Leases of Immovable Property — Definition, Kinds, Duration (Sections 105–117)

Chapter V of the Transfer of Property Act, 1882 — Sections 105 to 117 — is the lease chapter. Section 105 defines the lease as a transfer of the right to enjoy immovable property for a certain time, in perpetuity, or otherwise, in consideration of rent or premium. Sections 106 and 107 supply the rules of duration and creation. Section 108 codifies the implied covenants between lessor and lessee. Sections 109 and 110 govern the transferee of the reversion and the computation of time. Section 111 enumerates the eight modes by which a lease determines, with Sections 112 to 114A on waiver, surrender and relief against forfeiture. Section 115 protects the under-lessee. Section 116 covers holding over. Section 117 excludes agricultural leases unless brought in by State notification. This umbrella chapter sets out the architecture, scope, and definitional perimeter of the lease; the four ancillary chapters break down its component sections.

Section 105 — the statutory definition

The five essential elements of a lease, drawn from the section, are: the parties, the subject-matter (immovable property), the demise or partial transfer, the term or period, and the consideration (rent or premium). The relationship is one of contract, but a lease is more than a contract — it is a transfer of an interest in land that creates a right in rem good against the whole world, and the lessee's interest is property within the meaning of Article 19(1)(f) of the Constitution as it then stood: Corporation of Bombay v Lala Pancham AIR 1965 SC 1008. A mere demand for rent is not enough to create the relationship of landlord and tenant — the relationship must be agreed by both parties: Deo Nandan v Meghu Mahton (1907) ILR 34 Cal 57. An agreement to lease, or an agreement merely defining the terms of a future tenancy, is not itself a lease — there is no demise in praesenti: Manish Anand v Ramniwas Gupta AIR 2012 MP 90.

The parties — lessor and lessee

The lessor and the lessee must be persons competent to contract. Competency to grant a lease depends on competency to transfer under Section 7. A lease is void where the purported lessor has no interest in the property leased: Collector, District Gwalior v Cine Exhibitors Pvt Ltd (2012) 4 SCC 441. An absolute owner may lease for any term he pleases; a limited owner only to the extent permitted by law — a Hindu widow's lease cannot endure beyond her death unless justified by legal necessity, and a guardian under Section 29 of the Guardian and Wards Act, 1890 may lease only for a term not exceeding five years. A minor cannot be a lessor, for his contract is void in India; but he may be a lessee, for Section 7 does not apply to transferees — though even on the lessee side the position is doubtful since Section 107 (after the 1929 amendment) requires execution by both lessor and lessee, and a minor cannot execute. The House of Lords in Rye v Rye [1962] AC 496 held that a man cannot grant a lease to himself: nemo potest esse tenens et dominus. The Indian position is the same — the mutual covenants of section 108 are insensible between the same person, and section 111(d) statutorily destroys the lease by merger if the same right is held by one person.

Subject-matter — immovable property

The subject of a lease must be immovable property as defined in Section 3. It includes not only land and buildings but also benefits arising from land — fisheries, ferries, market dues, and the right to collect tolls. A right to carry on mining operations and to extract a specified mineral is a right to enjoy immovable property within Section 105: Jagannath Minerals v State of Orissa 2010 SCC OnLine Ori 253. A composite lease of a building together with equipment, fixtures, or machinery is recognised; the dominant intention determines whether it is a lease of the building or of the business. The subject must be in existence; a lease of property to which the lessor may never establish title is construed as an agreement to lease on the happening of a contingency. A lease of grass, or of standing trees to be felled and removed within a reasonable time, is the sale of movable property and not a lease.

The demise — what is transferred

The demise is the partial transfer of the right of enjoyment for a term. The transfer is partial because not all rights of ownership pass — the corpus, the underlying ownership, the right to take minerals, are reserved by the lessor. The phrase "transfer of a right to enjoy such property" stands in contrast with the "transfer of ownership" that defines a sale under Section 54. Lord Shaw in Giridhari Singh v Megh Lal Pandey (1918) ILR 45 Cal 87 (PC) explained the conceptual difference — the essential characteristic of a lease is that the subject is one which is occupied and enjoyed and the corpus of which does not by reason of the user disappear. The estate transferred to the lessee is the leasehold; the estate remaining with the lessor is the reversion. Even in a perpetual lease an interest still remains with the lessor — Sir Lawrence Jenkins in Kalti Dass Ahiri v Monmohini Dassee (1897) ILR 24 Cal 440 held that a man who being owner of land grants a lease in perpetuity carves a subordinate interest out of his own and does not annihilate his own interest.

