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Lease and Licence under Transfer of Property Act

Lease and Licence
Lease and Licence


Definition of Lease (Sec. 105)

“A lease of immovable property is a transfer of a right to enjoy such property for a certain time (express or implied), or in perpetuity, in consideration of 

(i) a price paid or promised, or 

(ii) of money, 

(iii) a share of crops, 

(iv) service, or 

(v) 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.

    In the case of a lease, the price is called the premium, and the money, share, service or other thing to be rendered is called the rent', the transferor is called the lessor, and the transferee is called the less.’’

    Thus, a lease is a transfer of a right to enjoy immovable property made for a certain time in consideration of a price (rent) paid or promised. A lease is, therefore, a transfer of an interest in land. The interest transferred is called the leasehold interest.

The lessor parts with his right to enjoy the property during the term of the lease and it follows from it that the lessee gets that right to the exclusion of the lessor.

Essential Requisites of a Lease

The essential requirements of a lease are as follows:

  1. The Lessor: The lessor must possess the capacity to contract and hold title or authority over the property.

  2. The Lessee: Similarly, the lessee must be legally capable of entering into a contract at the time of lease execution. Notably, while a sale or mortgage to a minor is valid, a lease to a minor is void since both lessor and lessee must execute the lease. Additionally, a person cannot grant a lease to themselves (Rye v Rye, 1962 A.C. 496).

  3. Subject-Matter: The subject-matter of the lease must be immovable property.

  4. Transfer of Right: There must be a transfer of the right to enjoy the property.

  5. Duration: A lease must specify a certain time period, whether express, implied, or in perpetuity.

  6. Consideration: Consideration, which may comprise a premium along with rent or solely a premium, is necessary. The premium is the price paid or promised in exchange for the lease transfer. Any payment made by the lessee as part of the lease consideration constitutes rent.

  7. Acceptance: The lessee must accept the transfer in the manner outlined by Section 107.

  8. Transferable Interest: The interest acquired by the lessee is transferable and can be further assigned to a sub-lessee or subtenant. The lessee's relationship is established with the property itself rather than solely with the owner.

  9. Heritability and Transferability: A lease is both heritable and transferable. While a monthly tenancy is inheritable, a lease for the grantee's lifetime terminates upon their death.

Types of Leases

  1. Absolute and Derivative Lease Absolute lease’ or ‘primary lease’ is granted by a person who has an absolute right over the property. It can be granted for any number of years or for any time.

‘Derivative lease’ or ‘sub-lease/under-lease’ is granted by a person who himself has a limited interest in the property It can never extend beyond the time period for which the primary lease was executed in favour of the lessee. 

For example, A grants a lease of his house in B’s favour for a period of 10 years. This is an absolute lease. B, who is inducted into the premises as a tenant grants a sub-lease of the same premises in C’s favour.

This sub-lease would be a derivative lease. It can never extend beyond the period of 10 years as this is precisely the enticement of B in the property.

A tenant, who himself has no right to occupy the premises after the determination of tenancy, such as a statutory tenant has no right to create a sub-tenancy. He cannot grant a valid sub-lease in favour of another [Roop Kumar v Mahan Thedani 2003 (1) RCR (Rent) 615 (SC)].

Classification of Leases - Duration

Leases can be classified in three categories from the point of view of their duration (the following statutory presumptions as to duration arise only when there is no agreement between the parties or local usage to the contrary):

  1. Leases for a fixed term (e.g. 5 years or 10 years). 

  2. Periodic leases. 

  3. Lease in perpetuity. 

A lease that continues from one period to another is termed a 'periodic lease,' with the period varying from a year to a quarter, month, or even a week. The method of rent reservation often implies the lease period.

Case laws on Lease

A lease from year to year is a typical example of a periodic lease. An arrangement for an indefinite period is usually construed as a lease for life, but if rent is payable yearly, it is considered a lease from year to year (Ashutosh v Chandi Charan, AIR 1927 Cal 179).

Likewise, a lease for a year with a clause stipulating its continuation until another lease is granted is classified as a lease from year to year (Ganesh Das Ram Gopal v Jamuna, 1945, 24 Pat 449).

A lease lacking a specified term is known as a permanent lease or 'lease in perpetuity,' commonly granted in India for agricultural property (a concept foreign to English law). Such leases are established through either express or presumed grants.

While a fixed term implies permanency, permanency doesn't necessarily entail fixed rent or occupation (Bijoy Gopal Mukherjee v Prafulla Chandra Ghosh, AIR 1953 SC 153).

A slight rent increase alone does not negate the permanent nature of the tenancy. A lease contract stipulating the tenant's possession as long as rent is paid signifies a tenancy for the tenant's lifetime, not a permanent one (Syed Ali v Manik Chandra, AIR 1924 Cal 156).

In cases where the tenancy's origin is unknown, prolonged possession coupled with consistent rent payment implies permanency.

However, if the tenancy's origin is known, prolonged possession alone implies a yearly tenancy unless a contrary custom is proven.

The inclusion of a forfeiture clause in a lease does not negate its permanency; rather, it serves to enforce the lease terms and ensure rent payment. The burden of proving the tenancy's permanency rests on the tenant.

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