Min­imis­ing land­lord-ten­ant dis­putes

In this sec­ond part of a se­ries on draft­ing a lease deed, we dis­cuss is­sues such as re­newal, stamp duty and prop­erty trans­fer

HT Estates - - Front Page - Su­nil Tyagi

In this sec­ond part a se­ries on draft­ing a lease deed which is fair to both the lessor and lessee, we look at more is­sues and ar­eas that par­ties must keep in mind while ne­go­ti­at­ing the terms of the lease deed.

Re­newal: If ei­ther of the par­ties or both want to keep open the op­tion of re­new­ing the lease deed for an ad­di­tional term af­ter its ex­piry, they may also spec­ify in ad­vance the man­ner of re­newal of the lease and the con­di­tions to which the re­newal of lease will be sub­ject to.

Trans­fer: When the lessor sells his prop­erty to a third party dur­ing the sub­sis­tence of the lease, ten­ants tend to raise ob­jec­tions, fear­ing that their lease may au­to­mat­i­cally ter­mi­nate. How­ever, upon trans­fer of the prop­erty, all rights of the lessor stand trans­ferred to the buyer by statu­tory at­torn­ment (agree­ing to re­main as ten­ants af­ter trans­fer of own­er­ship). The buyer (new lessor) sim­ply steps into the shoes of the orig­i­nal lessor and the ex­ist­ing lease of the prop­erty con­tin­ues be­tween the lessee and new lessor. To pre­vent any dis­pute, the par­ties should in­cor­po­rate a clause on at­torn­ment.

Stamp duty: If the par­ties want to share the bur­den of pay­ing stamp duty, they may in­clude a clause to this ef­fect. Un­less oth­er­wise spec­i­fied by the par­ties in their lease doc­u­ment, it is the lessee’s re­spon­si­bil­ity to pay stamp duty on lease deed. If a lease agree­ment is not ad­e­quately stamped and/or reg­is­tered, it may amount to be­ing a month-tomonth lease. To pro­tect their in­ter­ests, the par­ties must en­sure that stamp duty is fully paid be­cause a mon­thto-month ten­ancy can be ter­mi­nated at any time by the lessor af­ter is­su­ing no­tice to the lessee, ir­re­spec­tive of the term given in the lease.

Regis­tra­tion: In ad­di­tion to stamp duty on lease agree­ments, ev­ery state also re­quires pay­ment of ap­pli­ca­ble regis­tra­tion fee. Un­der the In­dian Regis­tra­tion Act (IRA) 1908, lease doc­u­ments for month-to-month ten­ancy not ex­ceed­ing 11 months do not re­quire com­pul­sory regis­tra­tion. Un­der the IRA, lease of a prop­erty from year to year, or for a term ex­ceed­ing one year, or re­serv­ing yearly rent, re­quires com­pul­sory regis­tra­tion.

Last year, in the case of Mo­ham­mad Ah­mad vs Atma Ram Chauhan, the Supreme Court laid down cer­tain norms and guide­lines to be con­sid­ered by lessors and lessees while con­clud­ing their lease trans­ac­tion. The ob­jec­tive be­hind these guide­lines as to re­duce lit­i­ga­tion in such cases. The court ob­served that rent must be en­hanced by at least 10% af­ter ev­ery three years of the term of the lease, or en­hanced ac­cord­ing to the terms of the lease deed. Also, if the ten­ant is pay­ing the preva­lent mar­ket rent, the land­lord will not be en­ti­tled to bring any ac­tion for evic­tion against the ten­ant for at least five years. That is, for five years the ten­ant will en­joy im­mu­nity from be­ing evicted sub­ject to proper and timely pay­ment of rent. Also, ma­jor struc­tural re­pairs in the prop­erty should only be car­ried out af­ter ob­tain­ing prior per­mis­sion of the land­lord.

Day-to-day main­te­nance of the leased prop­erty will be car­ried out only by the ten­ant, and the money spent by the ten­ant for such mainte- nance work will not be re­im­bursed. Crys­tallis­ing these terms while ne­go­ti­at­ing and set­ting out the par­ties’ rights, obli­ga­tions and en­ti­tle­ments in the lease deed will def­i­nitely min­imise land­lord-ten­ant lit­i­ga­tion.


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