When you rent your property for a long period, you often get a lease agreement made for your property. This mentions the terms and conditions for both the owner and the tenant. There are many different types of leases and these depend on the time frame of the lease and the conditions agreed upon by both parties. In this article we focus on all aspects of lease in the Transfer of Property Act.
What is a lease?
According to Section 105 of the Transfer of Property Act, 1882, leasing immovable property is the 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.
Who is a lessor?
The transferor is the lessor.
Who is the lessee?
The transferee is the lessee.
What is the price called?
The price is called the premium.
What is rent?
The money, share, service or other thing to be rendered is called the rent.
What is a lease deed?
A lease deed is a legal agreement that consists of the terms and conditions of the leased property.
What are the various types of leases?
Under the Transfer of Property Act, 1882, there are two types of lease:
- Operating lease, or short-term lease, where the lessor takes care of the maintenance. This is in the case of properties for which the lessee opts for a limited time.
- Financial lease, or long-term lease, where the lessee is responsible for maintenance, taxes etc.
What are the various methods one can lease?
- Direct lease: Here the lessor is the property owner. For example, Nitin and Usha, through a direct lease, rented a property from their landlord Rajesh for three years.
- Sale and leaseback: In this case, the property owner sells a property to a lessee and then leases the property from the lessee for their use. Thus, the roles of the lessor and the lessee are reversed after the sale. For example, Rajesh did a distressed property sale, however, he needed the property till the end of the academic year for his children, which was 6 months down the line. He spoke with Nitin and Usha to rent out the property to him. Since it was only for six months, this was an operating lease.
- Leverage lease: Several parties are a part of this process. In this, the lessor borrows funds from a lender and invests in a property. This property is leased to a lessee. The money earned as rent is used to pay the lender. For instance, Rajesh took a home loan and invested in a redeveloped property. He then rented this property to Nitin and Usha and used a part of his earnings to repay the loan.
When to renew the lease agreement?
You can renew the lease agreement closer to the expiry period with a registered written agreement. This is important as the deal is registered in legal records and helps in case of any legal problem.
If a lessee wants to terminate the lease agreement before the end of the term, he may do so by giving notice for a period mentioned in the agreement. In case, no notice period is served, the lessor has the right to deduct the rental loss from the security deposit.
If a lessor wants a lessee to vacate before the agreement expires, he has to give notice as per the agreement so that the lessee can plan and move.
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A lease under the Transfer of Property Act is an important document that protects the property and the lessee’s rights. With the terms and conditions listed in the lease agreement, the landlord cannot ask the tenant to vacate before the deadline without a valid reason. Similarly, the tenant cannot forcefully claim the property and refuse to vacate once the agreement ends.
FAQs
What is a common lease duration?
Generally, the lease duration is for 11 months.
What are the different types of leases?
The different types of leases are operating and finance leases.
Is it ok to notary a lease agreement or is registration important?
Notarising a lease agreement may not offer the same legal protection as registration of the lease agreement.
What is rent?
The money, share or services paid by the lessee to the lessor for leasing a property is known as rent.
Who are the lessee and lessor?
The Lessee is the person who leases the property and the lessor is the person whose property is leased.
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