CHAPTER-V

LEASE
Section 105-117
 Definition of Lease
• Section 105 of the Transfer of Property Act, 1882 defines "Lease".
According to Section 105 of the said Act,

"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 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.”

In a lease, the transfer of immovable property is not absolute transfer like a Sale. The
ownership and possession get separated from the certain period but after the expiry
of the specified period possession again get merged into ownership.
 Essential Ingredients of a Lease
• Transfer of right in the property – An interest in
the subject property is to be created in favour of
the ‘lessee’ by the ‘lessor’.
• Duration of a lease – Interest created in the
property could be for a specified period (either
expressed or implied) or even in perpetuity.
Parties to the lease are at liberty to decide the
duration of the said lease.
• Consideration – A valid consideration needs to be
paid, periodically or on specified occasions by the
lessee to the lessor.
 Term of a Lease
• Further, Section 107 of the Act provides that a lease of an immovable property for
a term exceeding a year can only be made by a registered instrument. In the event,
the same is not made through a registered instrument, then, contrary to what is
mentioned in the said lease, the duration of the lease will be assumed to be of a
month, and the same may be terminated by either party by providing a fifteen
days’ notice. However, in case the term is less that a year, then the said lease may
be made either by oral agreement accompanied by delivery of possession of the
immovable property, or by a registered instrument.

• The said Section 107 of the Act is extracted hereinbelow –

• “A lease of immovable property from year to year, or for any term exceeding one
year or reserving a yearly rent, can be made only by a registered instrument.”

