Formation and Termination of Lease

Formation and Termination of Lease

Dr. Muhammad Mubushar

Noon Business School, University of Sargodha
Mubushar.raja@gmial.com
Formation and Termination of Lease

Formation of Lease

 Section 105 of Property Act 1882 states the definition of

a lease which states that it is a transfer of immovable property for a

particular time period for a consideration of which the transferee has

accepted the terms surrounding the agreement.

 Parties must be competent: The parties in a lease agreement should

be competent to enter into a contract. Lesser should be entitled to a

property and have absolute rights over that property.

Formation and Termination of Lease

Formation of Lease
 Right of possession: Ownership rights are not transferred in a lease, only
the possession of the property is transferred.
 Rent: Consideration for a lease can be taken in the form of a rent or
premium.
 Acceptance: Lessee, who is to get the interest in the property after lease,
has to accept the lease agreement along with the time period and terms &
conditions imposed on the transfer.
 Time Period: Lease always takes place for a particular time period
which is to be specified in the lease agreement. It can be relaxed at the
option of the lessor.
Formation and Termination of Lease

How is a lease executed?

 Section 107 of Property Act 1882 states about lease how made. This
section covers three aspects:
 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.
 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.
 When the lease is of multiple properties that require multiple deeds, it will
be made by both the parties of the lease.
Formation and Termination of Lease

What happens when the lease agreement does not

prescribe the time period of the lease?
 According to the provision of Section 106 of Transfer of Property Act,
1882 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 month notice expiring period; 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 expiring with the end of a month of the
tenancy.
 Every notice under this section 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.
Formation and Termination of Lease

Termination of Lease

 A termination is the landlord ending the rental agreement and asking

the tenant to vacate the rental unit. A tenant can have their tenancy

terminated and move out without being evicted. An eviction is the

actual court process and lawsuit to have a tenant removed from the

property if they fail to leave.

 Section 111 of transfer of property Act 1882 deals the

termination/breaking of the lease in different situations.

Formation and Termination of Lease

A lease agreement is terminated due to:

 Destruction of property

 Merger

 Expiry of time

 Effluxion of time

 Mutual agreement

 Notice to quit

 Use of forfeiture and insolvency clauses in the agreement

 Eviction
Formation and Termination of Lease

Destruction of Property

 If the property is significantly/ wholly destroyed by a fire, earthquake

or casualty without tenant negligence the tenant have the right to end
the lease early, as the essential of lease agreement, the subject matter
of the lease would not be available. Tenant is relieved from paying
rent on the damaged property.
 But note in the case that casualty /damage is caused by tenant’s gross
negligence or international conduct, the tenant does not have the right
to terminate the lease and will remain responsible for the damage he
caused on landlord property.
Formation and Termination of Lease

Merger

 Merger occurs when tenant acquires the landlord's freehold interest,

the lease then mergers into the freehold hence terminating the lease
agreement.
 This is because when a merger occurs debtors and creditor of a
contract becomes the same person, tenant has become the landlord
also by purchasing the property under lease, resulting in termination
of the contractual obligations.
 For example: Landlord A is leasing a flat to tenant B. B then
purchase the flat from A. B will then become both the landlord and
the tenant in the lease agreement therefore terminating leas agreement.
Formation and Termination of Lease

Effluxion of time
 The expiration of a lease term due to a natural passing of time rather than

from a specific action or event.

Expiry of Time by happening of specific event

 Lease ends on the expiration date-refers to the date that lease agreement

is required to end according to landlord tenant agreement –fixed term

leases e.g. 1 year lease.

 Tenant is required to vacate the landlord premises on the expiration of

the lease.
Formation and Termination of Lease

Mutual Agreement:

 It is used when both parties agree to release each other from the lease

agreement before the actual ending date (e.g. landlord selling

property/ tenant leaving for a new job or marriage).

 Both patties negotiate to the point where they protect their respective

interests, then they agree to end lease on certain terms. After which

they create and sign a mutual lease termination contract with the

agreed terms of ending the lease.

Formation and Termination of Lease

Notice to quit

 It is lease termination letter written by either the landlord or tenant

informing the other party the intention to end lease agreement with the

date the tenancy will end stated.

 It is used to end a lease agreement early (breach) or to confirm that an

expiring lease term will not be renewed

Formation and Termination of Lease

Surrender

 It can be by deed or be implied by operation of law

 The tenant voluntarily gives up his interest of being a tenant in the

premises and the landlord takes possession of the premises.

 For example: The tenant removes possessions when he has to

hurriedly accept a job in another country, vacate the property and

returning the keys to the landlord, it is effective if accepted by the

landlord otherwise lease continues

Formation and Termination of Lease

Use of forfeiture and insolvency clauses in the

agreement

 The right to forfeit a lease in the event of a tenant’s breach (failure to

pay rent or renovate as agreed)/ terminate lease where tenant has

becomes insolvent is usually expressly provided for in the lease.

 If tenant interferes property title, misuses the property, creates the

disturbance for other residents or breaches any terms and conditions.

The landlord will issue a notice for breaching the lease.

 When these occur then landlord ends the lease agreement.

Formation and Termination of Lease

Eviction

 An eviction is an order from a judge removing tenant from landlord

premises, generally against tenant will (after tenant failed to comply,

pay, or vacate within the specified timeframe given by the landlord)

 So using eviction landlord go through the country court to remove

tenant from the rental unit.

 It is a legal process used usually for problematic tenants who refuse to

perform as expected in the lease.

Thank You