Lease of Immovable Property Under Transfer of Property Act,

1882

“Lease” is a word which everyone is aware of, and hears it day in and day out while dealing the

transactions related to immovable property. Lease can be defined as the right to enjoy an

immovable property for a certain period of time, in consideration of a price paid by the person

getting possession of the property.

Lease can be of a movable or an immovable property. It is a contractual arrangement calling for

the lessee (user) to pay the lessor (owner) for use of an asset.

Under the Transfer of Property Act, 1882 (in short T.P.Act) the subject of “Leases of

Immovable Property” is dealt with in Chapter 5.

Section 105 of the Transfer of Property Act, 1882 defines a lease of immovable

properties as 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.
Definition of lessor, lessee, premium and rent: - 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.

Essential elements of lease: -

(i) immovable property;

(ii) right to enjoy such immovable property;

(iii) the ascertainable duration of the lease;

(iv) the parties that is the transferor and the transferee who are competent to make contract;

(v) the consideration that is premium or rent.

Section 106 of the Transfer of Property Act 1882 deals with the duration of leases and

states that 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's notice and a

lease of immovable property for any other purpose shall be deemed to be lease from month to

month, terminable, on the part of either lessor or lessee by 15 days' notice.

Section 107 of the Transfer of Property Act, 1882 stipulates that a lease of immovable

property from year to year, or for any term exceeding 1 year can be made only by and under a

registered instrument. Law is clear. If a lease is evidence by a contract, the duration of the lease

would be as per the contract and at the expiry of the lease period as per contract the lease

expires by efflux of time. Expiry of lease by efflux of time results in the determination of the
relationship between the lessor and the lessee and since the lease expires under the contract by

efflux of time, no notice of determination of the lease is required. The lease for more than one

year cannot be created unless it is registered.

Once a lease expires, the mandate of clause q of Section 108 of the Transfer of Property

Act 1882 makes it the bounden duty of the lessee to put the lessor into possession of the leased

premises

In Anthony vs. K.C.Ittoop & Sons and Others1, the Supreme Court found that there are three

interdictions to claim that an instrument can create a valid lease in law.

The first inhibition is that it should be in accordance with the provisions of Section 107 of the

Transfer of Property Act. That Section reads as under- 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.

The second inhibition, as pointed out by the Supreme Court, is Section 17(1)(d) of the

Registration Act, which states that where a lease of immovable property from year to year or for

any term exceeding one year or reserving an yearly rent, such document should be compulsorily

registered.

The third inhibition, as noted by the Supreme Court, is Section 49 of the Registration Act

relating to the consequence of non-compliance of Section 17. Section 49(c) contemplates that

1
, (2001) 1. M.L.J, 12
no document required by Section 17 or by any provision of the Transfer of Property Act to be

registered shall be received as evidence of any transaction affecting such property of conferring

such power, unless it has been registered.

Nevertheless, the Supreme Court, taking into consideration of the proviso to Section 49 of the

Registration Act, found that an unregistered lease deed may be taken as evidence of any

collateral transaction not required to be effected by registered instrument.

It is well settled proportion of law that in absence of a registered lease the tenancy at best can be

regarded as from month to month. A covenant for renewal contained in a lease does not ipso

facto extend the tenure of the lease. If to the renewed lease, the requirements of registration are

compulsory, no valid lease would come into existence unless registration is made (Hindustan

Petroleum Corporation Ltd. vs. Vummidi Kannan2 .

The Delhi High Court in M/s MTZ Industries Ltd vs. Mr. K.C.Khosla, on 6.7.2010 observed

that as appellant having become a tenant on a month to month basis after 1.7.1992, the only

manner in which he could be evicted from the suit property was by serving upon him a valid

legal notice under Section 106 of the Transfer of Property Act. The Court further observed that

no particular form is necessary for a notice under Section 106 of the T.P.Act.

2
, (2001) 1. M.L.J, 12
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. The Supreme Court in Associated Hotels of India Ltd vs. R.N.Kapoor3 1960

observed that- the real test is the intention of the parties- whether they intended to create a lease

or license. If an interest in the property is created by the deed it is a lease but if the document

only permits another person to make use of the property of which the legal possession continues

with the owner, it is a license.

The Supreme Court of India in Pradeep Oil Corporation vs. Municipal Corporation of Delhi

&… on 6 April, 2011 has observed that the appellant is in possession of the building in

question since 1958. They have been permitted to raise huge constructions and the nature of

construction is of wide range. An administration block along with tanks for storing petroleum

had been constructed. A boundary wall around installations and administrative block had also

been constructed. Admittedly, the grantee is in exclusive possession over the lands in question

along with construction thereon without any let or hindrance from the Administration.

Further, the appellant had been continuously carrying on their business without any interference

from any quarter whatsoever since 1962. As in the instant case, exclusive possession has been

granted, there is a strong presumption in favor of tenancy. That being the case, it is for the

appellant to show that despite the right to possess the demised premises exclusive, a right or

interest in the property has not been created.