The term — duration of the lease

The term of the lease must be certain in the first instance, or capable of being made certain afterwards. The Supreme Court in Juthika Mulick v M Y Bal AIR 1995 SC 1142 held that the word "certain" in Section 105 does not mean certain on the date of the lease — it suffices that it is capable of being made certain on a future date: id certum est quod certum reddi potest. A lease may commence in the present or in the future; if no day of commencement is named, Section 110 directs that time runs from the date of execution. A lease may be in perpetuity. A mere general letting silent on duration is void as a lease but creates a tenancy at will, which is converted by acceptance of rent into a tenancy from year to year or month to month under Section 106. The Privy Council in Janaki Nath v Dina Nath AIR 1931 PC 207 held that a benami kabuliyat without a term operates either as a permanent lease or as a lease from year to year — no intermediate position is open.

Consideration — premium and rent

The consideration of a lease is the premium (a price paid in advance) or the rent (money, share of crops, service, or any other thing of value to be rendered periodically or on specified occasions). The Supreme Court in State of Punjab v Brij Mohan AIR 1986 SC 1278 distinguished between the two — premium is paid up front for the grant of the leasehold itself, while rent is the periodic payment for enjoyment of the land. A composite payment may be partly premium and partly rent. The consideration must be a thing of value; nominal rent does not destroy a lease but a lease without consideration is no lease at all. The Supreme Court in Trustees of HEH Nizam's Pilgrimage Trust v Lakshmibai (1996) 11 SCC 220 held that a payment by the lessee in exchange for the right to enjoy is the touchstone — the label affixed by the parties is not conclusive.

Section 107 — how leases are made

Section 107 divides leases into two classes. Class A — leases from year to year, leases for a term exceeding one year, and leases reserving a yearly rent — can be made only by a registered instrument. Class B — every other lease, generally those for a term of one year or less, or those at a monthly rent — may be made either by a registered instrument or by oral agreement accompanied by delivery of possession. The Supreme Court in Anthony v K C Ittoop and Sons (2000) 6 SCC 394 held that an unregistered instrument required to be compulsorily registered cannot create a lease; the court is disabled from using the instrument as evidence. But the court may yet determine that there was in fact a lease otherwise than through the instrument — a periodic tenancy under the second part of Section 107 may be inferred from delivery of possession and acceptance of rent. The decision is the central modern authority on the consequences of non-registration. The third paragraph of Section 107, inserted by the 1929 amendment, settles the older conflict over rent notes signed only by the lessee — execution by both lessor and lessee is required, but "execution" need not mean signing by both: Rajendra Pratap Singh v Rameshwar Prasad AIR 1999 SC 37.

Kinds of lease

Leases are classified by duration, by purpose, and by mode of creation. By duration, they are: leases for a fixed term (one month, one year, twenty-one years, ninety-nine years); periodic leases (year-to-year or month-to-month); and leases in perpetuity. Section 106 supplies the default rule for periodic leases when the parties are silent. By purpose, leases are agricultural, manufacturing, or residential/commercial — the classification governs the length of notice under Section 106 and the applicability of State tenancy legislation under Section 117. By mode of creation, leases fall into the two classes set out in Section 107 — registered, or oral with delivery of possession. A sub-lease (or under-lease) is itself a lease within Section 105: Camberwell & South London Building Society v Holloway (1879) 13 Ch D 754. The distinction between a lease and an agreement to lease is fundamental — an agreement to lease creates only an obligation to grant a lease in future, while a lease creates an immediate interest in the land.

Tenancy at sufferance, tenancy at will, periodic tenancy

A tenant who continues in possession after the term has expired by efflux of time, without the landlord's assent, is a tenant at sufferance. His possession is lawful in its inception but unlawful in its continuance. He is liable for mesne profits and may be ejected without notice. A tenant at will is one in possession with the landlord's express or implied consent at the will of either party — the tenancy is determinable at any time by demand or surrender, and is not strictly a lease within the Act. A periodic tenancy is one for a recurring fixed unit (year, month, week) which renews automatically until determined by notice under Section 106. The distinction between a tenant at sufferance and a tenant holding over under Section 116 is critical — the latter is a fresh periodic tenant whose tenancy must be ended by a Section 106 notice; the former may be ejected without notice: Burmah Shell Oil Storage and Distributing Co v Khaja Midhat Noor AIR 1988 SC 1470.

Lease distinguished from licence

The lease-versus-licence distinction is the most heavily litigated in the chapter. A lease is a transfer of an interest in immovable property, conferring exclusive possession and a right in rem. A licence is a personal right to do something on another's land that, but for the licence, would be a trespass — it confers no interest in the land and creates only a right in personam. The Supreme Court in B Arvind Kumar v Government of India (2007) 5 SCC 745 reiterated the test laid down in Associated Hotels of India Ltd v R N Kapoor AIR 1959 SC 1262 — the legal possession test. If exclusive legal possession is intended to be granted, the document is a lease whatever the parties may have called it; if only a permission to use is granted with the licensor retaining legal possession, it is a licence. The intention of the parties is gathered from the document as a whole and the surrounding circumstances. A document called a leave-and-licence agreement may operate as a lease if it transfers exclusive possession; conversely a document called a lease may operate as a licence if exclusive possession is not transferred. The detailed treatment of the distinction is the subject of a separate chapter on easements, lease and licence.

