What is lease and what are its elements and termination?

PREPARED BY BINDRANJAN DURVIJAY SINGH,SYLLB

 A lease is a contractual arrangement calling for the lessee (user) to pay the lessor (owner) for use
of an asset.[1] Property, buildings and vehicles are common assets that are leased. Industrial or
business equipment is also leased.
 Broadly put, a lease agreement is a contract between two parties, the lessor and the lessee. The
lessor is the legal owner of the asset, while the lessee obtains the right to use the asset in return
for regular rental payments.[2] The lessee also agrees to abide by various conditions regarding
their use of the property or equipment. For example, a person leasing a car may agree to the
condition that the car will only be used for personal use.
 A lease is a legal contract, and thus enforceable by all parties under the contract law of the
applicable jurisdiction.
 In the United States, since it also represents a conveyance of possessory rights to real estate, it is
a hybrid sort of contract that involves qualities of a deed.
 Some kinds of leases may have specific clauses required by statute depending upon the property
being leased, and/or the jurisdiction in which the agreement was signed or the residence of the
parties.

Common elements of a lease agreement include:

 Names of the parties of the agreement.

 The starting date and duration of the agreement.

 Identifies the specific object (by street address, VIN, or make/model,serial number) being
leased.

 Provides conditions for renewal or non-renewal.

 Has a specific consideration (a lump sum, or periodic payments) for granting the use of
this object.

 Has provisions for a security deposit and terms for its return.
 May have a specific list of conditions which are therein described as Default Conditions
and specific Remedies.

 May have other specific conditions placed upon the parties such as:

o Need to provide insurance for loss.

o Restrictive use.

o Which party is responsible for maintenance.

 Termination clause (describing what will happen if the contract is ended early or
cancelled, stating the rights of parties to terminate the lease, and their obligations)

All kinds of personal property (e.g. cars and furniture) or real property (e.g. raw land,
apartments, single family homes, and business property, which includes wholesale and retail)
may be leased. As a result of the lease, the owner (lessor) grants the use of the stated property to
the lessee.

What is Lease?

Section 105 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.

What are the essentials of a lease?

1. 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.

a. Right of possession: Ownership rights are not transferred in a lease, only the
possession of the property is transferred.
b. Rent: Consideration for a lease can be taken in the form of a rent or premium.
 c. 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.

2.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

Section 107 states about lease how made. This section covers three aspects:

1. 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.
2. 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.
3. When the lease is of multiple properties that require multiple deeds, it will be made by
both the parties of the lease.

In the case of Punjab National Bank v. Ganga Narain Kapur (1.), Court held that if the lease is
done through an oral agreement, then the provisions of Section 106 will apply.

Rights and liabilities of Lessor and lessee

Rights of the lessor are

1. A lessor has a right to recover the rent from the lease which was mentioned in the lease
agreement.
2. Lessor has a right to take back the possession of his property from the lessee if the
lessee commits any breach of condition.
3. Lessor has a right to recover the amount of damages from the lessee if there is any
damage done to the property.
4. Lessor has a right to take back the possession of his property from the lessee on
the termination of the lease term prescribed in the agreement.
Liabilities of the lessor

1. The lessor has to disclose any material defect relating to the property which the lessee
does not know and cannot with ordinary supervision find out.
2. Lessor is bound by the request of the lessee to give him the right of possession over his
property.
3. Lessor can enter into a contract with the lessee if he agrees to abide by all terms and
conditions prescribed in the agreement, he can enjoy the property for the rest of the time
period without any interference with an obligation to pay the rent later on.

Rights of the lessee

1. During the period lease is in effect if any alteration is made (alluvion for the time being
in force) then that alteration will come under that same lease.
2. If a significant part of the property that has been leased is destroyed wholly or partly by
fire, by flood, by war, by the violent acts of the mob or by any other means resulting in its
inefficiency of being a benefit for the lessee. If this happens, the lease is voidable at his
option.

There is a proviso to this section that states if the damage is done due to any act of the lessee himself,
this remedy will not be available for him.

1. Lessee has the right to deduct any expenses he has made for repairs in the property from
the rent if the lessor has failed to in reasonable time.
2. Lessee has a right to recover any such payment which a lessor is bound to make by can
deducting it from the interest of the rent or directly from the lessor. He has this right when
the lessor has neglected to make that required payment.
3. Lessee has a right to detach all things that he may have attached in the property or earth.
His only obligation is that he has to leave the property in the same condition as he
received it.
4. When a lease is of unspecified duration in the lease agreement, lessee or his legal
representative have a right to collect all the profits or benefits from the crops which were
 sown by the lessee at that property. They also have a right of free ingress and egress from
such property even if the lease ends.
5. Lessee has a right to transfer absolutely the property or any part of his interest in that
property by sub-leasing or through mortgaging. Lessee is not independent of the terms
and conditions mentioned in the lease agreement.