• All other leases of immovable property may be made either by a registered

instrument or by oral agreement accompanied by delivery of possession.
 Mode of Creation of Lease (Section
107)
107. Leases how made.—A lease of immoveable property
from year to year, or for any term exceeding one year or
reserving a yearly rent, can be made only by a registered
instrument.
2[All other leases of immoveable property may be made
either by a registered instrument or by oral agreement
accompanied by delivery of possession.
3[Where a lease of immoveable property is made by a
registered instrument, such instrument or, where there
are more instruments than one, each such instrument
shall be executed by both the lessor and the lessee:]
 Mode of Creation of Lease (Section
107)
• Section 107 provides 2 modes of creation of leases:
1. Leases which can be made by registered deed:
a) Lease from year to year
b) Lease for a term exceeding one year
c) Lease reserving a yearly rent
d) Permanent Lease
2. Lease in which registration is optional:
a) Lease from month to month
b) Lease for a term of one year
c) Lease for a term of less than one year.
 Mode of Creation of Lease (Section
107)
• Leases from Year to Year:
Such a lease is a continuous lease. Hence the lesser cannot terminate the lease without giving a notice
at the end of year.
• Leases for a term exceeding One Year:
Where the term of lease exceeds one year it must be registered.
• Lease reserving Yearly Rent:
Where the rent is reserved for the whole year, there is a presumption that it is a year to year lease and
it is registerable.
• Permanent Lease:
Permanent Lease is compulsory registerable. Where no term is fixed in the lease or instrument of lease
contains a provision for certain rights by legal heirs of lesser and lessee after their death, there is a
presumption of permanent lease.
Possession for a long period itself does not constitute a permanent tenancy. There should be an
indication in the terms and conditions of the lease that the tenant will be entitled to continue in the
premises as long as the business for which the premises were leased subsists.
• Perpetual Lease and Covenant of Renewal:
When a covenant for renewal exists in a lease its exercise is a unilateral act of the lessee and the
consent of the lessor is not necessary. Where the principal lease executed between parties containing a
covenant for renewal, is renewed in accordance with the said covenant. Entitles that the tenant to
continue as long as he chooses by exercising the option of renewal at the end of each successive period
subject to the terms and conditions of the lease deed.
 Rights and Liabilities of Lessor and
Lessee (Section 108)
• Section 108 of the Transfer of Property Act,
1882 provides for the rights and liabilities of
both lessor and lessee. Section 108 are subject
to a contrary-contract or any local custom or
usage.. Section 108 expressly permits
contracts contrary to its provisions. It imposes
no restriction on the right of parties to enter
into a contract and stipulate terms, conditions
and restrictions of their own choice.
 Rights and Liabilities of Lessor and
Lessee (Section 108)
• The Liabilities of Lessor:
1. Duty of Disclosure (Clause (a))
2. Duty to give possession (Clause (b))
3. Covenant for quiet enjoyment (Clause (c))
• Rights of Lessee:
1. Right to enjoy the accretions (Section 108 (d))
2. Right to avoid the lease in case of any destruction by fire, tempest etc. (Section
108 (e))
3. Right to repair the property when lessor neglects to make and deduct the
expenses of repairs from the rent (Section 108(f))
4. Right to make payment that are obligatory on the lessor and to deduct the
amount form rent.(Section 108(g))
5. Right to remove fixtures made by him during tenancy. (Section 108(h))
6. Right to have the benefit of crops growing on the land planted by him (Section
108(i))
7. Right to assign his interest in the leased property. (Section 108(j))
 Rights and Liabilities of Lessor and
Lessee (Section 108)
• The Liabilities of Lessee:
1. Duty to disclose facts materially increasing the value of property
(Section 108(k))
2. Duty to pay rent or consideration of lease (Section 108(l))
3. Duty to maintain the property(Section 108(m))
4. Duty to give notice to any encroachment on the property to the
lessor(Section 108(n))
5. Duty to use the property in a reasonable manner.(Section 108(o))
6. Duty not to erect permanent structure on the property (Section
108(p))
7. Duty to re-transfer the possession on determination of lease
(Section 108(q))
 Determination of a Lease
Section 111 of the Act details the events/ means by which a lease may be determined. The said section is extracted
hereinbelow –
“A lease of immovable property determines-
(a) by efflux of the time limited thereby,
(b) where such time is limited conditionally on the happening of some event-by the happening of such
event,
(c) where the interest of the lessor in the property terminates on, or his power to dispose of the same
extends only to, the happening of any event-by the happening of such event,
(d) in case the interests of the lessee and the lessor in the whole of the property become vested at the same
time in one person in the same right,
(e) by express surrender, that is to say, in case the lessee yields up his interest under the lease to the lessor,
by mutual agreement between them,
(f) by implied surrender,
(g) by forfeiture; that is to say, (1) in case the lessee breaks an express condition which provides that, on
breach thereof, the lessor may re-enter; or (2) in case the lessee renounces his character as such by setting up a title in
a third person or by claiming title in himself; or (3) the lessee is adjudicated an insolvent and the lease provides that
the lessor may re-enter on the happening of such event; and in any of these cases the lessor or his transferee gives
notice in writing to the lessee of his intention to determine the lease,

(h) on the expiration of a notice to determine the lease, or to quit, or of intention to quit, the property
leased, duly given by one party to the other.”

Thus, it may be clearly understood that a lease may be determined on occurance of any of the events as mentioned
under Section 111 of the Act.
Effects of Determination of a Lease By
Efflux of Time
Upon determination of a lease by efflux of time, all
rights, title and interest of the lessee under the
lease, cease to exist, and the lessee is bound to put
the lessor into possession of the property. “If the
lessee continues to remain in possession of the
property, without the consent of the lessor, such
possession becomes wrongful from the date of the
termination of the lease, and the lessee is a mere
trespasser and has no right to remain in the
property, and the lessor has a right to enter upon
the property immediately after the expiration of the
term without any further notice.”
 Retaining possession of premises subsequent to
determination of lease by efflux of time

• Possession Retained by Lessee:

