Ex­ten­sion ver­sus re­newal of lease deed

A lease deed does not au­to­mat­i­cally get re­newed by merely in­cor­po­rat­ing a clause for re­newal

HT Estates - - HTESTATES - Sunil Tyagi

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


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