Drafting of Lease Deed

10th August, 2024 - 10:06 am Categories: News & Updates 0 Comments

Introduction

These days lease agreements are very common among property transactions. The agreement is made up of some pillars like the competency of parties, intention of the parties, rights of the parties and how they are going to prove their ownership regarding concerned property. The major aim of the drafting here is to make things simple and to clearly specify all the ingredients which are required to transfer the property alongwith the clarification of the remedy , if any dispute arises. Inartful drafting can leads to detrimental effects for the parties involved in the transaction of property. The Transfer of Property Act, 1882 concerns with different types of transfers including lease, mortgage and aspects of property law in India. Section 105 – 117 of the Transfer of Property Act, 1882 deal with the lease of immovable property and rights and liabilities of lesser and lessee and other conditions. The drafting of a lease deed includes verification of title, duration, indemnity clause, termination, lock in period etc. The Registration Act of 1908 deals with the registration of lease deeds.

WHAT IS LEASE ?

In India the word “Lease” is defined under section 105 of Transfer of Property Act,1882. It says “ A lease of immovable property is a transfer of right to enjoy such property, made for a certain time, expressed 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. The immovable property here refers to things which cannot move like the real estate which includes house , factory, manufacturing plants, warehouse land etc. From a legal point of view the immovable property should be registered under the Registration Act 1908, if it’s value exceeds ₹100. The transfer of right here specifically means transfer of Right of Possession inspite of transfer of Right of Ownership. This means that person is transferring the right to use a property for a specified period of time in accordance with the agreement. The person to whom the right of possession is transferred is entitled to remain in the possession of the concerned immovable property unless the lease is duly terminated. The consent of both the parties are of foremost important which includes consent either expressed or implied, in the manner where the intention of both the parties to enter into an agreement is clear, alongwith the presence of consideration. The apex court in B. Arvind Kumar V/s. Government of India and Ors.[1] defines the basic ingredients which are required for a lease agreement.

IMPORTANT TERMINOLOGY

• Lessor – The person who transfers the property, which means a person who lets his property to another, a transferor.
• Lessee – The person to whom the concerned property is transferred, which means a transferee.
• Premium – The amount paid by the lessee for obtaining the lease of an immovable property.
• Rent – The money, share, service or other thing paid by the lessee.
• Landlord – The person who is the owner of the property which means the lessor.
• Tenant – The person who is getting the possession of the property for a particular period of time which means the lessee.
• Manufacturing Processes – Under Section 106 of Transfer of Property means where raw material are taken and finished products are sold.
• Accession – It is the method of acquiring property, that makes the addition to the value of the property.
• Law of Prescription – The right to use the property of another that is consistent with the rights of the owner. It means a method of acquiring a non possessory interest in a land after using it for a long period of time with continuity.
• Indemnity – Security against loss or damages
• Brevity – shortness of time or duration
• Covenants – Agree by the terms and conditions of lease agreement.
• Demised Property – Demise means ‘ to transfer by lease ‘. Demised property includes the parts of the premises that the lessee is permitted to get possession.

LEASE DEED

The lease deed is a written contract between the lessor and the lessee which says that the lesser would receive a fixed amount of payment by giving the lessee the possession of his property for a specified period of time. While drafting the lease deed, it is of utmost important to consider both the sides in order to protect the interests of both the lessor and the lessee.

IMPORTANT FACTORS WHILE DRAFTING A LEASE DEED

DESCRIPTION OF PROPRIETARY – The lessor is obliged to disclose the lessee all the important information regarding the concerned property. The overall and comprehensive description of property should be mentioned alongwith the information about the surrounding area, survey no. which is a unique ID allocated to a particular peace of land by the state and all the crucial information related to the property which includes all the structures on the said property alongwith the list of all the things which are directly attached to the property like the water pipes, window frames, light fitting, built in cabinets etc. which means the fixture here. There is a criteria to decide what constitutes the fixture. The nature, purpose and manner of the attachment is to be examined to termed it as a fixture. This means the way in which the concerned item is attached to the property. In case, if the seller wishes to exclusively remove a certain item as a fixture, than he has to specifically mentioned the same in the lease deed. Furthermore, if any uncertainty or dispute arise in the future then the relevant clause in the sales deed should be referred which mentioned the items, which are included in the fixtures and those which are excluded.

DURATION OF THE LEASE AGREEMENT – Lease for a property, takes place for a stipulated period of time and that period should be clearly mentioned in the lease deed. In case if duration is not there, than Section 106 of the Transfer of Property Act deals with the same, which says that in case of agriculture or manufacturing processes , the lease shall be made on year to year basis which is terminable by providing six months notice either by lessor or lessee. For the other immovable property, the lease deemed to be from month to month basis and is terminable by providing fifteen days notice either by the lessor or lessee.