Section 108 (q) of the Act provides that, upon
determination of a lease, the erstwhile lessee is
obligated to put the lessor in possession of the
property, even if there is no express covenant in
the contract.
Retaining possession of premises subsequent to
determination of lease by efflux of time
• High Court of Patna, in the matter of Surajmal Marwari And
Ors. v. Rampearaylal Khandelwal And Ors, AIR 1966 Pat 8
had said that,
‘Clause (q) of Section 108 lays down that on the
determination, the lessee is bound to put the lessor in vacant
possession of the property. Having regard to these two
provisions, it is abundantly clear that when the term of a lease
has expired, the lessee can determine the lease by fulfilling his
obligation of putting the lessor into possession of the
property. But if the lessee does not put the lessor into
possession of the property, and on the contrary, remains in
possession thereof, then he does not become a trespasser in
relation to the property, but his status is that of a tenant on
sufferance.’
Retaining possession of premises subsequent to
determination of lease by efflux of time
• In M/s. Raptakos Brett & Co. Ltd. v. Ganesh
Property, [1998] 7 SCC 184 the Supreme
Court held that, ‘when a lease comes to an
end by efflux of time, or by notice of
termination, or if there be a breach and the
lessee's rights are forfeited, the lessee
becomes a tenant at sufferance, and it
becomes the duty of the lessee under Section
108(q) of the Transfer of Property Act to
restore possession to the lessor forthwith.’
Retaining possession of premises subsequent to
determination of lease by efflux of time
• Having said so, Section 116 of the Act states that,
continuance of possession of the property by the
lessee after expiration of the term of the lease,
coupled with acceptance of rent by the lessor or
implied assent provided by the lessor towards the
lessee continuing to remain in possession of the
property, in the absence of an agreement to the
contrary, brings into existence a statutory tenancy from
month to month (in case of an immovable property) as
contemplated under Section 116of the Act. The said
concept is more popularly recognized as ‘Tenancy by
Holding Over’
Retaining possession of premises subsequent to
determination of lease by efflux of time

• Notwithstanding the concept of ‘Tenancy by

Holding Over’, in the event a lessee continues
to retain possession of a property, without the
consent (whether implied or explicit) from the
lessor, such retention of possession is
unlawful, and the concept is recognized as
‘Tenancy at Sufferance’.
 Distinction between Lease and
Licence
• Lease is the transfer of the right of enjoyment of an immovable
property whereas the licence is the right of a person to use the land
of another while it remains in the possession of another. A licence is
governed by the Indian Easement Act, 1882 and it is a permission to
do some act which, without such permission, would be unlawful.
In Chandy Verghese v. K. Abdul Khader, 2003(5) SCC 364 noted that:
• As per Section 105 of the Transfer of Property Act, 1882. a lease of
immovable property is a transfer of right to enjoy such property for
a certain period in consideration for price. In short, a lease is a
transfer of interest in land. A licence as defined in Section 52 of the
Easement Act, 1882 , to mean a right granted to another person
over immovable property to do or continue to do some act which in
absence of such right would be unlawful.. When such right doesnot
amount to an easement or creates any interest in property the right
is called a licence.
 Distinction between Lease and
Licence
• Differences between a lease and a licence;
• In Associated Hotels of India Ltd. v. R.N. Kapoor (AIR 1959 SC 1262)
this Court referred to the difference between a lease and licence.:
“There is a marked distinction between a lease and a licence. Section
105 of the Transfer of Property Act defines a lease of immovable
property as a transfer of a right to enjoy such property made for a
certain time in consideration for a price paid or promised. Under
Section 108 of the said Act, the lessee is entitled to be put in
possession of the property. 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......" After referring to the definition of licence in
Section 52 of the Easement Act, this court held:
 Distinction between Lease and
Licence, cont..
• "Under the aforesaid section, if a document gives only a right to use the
property in a particular way or under certain terms while it remains in
possession and control of the owner thereof, it will be a licence. The legal
possession, therefore, continues to be with the owner of the property, but
the licensee is permitted to make use of the premises for a particular
purpose. But for the permission, his occupation would be unlawful. It does
not create in his favour any estate or interest in the property. There is,
therefore, clear distinction between the two concepts. The dividing line is
clear though sometimes it becomes very thin or even blurred. At one time
it was thought that the test of exclusive possession was infallible and if a
person was given exclusive possession of a premises, it would conclusively
establish that he was a lessee. But there was a change and the recent
trend of judicial opinion is reflected in Errington v. Errington [1952] 1 All
E.R. 149, wherein Lord Denning reviewing the case law on the subject
summarizes the result of his discussion thus at p. 155 :
 Distinction between Lease and
Licence, cont..
• "The result of all these cases is that, although a person who is let into exclusive possession is, prima facie, to be
considered to be tenant, nevertheless he will not be held to be so if the circumstances negative any intention to
create a tenancy."

