What to do for the valid renewal of a lease
Do not go by an old lease, or sign any agreement for rent unless it has been registered anew
Lessor X had rented out his residential property to lessee Y for a lease term of three years. In the lease deed, the parties had stipulated that the lease term, upon expiry after three years, could be renewed for the same period if both parties had a mutual agreement. This deed was duly stamped and registered by the parties. A month before expiry of the initial term of three years, lessee Y intimated lessor X of his intention to continue renting the property. Lessor X agreed to renew the lease of his property for an additional term of three years. Lessee Y insisted that as the term of original lease deed had expired, the parties should accordingly execute a new lease deed. However, lessor X was of the opinion that as the original lease deed had already been duly stamped and registered and as the parties shared a good relation, a simple letter of renewal of lease would suffice.
Accordingly, lessor X issued a letter to lessee Y confirming that the lease term stood renewed for an additional term of three years. The letter also stipulated that the lessee’s duties and obligations would continue to remain the same as contained in the original lease deed, subject to escalation of rent. Unfortunately, after a few months, relations between the parties soured. Lessee Y subsequently approached the courts for relief. In court, the parties were asked to produce all original documents evidencing lease of the disputed property. The parties sought to admit the original lease deed and the accompanying letter of renewal. However, the court rejected admission of the original lease deed in evidence on the grounds that the term of lease deed had expired and that the document was no longer valid. The court also rejected admission of the letter of renewal in evidence on the grounds that applicable stamp duty had not been paid and the document had not been duly registered.
Property disputes in lease transactions are commonplace. In the above case, the parties jeopardised their interests by not executing proper legal documents for effectuating renewal of the lease. First, as the initial lease deed had ceased to be valid, the parties should have executed a new lease deed for the new term. In several judgments, the courts have held that renewal of a lease actually amounts to a fresh lease. In the case of Delhi Development Authority v. Durga Chand Kaushik (1973), the Hon’ble Supreme Court had observed that a renewal of a lease is actually the grant of a new lease in all respects. It is called a ‘renewal’ of lease simply because the term postulates the existence of a prior lease for the same property.
Second, under the Indian Registration Act, 1908, the lease deed of a property given from year to year or for a term exceeding one year, or reserving yearly rent requires compulsory registration. Merely executing letters or issuing informal notices for extension or renewal of lease will not create a valid lease in the absence of a registered lease deed. In the above case study, as the parties sought to create a lease for a term exceeding one year, they were required to execute a document which was duly stamped and registered. Without such a document the tenancy cannot be said to have been renewed and should be considered terminated. In a month-to-month tenancy, both parties have the right to terminate tenancy at any time simply after giving a termination notice.
Third, a document which requires compulsory registration by law but is not actually duly registered by the parties is inadmissible as evidence in courts. Cases where courts have received an instrument that is not duly stamped or registered as evidence are few and far between. To secure one’s rights and protect one’s interests in creation of an initial lease and renewal of a lease, parties must bear these issues in mind.