Extension versus renewal of lease deed
A lease deed does not automatically get renewed by merely incorporating a clause for renewal
In numerous cases, parties execute a lease deed for a fixed term containing a clause for renewal of the lease for a further fixed term. However, many individuals erroneously believe that by merely incorporating a clause for renewal of lease under the original lease deed, the lease would automatically get renewed for an additional period upon expiry of the initial lease term. To avoid litigation and uncertainty over rights and entitlements of the parties over leased premises, it is important for both lessors and lessees to be aware of the difference between an extension and renewal of lease.
In the Delhi Development Authority v Durga Chand Kaushish ( 1973) case, t he Supreme Court brought out the chief distinction between an extension of lease on the one hand and renewal of lease on the other. The apex court observed that renewal of lease is called so simply because it postulates the existence of a prior lease which generally provides a clause for renewal. In all other respects, a renewal of a lease is actually a fresh grant of lease by the les- sor in favour of the lessee. Upon expiry of the lease term under the earlier lease deed, another lease does not come into existence automatically. In order to give effect to the clause of renewal under the original lease, a lease deed has to be executed by the parties as evidence of the renewal of lease. Further, the lease deed for the renewed term should be duly stamped and registered as per applicable law.
In the state of UP & Ors V Lalji Tandon (2003) case, the Supreme Court once again highlighted that it is not necessary for parties seeking an extension of lease to execute a fresh lease deed. The principal lease would continue in force for such additional period as has been agreed by the parties.
Another interesting point emerged in this case, as to whether or not a renewed lease would automatically entitle the lessee to obtain a further renewal of lease. In this case, the lease deed under dispute was for a period of 50 years and contained a clause for renewal of lease for a further term of 50 years. The state government essentially contended that the lease was renewable only once for a further term of 50 years. That is, upon expiry of the renewed term, the right of renewal under the lease deed stood exhausted and the lessee was not entitled to continue seeking further renewals of the lease.
On this point, the apex court held that the original lease deed executed between the parties contains a clause for renewal, and the parties do renew the lease in accordance with such a clause. But whether or not the lessee is entitled to further successive renewals shall depend on the facts and circumstances unique to each case. To decide this question, the courts would ascertain the intention of the parties, assess the wording of the clause of renewal as well as other clauses of the original lease deed.
Sometimes, the original lease deed may contain a clause for renewal but the lessor may have failed to execute and/or register the lease deed for a further lease period, despite repeated requests of the lessee. In such cases, an aggrieved lessee may seek redressal by filing a suit for specific performance of the renewal clause, provided he/she is not guilty of having violated terms and conditions of the original lease deed. Lessees should also understand that in order to secure renewal of lease, the option of renewal of lease should be exercised by them within the time period stipulated under the original lease deed.
The author is senior partner at Zeus Law, a corporate commercial law firm. One of its areas of specialisation is real estate transactional and litigation work. If you have any queries, email us at htestates@ hindustantimes. com or ht@ zeus.firm.in