TITLE VERIFICATION – Title is a legal term , which here means the ownership of the property. Every property has a title and without the appropriate title, the legal system will not recognise the deed. For example a lessor cannot transfer the possession of the property, if there is any dispute related to the concerned property. Therefore, a thorough research should be made regarding the title of the property.

PAYMENT OF RENT – The amount of rent paid by the lessee to the lessor should be clearly mentioned alongwith the due date by which it has to be paid and the penalty after the due date. In case if there is any security amount, which the lessee has to pay , than the same amount should be mentioned in deed and apposite date at which it will get refunded. All the terms and conditions regarding the payment methods should be clearly specified. There should be a clarity on maintenance taxes, land taxes etc. which means who is going to pay the taxes between the lessor and the lessee. Utility charges should be clearly defined like who is going to pay for water, electricity etc.

LOCK IN PERIOD – It is minimum tenure of the lease which means the agreement of lease is locked for a certain duration of time. If there is any such agreement between the party, than that should be mentioned clearly in the deed which will describe the methods to restore the loss to the lessor or lessee , if any of them breach the given clause.

TERMINATION – The termination clause obligates both the hlesser and the lessee to follow the terms mentioned in the lease for example if in lease deed it is mentioned that the lesser has to maintain the property by not doing anything which can bring changes to the concerned property, so in case if lessee commits the same, then the lessor has all the rights to terminate the contract. Both the lessor and lessee have to perform their duties to maintain the contract these duties shall be mentioned clearly like some of the duties are

It is the duty of the lessor to disclose the lessee about all the pertinent information related to the property and in case if the lessor knowingly conceals any fact which is must for the lessee to be aware of, then the lessee is in a position to initiate the termination of the lease deed. The lease deed must contain all the factual information related to the property which the lessee deserves to know.

In Chapsibhai Dhanjibhai Danad V/s. Purushottam[2] , the apex court reiterated that if any accession is made to the leased property during the continuance of the concerned lease , then such accession is deemed to be comprised in the lease. If the accession is attained by any sort of encroachment by the lessee or the lessee acquired the title by Prescription than he must surrender the accession along with the leased property at the expiry of the term.

INDEMNITY PROVISIONS – While drafting the lease deed the provision of indemnity is of utmost importance, there are some foreseeable events like failure to make rent payment on specified time, damage to the property, violation of conditions set up by the lessor, a defect property or title and various issues. The lessee shall indemnify and keep indemnified the lessor against all actions, proceedings, suits, claims, demands, losses, cost, charges and expenses incurred or suffered by them as a reason of any non observance or non performance of such rules and regulations by the Lessee.

SCHEDULE OF THE DEMISED PROPERTY – The lease deed should specifically mentioned in last the crisp of the whole property like the area , location – North, East, West and South. The duration and amount of rent to be paid by the lessee should be there , in order to avoid any type of misinterpretation by the parties

REGISTRATION AND EXECUTION OF THE DEED – According to Section 107 of Transfer of Property Act, 1882 the lease deed can be completed by the registered instrument. The concerned lease deed must be registered as per Section 17 of the Registration Act of 1908. The Section 17 of the Registration Act of 1908 contains the documents which are mandatory for registration with the relevant government authorities i.e. district registrar office and it includes the leases where tenure exceeds one year and below one year the criteria is mentioned in section 17 of the same act. The Registration fee is mostly 1% of the annual lease amount fixed for five years along with the stamp duty which can be paid by either lessor or lessee. The process required both the parties alongwith the witnesses to be present at the registrar office.

Author: Harshvardhan Patil, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

REFERENCES

1. Brvind Kumar V/s. Government of India and Ors,(2007) 5 SCC 745
2. Chapsibhai Dhanjibhai Danad V/s. Purushottam , ( 1971) 2 SCC 205
3. The Transfer of Property Act, 1982 , 105-117, Acts of Parliament, 1982 (India).
4. The Registration Act, 1908 , 17, Acts of Parliament,1908 (India)
5. Legal Service India, https://www.legalserviceindia.com/legal/article-6869-registration-of-lease-deeds-the-why-and-the-how.html. ( last visited Feb 16 , 2022 ).

[1] B. Arvind Kumar V/s. Government of India and Ors,(2007) 5 SCC 745

[2] Chapsibhai Dhanjibhai Danad V/s. Purushottam , ( 1971)  2 SCC 205