Build­ing blocks: Clar­i­fy­ing the con­cept of ex­ten­sion and re­newal of lease

Hindustan Times (Chandigarh) - Estates - - FRONT PAGE - SU­NIL TYAGI The au­thor is Se­nior Part­ner, ZEUS Law, a cor­po­rate com­mer­cial law firm. One of its ar­eas of spe­cial­iza­tion is real es­tate ad­vi­sory and lit­i­ga­tion prac­tice. If you have any queries, email us at ht­es­tates@hin­dus­tan­times.com or ht@zeus firm in

Be­fore tak­ing as well as giv­ing the prop­erty on lease, one should clearly dis­cuss and ne­go­ti­ate the terms and con­di­tions of the lease and cap­ture the same in lease deed in or­der to make ones rights en­force­able. It is im­por­tant to care­fully de­fine the term of the lease in or­der to avoid any con­fu­sion re­gard­ing the re­newal or ex­ten­sion of the lease upon ex­piry of the term of the lease, where a lessee is de­sirous of con­tin­u­ing to law­fully oc­cupy the leased premises.

To en­sure clar­ity over their re­spec­tive rights and en­ti­tle­ments as well as to avoid lit­i­ga­tion and un­cer­tainty over the leased premises after ex­piry of lease term, both les­sor and lessee must be aware of the con­se­quences of ex­piry of lease due to ef­flux of time - es­pe­cially of the dif­fer­ent im­pli­ca­tions of choos­ing be­tween an ‘ex­ten­sion’ and ‘re­newal’ of a lease.

Re­newal of lease is a new lease in it­self which is in­de­pen­dent of the pre­vi­ous lease and thus need to be again ex­e­cuted for the re­newed term as well as stamped and reg­is­tered by the par­ties of orig­i­nal lease deed within the time pe­riod stip­u­lated in the orig­i­nal lease deed.

It is a mis­con­cep­tion that when a lease deed for a fixed term con­tains a re­newal clause for a fur­ther fixed term, the orig­i­nal lease deed would au­to­mat­i­cally stand re­newed for such ad­di­tional pe­riod upon ex­piry of the ini­tial lease term. In sev­eral judge­ments, courts have held that re­newal of lease ac­tu­ally amounts to a fresh lease and that ‘re­newal’ of lease is called so sim­ply be­cause it pos­tu­lates the ex­is­tence of a prior lease which gen­er­ally con­tains a clause for re­newal.

The courts in var­i­ous cases have also held that a re­newed lease would not au­to­mat­i­cally en­ti­tle a lessee to ob­tain fur­ther re­newals of the lease. The in­ten­tion of the par­ties and word­ing of rel­e­vant clauses of the lease deed shall as­cer­tain whether or not the lessee would be en­ti­tled to fur­ther suc­ces­sive re­newals, where an orig­i­nal lease deed con­tains a re­newal clause, and the par­ties re­new the lease in ac­cor­dance with such clause. The lessee also have an op­tion to file a suit for spe­cific per­for­mance for re­newal, where the orig­i­nal lease deed con­tains a clause for re­newal but the les­sor fails to ex­e­cute and/or reg­is­ter the ‘fresh’ grant of lease for the fur­ther lease term de­spite re­quests of the lessee, pro­vided the lessee is not in breach of the orig­i­nal lease deed.

An ex­ten­sion of a lease is prin­ci­pally treated as pro­lon­ga­tion of the orig­i­nal lease deed. An ex­ten­sion clause en­ti­tles a lessee to opt for ana ddi­tional lease term upon ex­piry of the ini­tial lease term, on the same terms and con­di­tions of the orig­i­nal Lease Deed, and is gen­er­ally sub­ject to in­crease in rent and se­cu­rity de­posit.

It is presumed that les­sor has agreed to lease the prop­erty for the to­tal ten­ure con­tem­plated in the orig­i­nal lease deed and hence he is not in a po­si­tion to chal­lenge or un­rea­son­ably deny an ex­ten­sion of lease which is validly sought by a lessee.

One key dif­fer­ence be­tween ex­ten­sion and re­newal of lease deed is that un­like a lease deed con­tain­ing a re­newal clause, a lease deed con­tain­ing an ex­ten­sion clause would not ter­mi­nate upon ex­piry of the ini­tial lease term, if in case the op­tion to ex­tend the lease has been duly ex­er­cised as per the terms and con­di­tions of the orig­i­nal Lease Deed.

In Provash Chan­dra Du­lai v. Bish­wanath Ban­er­jee(1989), the Supreme Court of In­dia held that a Lease Deed is not nec­es­sar­ily re­quired to be ex­e­cuted afresh in or­der to give ef­fect to an ex­ten­sion of the orig­i­nal lease as the orig­i­nal Lease Deed con­tin­ues in force dur­ing the ex­tended lease term.

An­other vi­tal dif­fer­ence is that ex­ten­sion and re­newal of lease also have dif­fer­ent stamp duty im­pli­ca­tions. For a lease deed with ex­ten­sion clause, the stamp duty is re­quired to be paid in the first in­stance and cal­cu­lated on the ba­sis of the to­tal lease term con­tem­plated in the orig­i­nal Lease Deed.

While in con­trast, as a ‘re­newal’ of lease is a fresh lease in it­self, the ini­tial lease pe­riod can­not be clubbed with the re­newed lease pe­riod for the pur­pose of levy­ing stamp duty. The re­newed lease deed is treated as a fresh lease deed and in­de­pen­dent of the orig­i­nal Lease Deed, hence the two agree­ments would be charge­able to stamp duty in­de­pen­dently as well.

It is im­por­tant that the les­sor and lessee should clearly word the terms of the lease deed more specif­i­cally re­gard­ing the op­tion of re­newal or ex­ten­sion of the lease in or­der to avoid any un­cer­tainty and am­bi­gu­ity re­lat­ing to the term of the lease deed.

MINT/FILE

Re­newal of lease is a new lease in it­self.

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