3
1960 SCR (1) 368
The Supreme Court also notice the undisputed fact that in the present case the parties have

agreed that for the purpose of determination of the agreement three calendar months’ notice had

to be given. Undoubtedly, such clause in the document in question has a significant role to play

in the matter of construction of document. Clearly, if the parties to the agreement intended that

by reason of such agreement merely a license would be created such a term could not have been

inserted. It is well settled legal position that a license can be revoked at any time at the pleasure

of the licensor.

The brief fact of the instant case is as follows: - The appellant had been granted under the

Government Grant Act separate and distinct licenses by the President of India acting through

Superintendent of Northern Railway, Delhi for the purpose of maintain depot for storage of

petroleum products at a yearly license fee of Rs. 20,640/- and Rs. 31,000/- per annum

respectively. Under the aforesaid grant, the appellant had been given the right to erect/construct

‘petroleum installation buildings’ consists of petroleum tanks, buildings and other conveniences

for receiving and storing therein petroleum in bulk and consequently possession of land has

been given.

Consequent to the said agreement the administration granted ‘exclusive possession’ of the said

land to the appellant who entered the land for the purpose and the terms mentioned therein in

the aforesaid agreement/grant. Consequently, the appellant submitted layout building plans for

the construction of the Oil Depot and the standing committee of the Municipal Corporation of
Delhi (in short MCD) approved the layout plan for the construction of 10 Oil Storage tanks of

petroleum products. Subsequent to that the appellant raised various constructions comprising of

an administration block etc. along with huge petroleum storage tanks for storing petroleum

products. A boundary wall around the installations and the administrative block was also

constructed.

The respondent MCD vide its order dated 17.08.1984 passed an assessment order with regard to

the property tax qua the aforesaid property and confirmed the ratable value proposed by it.

The said assessment order was challenged by the appellant before the appellate Court/MCD

Tribunal which vide its order dated 17.07.1985 set aside the assessment order passed by the

respondent MCD and held that the appellant is only a licensee in the property and is not a

tenant, therefore, no property tax can be levied on the appellate under Section 20(2) of the Delhi

Municipal Corporation Act, 1957.

Aggrieved by the aforesaid order of the appellate Court, the respondent MCD filed a writ

petition. However the said writ petition was dismissed by the Ld. Single Judge of the Delhi

High Court on 5.08.1986-held that the grant in favor of the petitioner was a license and hence

the petitioner is not liable for the payment of any property tax in respect of the land or the

petroleum storage tanks.

Challenging the aforesaid order of Ld. Single Judge, an LPA was filed and subsequently the

same was referred to a Full Bench of High Court.

The Full Bench of the High Court vide its impugned judgment and order dated 17.09.2002 held

that the petroleum storage tanks are a building and the petitioner was a lessee and not a licensee

in the property in question.

The Apex Court upheld the findings of the Full Bench of High Court and held that the

documents in question constitutes lease in favor of the appellant-grantee; and accordingly liable

to pay taxes.

Section 111 deals with the question of determination of a lease, and in various clauses (a) to (h)

methods of determination of a lease of immovable property are provided. In the case of a

landlord wishing to evict his tenant under the Rent Acts determination of the lease in

accordance with the Transfer of Property Act is unnecessary (V.Dhanapal Chettiar vs.

Yesodaiammal4, ).

Under the Rent Control Act, a tenant can be evicted only on specific grounds enumerated under

the specific provisions of the Rent Control Act.

4
, AIR 1979 SC 1745
A tenant is not permitted to dispute the title of the landlord. Even if the landlord is himself a

trespasser, he can maintain a suit for eviction as against his tenant (Vithalbhai Pvt Ltd vs.

Union Bank of India).

 Conflict between Lease and Licence

, “Lease” can be defined as a conveyance of lands tenements to a person for life, for a term of

years, or at will, in consideration of rent or some other recompense.5 “A contract under which

an owner of property grants another person exclusive possession of the property for an agreed

period, in return for rent and sometimes for a capital sum known as a premium. 6

“Licence” in the context of property law as an authority to do a particular act or series of acts

upon another’s land without possessing any estate therein.7 Permission to enter or occupy a

person’s land for an agreed purpose.8

Both the provisions look similar, then what make them different is a very important question

which has to be resolved, and it is abstruse to do so. Sometimes, there arise some situations

which abridge difference between them. In order to understand the difference between these

two provisions and to know the situation which they may conflict, it becomes very important to

understand the basic features of both Lease and Licence.

Some apparent features which can be derived out while reading the provisions relation the

concept of “Lease” under Transfer of Property Act, 1882 would be as follows.

1. Transfer of an interest to the transferee. The person who is transferring an interest must

possess that interest. Problem in this regard usually arises when a lessee sub-lease the property.

5
Black’s Law dictionary
6
Oxford Dictionary of Law
7
Ibid
8
Ibid
2. Parties to the lease. It would be very interesting to note here that parties are entering into a

contract, which means they must comply with the provision mentioned under Indian Contract

Act, 1872 to know the competency of the parties. It prohibits certain person to enter into a

contract e.g. a minor, a person with unsound mind.