Liabilities of the lessee

1. Lessee is under an obligation to disclose all related material facts which are likely to
increase the value of the property for which the lessee has an interest in and the lessor is
not aware of.
2. Lessee is under an obligation to pay the rent or premium which is settled upon in the
agreement to the lessor or his agent within the prescribed time.
3. Lessee is under an obligation to maintain the property in the condition that he initially got
the property on commencement of the lease and he has to return it in the same condition.
4. If lessee gets to know about any proceedings relating to the property or any encroachment
or any interference, then lessee is under an obligation to give notice to the lessor.
5. Lessee has a right to use all the assets and goods which are on the property as an owner
would use which is preserving it to the best of its nature. He is although under obligation
to prevent any other person from using that asset or good for any other purpose from what
was prescribed in the lease agreement.
6. The lessee cannot attach any permanent structure without the consent of the lessor except
for the purpose of agriculture.
7. Lessee is under an obligation to give the possession of the property back to the lessor after
the expiry of the prescribed term of the lease.
Determination of lease
Section 111 states about the determination of the lease, which lays down the ways in which lease is
terminated:

1. Lapse of time – When the prescribed time of the lease expires, the lease is terminated.
2. Specified event – When there is a condition on time of lease depending upon a happening
of an event.
3. Interest – Lessor’s interest to lease the property may cease, hence resulting in the
termination of the lease.
4. Same owner – When the interest of both lessor and lessee are transferred or vested in the
same person.
5. Express Surrender – This happens when the lessee ceases to have an interest in the
property and comes into a mutual agreement with the lessor.
6. Implied Surrender – When the lessee enters into a contract with another for the lease of
property, this is an implied surrender of the existing lease.
7. Forfeiture – There are three ways by which a lease can be terminated:

 When there is a breach of an express condition by the lessee. The lessor may get the
possession of the property back.
 When lessee renounces his character or gives the title of the property to a third person.
 When the lessee is termed as insolvent by the banks, and if the conditions provide for it,
the lease will stand terminated.

8. Expiry of Notice to Quit – When the notice to quit by the lessor to the lessee expires, the lease
will also expire
 Essential Elements of Lease

1. Parties

The guardian of the minor may grant a lease for a period of 5 years (with an additional
period of 1 year once the child attains majority) (reference made to section 8 of Hindu
Minority and Guardianship Act). For more than this, the permission of the court is
required.

2. Possession: (only immovable) (only usufruct is transferred)

3. Premium

The contract of a lease must be supported with some consideration. The consideration
in a lease may be premium or rent.

Where the whole amount to be recovered as a consideration from the lessee in lump-
sum (onetime), it is called premium.

When consideration is paid periodically, it is called the rent of the lease. Rent need

not necessarily be in the form of money. It may be services, share, or other things so
rendered.

4. Period
The right of use and enjoyment must be given to the lessee for a certain period of
time. This time is called the term of the lease.

The term may be any period of time, longer, shorter, or even for perpetuity (lasting
forever). But it must be specified in the deed.

Rights of Lessee

1. Right of accretions.
2. Right to avoid lease on the destruction of property.
3. Right to deduct the cost of repair.
4. Right to deduct outgoings.
5. Right to remove fixtures.
6. Right to remove crops.
7. Right to assign the interest.

Duties of Lessee

1. Duty to disclose facts.

2. Duty to pay rent.
3. Duty to maintain the property.
4. Duty to give notice of encroachment.
5. Duty to use the property reasonably.
6. Duty not to make a permanent structure.
7. Duty to restore possession.
Rights of Lessor

Section 108 does not provide for any specific right of the lessor but, because the rights
and duties are co-relative, the liabilities of the lessee, which are given under this
section, are the rights of lessor.

Duties of Lessor

1. Duty to disclose any material defects in the property.

2. Duty to give possession to the lessee at his request.
3. To provide by covenant a quiet enjoyment of the property to the lessee.

Termination of Lease
Section 111 of the Transfer of Property Act talks about Termination of Lease. Here
are the following ways where a lease is terminated.

1. By lapse of time.

2. By happening of a specified event.

3. By the termination of lessor’s interest.

Where the lessor’s own interest in immovable property is limited, lease comes to an
end upon the termination of the lessor interest.

4. By Merger.
Meeting of one’s interests with another’s interests. When a limited interest becomes
an absolute interest, there is a merger.

For Example, If the landlord makes a gift or sells the tenanted house to the tenant. The
tenant does not remain a tenant. He becomes the owner of the house.

This rule is based on the maxim: “Nemo Potest esse tenens et dominus.” It means
nobody can be both a landlord and a tenant of the same property.

5. By express surrender.

Surrender is the opposite of a merger. In a merger, a larger interest is merged with

smaller interest.
For Example, Where a tenant vacates the premises before the expiry of the term, the
lease ends.

6. By implied surrender.

When a lessee accepts from the lessor a new lease of the same property which is
already leased to him, there is implied surrender of the earlier lease, and a new lease is
formed.

7. By forfeiture.

Means loss of the right of the lessee to use the property by some fault on his part.
Lease is terminated by forfeiture on following grounds-
I. Breach of express conditions by the lessee.
II. Denial of the title of the landlord.
III. Insolvency of the lessee.

8. By the expiry of the notice to quit.