Es­sen­tials of a lease deed

Make sure that the du­ra­tion of lease is clearly men­tioned in the doc­u­ment. Oth­er­wise the ten­ancy will be valid on a month-to-month ba­sis

HT Estates - - HTESTATES - Su­nil Tyagi

Our courts are over­flow­ing with land­lord-ten­ant dis­putes, most of them em­a­nat­ing from in­ap­pro­pri­ately drafted lease deeds or, worse, be­tween par­ties not hav­ing ex­e­cuted a lease deed at all. This two-part se­ries dis­cusses terms that par­ties must ne­go­ti­ate and cap­ture in the lease deed to make their rights en­force­able.

Term and lock-in pe­riod: The date of com­mence­ment and du­ra­tion of the lease should be set out in the lease deed. If the du­ra­tion of lease is not set out in the doc­u­ment, the ten­ancy will amount to a month-to-month ten­ancy ar­range­ment where ei­ther party has the right to ter­mi­nate the lease at any time, after giv­ing prior ter­mi­na­tion notice to the other party. Lock-in pe­riod, if any, for the lessee also needs to ex­pressly set out in the lease deed. Lock-in pe­riod means a pe­riod dur­ing which the lessee is not en­ti­tled to ter­mi­nate the lease ex­cept for cir­cum­stances specif­i­cally men­tioned in the lease deed. Such a clause as­sures the lessor steady in­come from rent for a def­i­nite pe­riod. Most lease deeds also con­tain a clause that in the event of the lessee wish­ing to ter­mi­nate the lease dur­ing the lock-in pe­riod, he or she shall be li­able to pay rent for the un­ex­pired lock-in pe­riod to the lessor. There­fore, it is im­por­tant that the lease deed spec­ify the cir­cum­stances under which the lease may be ter­mi­nated validly by the lessee dur­ing the lock-in pe­riod with­out the li­a­bil­ity to pay rent for the un­ex­pired lock-in pe­riod.

Rent and se­cu­rity de­posit: The rental amount should be just and ad­e­quate, as may be mu­tu­ally agreed be­tween the lessor and the lessee, keep­ing in mind fac­tors such as lo­ca­tion, type of con­struc­tion, civic ameni­ties and fa­cil­i­ties, etc. The time­lines and method of pay­ment should be clear. A clause on in­ter­est-free re­fund­able se­cu­rity de­posit acts as a buf­fer for the lessor in case of any breach by the lessee – this amount is re­funded to the lessee at the time of ex­piry or ter­mi­na­tion of the lease, pro­vided the lessee has com­plied with con­di­tions of the lease deed. For ex­am­ple, if the lessee has dam­aged the prop­erty or not paid elec­tric­ity and wa­ter charges, the lessor would be en­ti­tled to ad­just costs borne to­wards rec­ti­fy­ing the dam­age and pay­ment of elec­tric­ity and wa­ter charges from the se­cu­rity de­posit. Par­ties may also in­cor­po­rate a clause whether and by what pro­por­tion the rent and/ or se­cu­rity de­posit would stand es­ca­lated dur­ing the lease term.

Ex­ten­sion and re­newal: To avoid lit­i­ga­tion and un­cer­tainty over leased premises after ex­piry of the lease term, lessors and lessees must be aware whether they would opt for an ‘ex­ten­sion’ clause or a ‘ re­newal’ clause. Re­newal of lease is a fresh lease in it­self which is in­de­pen­dent of the pre­vi­ous lease. In or­der to give ef­fect to a re­newal clause under the orig­i­nal lease, a lease deed has to be ex­e­cuted once again by the par­ties. If the orig­i­nal lease deed con­tains a clause for re­newal but the lessor fails to ex­e­cute and/or get the lease deed reg­is­tered for a fur­ther lease pe­riod, the ag­grieved lessee may file a suit for spe­cific per­for­mance of the re­newal clause, pro­vided he/she is not guilty of hav­ing breached any terms of the orig­i­nal lease deed. In case of an ex­ten­sion clause, the lease pe­riod would not ter­mi­nate at the end of the ini­tial pe­riod if the op­tion to ex­tend the lease is duly ex­er­cised in ac­cor­dance with the terms and con­di­tions of the orig­i­nal lease deed. This is be­cause an ex­ten­sion of a lease is treated as a pro­lon­ga­tion of the orig­i­nal lease.

Trans­fer and at­torn­ment: The lessee may en­sure that the lease deed con­tains an at­torn­ment clause, stat­ing that in the event the prop­erty is trans­ferred by the lessor to a third party, a let­ter or deed of at­torn­ment would be ex­e­cuted whereby par­ties can recog­nise each other as a lessee and new land­lord, re­spec­tively. At­torn­ment is es­sen­tially the act of recog­nis­ing a new land­lord dur­ing the con­tin­u­a­tion of an ex­ist­ing lease on the same terms and con­di­tions. In the ab­sence of an ex­plicit clause, the Trans­fer of Prop­erty Act, 1882 lays down prin­ci­ples of statu­tory at­torn­ment of a lease whereby all rights of the orig­i­nal lessor would stand trans­ferred to the new lessor (ie buyer) by statu­tory at­torn­ment, en­sur­ing con­tin­u­a­tion of the ex­ist­ing lease.

THINKSTOCK

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