3. Subject matter of the lease. Being the most important element in order to form a lease deed,

its existence becomes necessary at the time of making a lease deed. It can be any immovable

property irrespective of the fact whether they are enclosed or not. It can be a land; it can be a

house and similar immovable property. But, it would be also important here to note that it is

interest which a person holds in this property which is transferred.

4. Another important point which has to be kept in mind in a lease deed is the form of the lease.

It can be absolute, or it can be derivative. A lease which is in derivate form can be further sub-

leased to another person or to a “sub-lessee”, but that doesn’t mean that lessee has been

absolved from his liabilities. He still remains responsible to the head-lessor. On the other hand,
a lease in absolute form cannot be sub-leased to another person. Whether the lease is derivate or

absolute is a question of fact, and can only be determined from the condition and clauses

mentioned under a lease deed.

5. Duration of lease is another important factor which has to be kept in mind while dealing this

matter. Fixed time period is not mandatory in a lease deed, but the duration for which it has

been leased out becomes very important for the purpose of a valid lease.

6. Consideration provided by the person, who is receiving the interest in the property become

another important condition to be complied with. It is not a mandatory condition that

consideration should be in the form of money, it can be any another manner suitable for the said

purpose or which has been prescribed by law. It can be any form of service of some monetary

value.

From the above points, it becomes quite clear that there are certain conditions which are to be

complied with in order to form a lease. After discussing important points/features for the
purpose of lease, now it would be necessary to see what are the conditions and features of a

licence. It would be then become very easy to differentiate between these two concepts.

Following are some of the features which can be attributed to a licence agreement.

1. Unlike Lease, in licence there is no transfer of interest which a transferor owns in a property.

It is a mere permission to enter into the property without any transfer of interest. Some

examples would be very interesting to note here such as a person who is allowed to conduct his

song performance during specific hours of a day, permission to use a specific portion in a land

for setting up a movable shop etc.

2. The heritable nature of lease is not present in a licence i.e., a licence is neither heritable nor

transferable. It can only be used by the person with whom licence agreement has been made. In

other words, it can be concluded that licence is a personal contract between the parties.

3. A person who grants the licence can terminate at any point of time. It would not be necessary

to wait until the time period is elapsed for the termination of a licence. The same cannot be done

in a lease agreement. Also, if the property is sold to a third party, licence agreement comes to an

end with immediate effect.

4. A licensee cannot alter the nature of the property which has been provided to him. He would

not be able to make any modification whatsoever be the nature of it. It would be the exclusive
right of the owner to do so. Moreover, a licensee doesn’t hold any possessory right over the

licensed property; instead possessory right is with the owner of the property.

Real intention of the parties forms the basis to interpret whether the agreement which has been

made between the parties is a lease or not. This was held by the Supreme Court in C.M. Beena v

P.N. Ramachandra Rao9, stating that “the difference between a lease and a licence is to be

determined by finding out the real intention of the parties as decipherable from a complete

reading of the document, if any, executed between the parties and the surrounding

circumstances”. And it was further held by the court that the conduct of the parties of the parties

before and after the creation of relationship is of relevance for finding out their intention.

Similar view was also held by the Supreme Court in Achintya Kumar Saha v Nanee Printers10,

where an issue relating to tenancy and licence was sorted out by the court referring to the

intention of the parties, and it was held by the court that intention of the parties who are forming

an agreement becomes the deciding factor to conclude the real nature of the agreement made.

Moreover, court opined that the surrounding circumstances should also be taken into account

while determining the real intention of the parties. This view was also held by the Supreme

Court in case of Rajbir Kaur v S. Chokosiri and Co.11

In the case of Delta International Ltd v Syam Sundar Ganeriwalla12, a dispute arose between the

parties as to whether the agreement between them was a lease or that of “leave and licence”.

Document nowhere mentioned any provision which can make it evaded from the provisions

mentioned under W.B. Premises Tenancy Act, 1956. It was held by the Supreme Court that

9
AIR 2004 SC 2103;2004 AIR SCW 1858
10
AIR 2004 SC 1591; 2004 AIR SCW 763
11
. AIR 1988 SC 1845
12
AIR 1999 SC 2607
“where it was nowhere pleaded that the deed executed between the parties was a camouflage to

evade the rigours of the provisions of the Rent Act nor was it stated that a sham document was

executed for achieving some other purpose the intention of the parties would be required to be

gathered from the express words of various terms provided by them in the deed.” Court held it

to be an licence agreement.

One of the most famous case in this regard is Associated Hotels of India v RN Kapoor 13 AIR

1959 SC 1262, which provided a clear cut idea between the difference between these two

concepts. It was held by the Supreme Court in this case that “if a document gives only a right to

use the property in a particular way under certain terms while it remains in possession and

control of the owner thereof, it will be a licence.” Court opined that there exist a very thin line

of difference between these two concepts which can be determined on the facts and

circumstances of each case. When a person gets possessory right and the right to enjoy the

property, it would be a lease unlike a licence.

From the above discussion, it would be easier to understand the basic things which are to kept

in mind while dealing with matter relating to lease and licence.

13
AIR 1959 SC 1262