forfeited as mentioned in the sub-clause (g) of Section 111, by acceptance
of the notice to quit.

But Section 112, states that if the lessor after initiating the process of termination of the
lease on the grounds of forfeiture accepts any rent from the lessee, it will be understood
that the lease will still exist and the termination and notice to quit has been waived.

Section 113 provides two ways in which the notice can be waived, that is expressly or
impliedly.

1. Express Waiver of notice to quit – When a lessor accepts the rent from
the lessee after the notice to quit has been served, this is called
express waiver of notice to quit.
2. Implied Waiver of notice to quit – When a lessor issues notice to quit
to the lessee, and upon expiry of that notice, lesser issues another
notice to quit to the lessee. The first notice to quit is impliedly waived.

Waiver of notice also shows the intention to continue the existing lease.
Effect of Holding over

Section 116 states about the effect of holding overlays down that if there has been a waiver
of notice to quit, it will not be called a new lease instead it will be called as a lease on
sufferance or tolerance without objecting against it. The term ‘Holding over’ stands for
retained possession of a property which has been leased. After this, the lease is renewable
as any normal lease and in the way prescribed in Section 106.

This section provides that if the lessor agrees to the holding over of the property by the
lessee, it will be renewed. But if the lessor does not entertain the retained possession by the
lessee, he can initiate suit proceedings against him on grounds of trespass or tenant at
sufferance.

Conclusion
Through the rights and liabilities, it is clear that a lessor must disclose facts and shall avoid
interruptions while the lessee is leased the property. A lessee, on the other hand, is bound
to take reasonable care of the property and at the same time pay his/her rent. A lease of a
property is certainly different from a sale of a property and this article clarifies that aspect
of property law.