All about draft­ing a lease agree­ment

HT Estates - - HTESTATES -

The gen­eral prin­ci­ples gov­ern­ing the draft­ing of a lease are no dif­fer­ent from draft­ing any other con­tract. There­fore, like any other con­tract, a lease, too, will have cer­tain dis­tinct por­tions, such as ti­tle of the agree­ment; place and date; in­tro­duc­tory clause, which pro­vides the de­scrip­tion of the par­ties; recitals; tes­ta­tum and tes­ti­mo­nium. Leases ad­di­tion­ally also have haben­dum and red­den­dum.

An agree­ment should or­di­nar­ily be­gin with a ti­tle, and this is no dif­fer­ent for leases. It is ad­vis­able to ti­tle the lease agree­ment ap­pro­pri­ately, as a lease deed or agree­ment to lease as the case may be. How­ever, it is a set­tled prin­ci­ple of law that ti­tles and head­ings do not de­fine the na­ture of the re­la­tion­ship be­tween the par­ties and the same is only gov­erned by its con­tents. In Govinda Reddi v Patta Bhi­rama, the Madras High Court, in 1954, held that “the name given at the com­mence­ment of the doc­u­ment is not the con­trol­ling fac­tor, it is the sub­stance of the doc­u­ment and not the form, which should be looked into”. Af­ter the ti­tle it is im­por­tant to men­tion the place and date of ex­e­cu­tion of the lease. Not men­tion­ing the place and date is not of crit­i­cal im­por­tance but it can be­come cru­cial to­wards proof, in sev­eral sit­u­a­tions.

The next part of the lease, typ­i­cally, is the de­scrip­tor of the lessor and lessee. De­scrip­tion of par­ties in a l ease may ap­pear in­nocu­ous, but in­cor­rect de­scrip­tion can prove to be fa­tal. Both the lessor and lessee are ad­vised to pay strict at­ten­tion to the op­po­site con­tract­ing party. The lessor should only be the owner of the premises or its valid power of at­tor­ney holder or au­tho­rised sig­na­tory and none else. Sim­i­larly, the lease must be ex­e­cuted only by the lessee it­self or its valid power of at­tor­ney holder or au­tho­rised sig­na­tory. Im­por­tantly, rent must only be paid and re­ceived by valid par­ties un­der con­tract.

In the event of the lessor/ lessee be­ing an in­di­vid­ual, the lease should de­scribe him/her thus. The de­scrip­tion should pro­vide typ­i­cal de­tails of iden­ti­fi­ca­tion such as name of fa­ther/ hus­band, per­ma­nent res­i­den­tial ad­dress, PAN num­ber, etc.

In case of part­ner­ships, all part­ners must ex­e­cute the lease. Fail­ure by even one part­ner to ex­e­cute, could jeop­ar­dise the lease. In case the part­ner­ship is a lessor, the part­ner that has not signed the lease could po­ten­tially ar­gue that the lease was bad for the want of his/her sig­na­tures.

In ex­treme sit­u­a­tions, the non-sign­ing part­ner has also been known to de­mand an equiv­a­lent sep­a­rate rental. Whether or not such a stance would with­stand court scru­tiny is ques­tion­able, but can cer­tainly prove to be an ir­ri­tant and such con­tro­versy, is thus, avoid­able.

In case of HUF (Hindu un­di­vided fam­ily) prop­er­ties, only the karta is au­tho­rised to sign (or some­one validly au­tho­rised by the karta). Fi­nally, where the sig­na­tory is claim­ing author­ity un­der a power of at­tor­ney, it is im­per­a­tive to check that the at­tor­ney holder has the req­ui­site power un­der the power of at­tor­ney, in­clud­ing to lease the premises; to re­ceive rents; to sign the lease and other rel­e­vant doc­u­ments; and to ex­e­cute and reg­is­ter the lease with the com­pe­tent author­ity.

The power t o l ease an im­move­able prop­erty re­quires com­pul­sory reg­is­ter­a­tion of a power of at­tor­ney. Con­tract­ing par­ties to a lease are ad­vised, not to act on the ba­sis of an un­reg­is­tered power of at­tor­ney.

The next im­por­tant part of the lease are the recitals. Sim­ply put, these are a part of the lease, which be­gin with the word ‘Whereas’. Recitals are such part of the lease, which pro­vide the back­ground cir­cum­stances in which the lease is signed. The con­tents of the recitals are of non-bind­ing na­ture and are un­en­force­able.

How­ever, they are not unim­por­tant and can be of pow­er­ful ev­i­den­tiary value. The en­force­able el­e­ments of the lease are cap­tured af­ter the recitals, in the op­er­a­tive part, which com­mences with the tes­ta­tum, which usu­ally be­gins with the words, “Now this deed wit­nessth as fol­lows”.

The lease also con­tains a red­den­dum, which spec­i­fies the rent re­served and the time and mode of pay­ment of the same. Typ­i­cally, a lease also con­tains a haben­dum, which de­scribes the leased premises along with any li­a­bil­i­ties or lim­i­ta­tions such premises may have. A lease must con­tain the sched­ule of prop­erty, ac­cu­rately de­lin­eat­ing the de­scrip­tion of the prop­erty in­clud­ing its size, num­ber of rooms, open area, etc. It is ad­vis­able to ap­pend a map of the prop­erty, along with its plan, to the lease.

The agree­ment con­cludes with a tes­ti­mo­nium, which men­tions that the lessee and the lessor have signed the lease in the pres­ence of wit­nesses named, at a par­tic­u­lar place and date.

THINKSTOCK

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