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LEASE

I. INTRODUCTION

Chapter V of the Transfer of Property Act, 1882 deals with the subject matter of Leases
of Immovable Property1 . A lease is a contract calling for the lessee (user) to pay the lessor
(owner) for use of an asset2. The fundamental conception of a lease is that it is a separation of
right of possession from ownership.

II. DEFINITION3

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.

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.

III. LEASES HOW MADE

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.

Where a lease of immovable property is made by a registered instrument, such instrument


binds both lessor and the lessee.

1
Sections 105 to 117.
2
Stickney and Weil 2007 p. 791 (Glossary of Financial Accounting: An Intro. to Concepts, Methods, and Use).
3
Section 105.

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IV. ESSENTIAL ELEMENTS

The essential elements of a lease are as follows:

Parties - The parties to a lease are the lessor and the lessee. The lessor is also called the
landlord and the lessee the tenant. The parties must be competent enough to contract4.
Further the lessor must have a title or authority to transfer.

Subject matter of lease - The subject matter of lease must be immovable property. The
word "immovable property" may not be only house, land but also benefits to arise out of
land, right to collect fruit of a garden, right to extract coal or minerals, hats, rights of
ferries, fisheries or market dues. For example, a mining lease is lease and not a sale of
minerals. However, the contract for right for grazing is not lease.

Duration or Term of lease - The right to enjoy the property must be transferred for a
certain time, express or implied or in perpetuity. The lease should commence either in the
present or on some date in future or on the happening of some contingency, which is
bound to happen. Though the lease can commence from a past day, but that is for the
purpose of computation of lease period, as the interest of the lessee begins from the date
of execution. No interest passes to the lessee before execution. In India, the lease may
also be in perpetuity.

Consideration - The consideration may be given in the form of cash, kind or service. The
consideration for lease is either premium or rent, which is the price paid or promised in
consideration of the demise. The premium is the consideration paid of being let in
possession, such as Salami, even if it is to be paid in installments.

Sub lease - A lessee can transfer the whole or any part of his interest in the property by
sub lease. However, this right is subject to the contract to the contrary and he can be
restrained by the contract from transferring his lease by sub letting. The lessee can create
sub-leases for different parts of the demised premises. The sub-lessee gets the rights,
subject to the covenants, terms and conditions in the lease deed.

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Sec. 11 of the Indian Contract Act, 1872

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V. DISTINCTION BETWEEN A LEASE AND LICENSE

In general parlance, a doubt may arise as to the differences between a lease and license.
Both have distinctive features which is determinant on the content of the deed 5. In B. M. Lall v.
Dunlop Rubber Co 6 , the distinction between the two concepts was briefly discussed by the
Supreme Court. It held that a lease is a transfer of a right to enjoy the premises whereas a
license is a privilege to do something on the premises which would otherwise be unlawful.
Hence it is settled that a Lease and License are distinct and different.7

S. No LEASE LICENSE
1 There is transfer of interest in the No transfer of interest.
property.
2 Tenant becomes the possessor A license does not generally confer
exclusively in a lease. such a right on licensee.
3 Transferability is a feature of lease. License is not transferable.
4 A lease is not revocable. A license is revocable.
5 Death of either party does not affect a A license is terminated by death of a
lease. party

6 Trespassers can be sued by the lessee in A licensee cannot do so.


his own name.

7 Lease requires registration in some A license does not require registration.


cases.

5
Delta International Ltd. v. Shyam Sundar Ganeriwalla and another, AIR 1999 SC 2607.
6
AIR 1968 SC 175 at p. 177.
7
C.M. Beema and another v. P.N. Ramachandra Rao, AIR 2004 SC 2103.

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VI. WHEN TO USE A LEASE, LICENSE, AND EASEMENT?

In spite of the differences between a lease of real property, a license and an easement, it
is sometimes difficult to determine which one to use in a specific situation. A comprehensible
understanding of the characteristics of each makes the determination easier.

A. Significant Characteristics

LEASE - A lease is an agreement in which the landlord agrees to give the tenant the
exclusive right to occupy real property, usually for a specific term and in exchange, the tenant
agrees to give the landlord some sort of consideration. A lease transfers to the tenant a leasehold
interest in the real property and unless otherwise provided in the lease, a lease is transferable and
irrevocable.

LICENSE - A license gives the permission of the owner to an individual or an entity to


use real property for a specific purpose. Unlike a lease, it does not transfer an interest in the real
property. It is personal to the licensee and any attempt to transfer the license terminates it. It is
(usually) revocable and can be either exclusive or non exclusive.

EASEMENT - An easement, like a license, gives the permission of the owner to use or
prevent the use of the owners real property. However, unlike a license, it transfers to the
easement holder an interest in the real property that encumbers the record title. In general,
easements are classified as either appurtenant (benefiting and transferable with a specific piece
of real property) or in gross (personal to the grantee). An easement can be transferred. Unless
otherwise specified, an easement is presumed to be permanent and non exclusive.

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CHARACTERISTICS LEASE LICENSE EASEMENT
Definition Sec. 105 of the Sec. 52 of the Indian Sec. 4 of the Indian
Transfer of Property Easement Act Easement Act
Act
Agreement between 2 Yes No No
parties
Conveys an interest in Yes No Yes
real property
Revocable No (usually) Yes (usually) No
Transferable Yes No Yes
Exclusive right Yes Optional Optional

B. Selecting the Appropriate Form

If the right to use the property will belong exclusively to the user during the term, even as
against the property owner, then a Lease will accomplish that goal.

In Krishna Kumar Khemka v. Grindlays Bank P.L.C. and Others8, the SC held that a
receiver cannot lease the property to a new party pendent elite.

If the use/occupancy of the property will be shared with others during the term, then a
License or an Easement is the proper tool. It is pertinent to note that for a License or Easement
to convey the exclusive right to use of the property, it must be specified in the document.

In Sultana Begum v. Prem Chand Jain 9 , the SC observed as follows: The right to
exclusive possession is the basic feature of the tenancy created by lease. Licensees possession on
the contrary is only permissive and he can be thrown out at any time.

If the use is to be long term, an Easement is the appropriate form. If the use is to be short
term or for only part of the time during the term (For eg - use of a classroom for a semester), a
License is most appropriate.

8
AIR 1991 SC 899
9
AIR 1997 SC1006

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VII. CONCLUSION

To put it in a nut shell lease is a transfer of interest, which is limited and qualified, of an
immovable property to another for a specific or indefinite period (in perpetuity) in consideration
of price in cash or kind or in service paid or promised and the same is accepted by the latter. A
lease is not a mere contract but is a transfer of an interest in immovable property.