• "...The following propositions may, therefore, be taken as well-established : (1) To

ascertain whether a document creates a licence or lease, the substance of the
document must be preferred to the form; (2) the real test is the intention of the
parties - whether they intended to create a lease or a licence; (3) if the document
creates an interest in the property, it is a lease; but, if it only permits another to make
use of the property, of which the legal possession continues with the owner, it is a
licence; and (4) if under the document a party gets exclusive possession of the
property, prima facie, he is considered to be a tenant; but circumstances may be
established which negative the intention to create a lease..." In C.M. Beena vs. P.N.
Ramachandra Rao - 2004 (3) SCC 595, this Court explained a Licence thus :
• "Only a right to use the property in a particular way or under certain terms given to the occupant while the owner
retains the control or possession over the premises results in a licence being created; for the owner retains legal
possession while all that the licensee gets is a permission to use the premises for a particular purpose or in a
particular manner and but for the permission so given the occupation would have been unlawful."
 Illustrations
• The owner of a land constructs a shopping mall with hundred shops. The owner of
the mall earmarks different shops for different purposes, that is sale of different
types of goods/merchandise, that is shops for exclusive clothing for men, shops for
exclusive clothing for women, shops for hosieries, shops for watches, shops for
cameras, shops for shoes, shops for cosmetics and perfumes, shops for watches,
shops for sports goods, shops for electronic goods, shops for books, shops for
snacks and drinks etc. The mall owner grants licences in regard to individual shops
to licensees to carry on the identified or earmarked business. The licensor controls
the hours of business, regulates the maintenance, manner of display, cleanliness in
the shops. The ingress and egress to the shop licensed to the licensee is through
the corridors in the mall leading from three or four common access
points/entrances which are under the control of the licensor. The licensee is
however entitled to stock the shop with brands of his choice though he does not
have the right to change the earmarked purpose, entertain any clientale or
customers of his choice and fix the prices/terms for his goods. He can also lock the
shop at the end of the business hours and open it whenever he wants. No one else
can trade in that shop. In such a case, in spite of the restrictions, controls and
directions of the licensor, and in spite of the grant being described as licence, the
transaction will be a lease or tenancy and the licensee cannot be dispossessed or
evicted except by recourse of law.
 Illustrations
• In a shopping complex or in a mall the owner gives a licence
to a person to use a counter to sell his goods in
consideration of a fee. The access is controlled by the
licensor and there is no exclusive use of any specific space
by the licensee. At the end of the day, the licensee can
close the counter. The space around the counter is visited
and used by customers to the mall and not exclusively by
the customers of the licensee. In such a case, if the licence
is terminated, the licensor can effectively prevent the
licensee from entering upon his premises and the licensee
will have no right to use the counter except to remove his
belongings. In such a licence it may not be necessary for
the licensor to sue the licensee for `possession' or
`eviction'.
 Illustrations
• An owner of a property enters into a lease thereof, but to avoid the rigours
of Rent Control legislation, calls it as a licence agreement. Though such a
lease is captioned as a `licence agreement', the terms thereof show that it
is in essence, a lease. Such a licence agreement which puts the licensee in
exclusive possession of the premises, untrammeled by any control, and
free from any directions from the licensor (instead of conferring only a
bare personal privilege to use the premises) will be a lease, even if
described as licence. For example, if the exclusive possession of an
apartment or a flat or a shop is delivered by the owner for a monthly
consideration without retaining any manner of control, it will be a lease
irrespective of whether the arrangement is called by the owner as a
`lease', or `licence'. As far as the person who is let into exclusive
possession, the quality and nature of his rights in respect of the premises
will be that of a lease or a tenant and not that of a licensee. Obviously
such a `licensee' cannot be `evicted' or `dispossessed' or prevented from
using the premises without initiating legal action in accordance with law.