Lease distinguished from sale, mortgage and easement

A lease differs from a sale in that ownership does not pass — only the right of enjoyment for a term. It differs from a mortgage in that no security interest is created — the lessor parts with possession and the lessee pays for use, while the mortgagor parts with an interest as security and remains the substantial owner. It differs from an easement in that an easement is an incorporeal right enjoyed over the servient tenement without possession; a lease confers exclusive possession of the demised property itself. The Supreme Court in Ramji Lal v Sahib Ram AIR 1986 SC 569 emphasised that the substance of the transaction, not the label, governs — a transaction described as a lease but operating as a security may be construed as a mortgage and vice versa.

Section 110 — computation of time

Where the time limited by a lease is expressed as commencing from a particular day, in computing that time such day is excluded. Where no day of commencement is named, the time runs from the making of the lease. The section codifies the common-law rule that the day from which a term is computed is excluded; the day on which the term ends is included. The Supreme Court in Juthika Mulick v M Y Bal (supra) read the rule liberally — the term must be capable of being made certain. Section 110 also addresses the option to break — an option exercised by either party in accordance with the contract operates as a determination of the lease. The condition of the option must be strictly observed; an attempt to exercise it after the time fixed is bad.

Section 117 — agricultural leases

Section 117 expressly excludes agricultural leases from the operation of Chapter V unless the State Government brings them in by notification. Most agricultural tenures in India predate the TPA and are governed by State tenancy legislation — the Bengal Tenancy Act, the various State Land Reforms Acts, and similar enactments. The exclusion does not, however, prevent the principles underlying the chapter from being applied as rules of justice, equity and good conscience. A perpetual lease of agricultural land is in substance a transfer of ownership and requires registration: Khaja Abdul Qadeer v Mohammed Allauddin (2010) 3 UPLJ 172. The State rent control statutes, by contrast, govern urban tenancies and override much of Sections 106, 108 and 111 — the displacement is comprehensively analysed in the chapter on determination of lease.

Stamp duty and registration overlay

A lease is chargeable with stamp duty under Article 35 of Schedule I to the Indian Stamp Act, 1899 (or the corresponding State amendments). The duty is a function of the term and the rent or premium. An instrument of lease compulsorily registrable under Section 17(1)(d) of the Registration Act, 1908 — a lease from year to year, for any term exceeding one year, or reserving a yearly rent — must be registered, failing which it is inadmissible to prove the terms but may be looked at to establish the nature of possession. The interplay with the rules of notice, with the doctrine of part performance under Section 53A, and with Article 299 of the Constitution where the lessee is the government, further textures the registration question. Where the government is the lessee, the contract must be in writing and conform to Article 299; even where Section 107 permits an oral lease the Constitution prohibits it.

Arbitrability of lease disputes

The Supreme Court in Vidya Drolia v Durga Trading Corporation (2021) 2 SCC 1 settled the question of arbitrability. Landlord-tenant disputes governed by the TPA are arbitrable as they are not actions in rem but pertain to subordinate rights in personam arising from rights in rem; an arbitral award can be enforced as a decree of the civil court. But landlord-tenant disputes covered by State rent control legislation are not arbitrable when a specific court or forum has been given exclusive jurisdiction to apply and decide the special rights and obligations conferred by the statute. The arbitral tribunal cannot trespass on the special jurisdiction of the rent court.

Lessor and lessee — covenants in outline

The detailed treatment of the seventeen clauses of Section 108 is in the chapter on rights and liabilities of lessor and lessee. In outline, the lessor must disclose latent defects, deliver possession on request, and grant quiet enjoyment; the lessee must pay rent, keep and restore the property, allow inspection, disclose proceedings, refrain from waste and structural alteration, and on determination restore vacant possession. Express covenants override the implied ones; usage may displace both. The covenant for quiet enjoyment runs with the land — assignees take with the benefit and burden. Forfeiture for breach is governed by Section 111(g); relief against forfeiture by Sections 114 and 114A.

Practical points for the exam-aspirant

The standard MCQs on the lease chapter draw from a few recurring areas. First, the five essential elements of Section 105 — the parties, the subject-matter, the demise, the term, the consideration. Second, the contrast between a lease (interest in land, right in rem) and a licence (personal right, right in personam); the test in Associated Hotels v R N Kapoor and B Arvind Kumar v Government of India. Third, the consequences of non-registration under Anthony v K C Ittoop — no lease is created by an unregistered instrument, but a periodic tenancy may yet be inferred. Fourth, the distinction between a tenant at sufferance and a tenant holding over (Burmah Shell; Shanti Prasad Devi v Shankar Mahto (2005) 5 SCC 543). Fifth, the requirement under the third paragraph of Section 107 that the registered instrument be executed by both lessor and lessee. Sixth, the displacement of much of Chapter V by State rent control statutes — Mangat Ram v Sardar Meharban Singh AIR 1987 SC 1003. The cluster of decisions to remember by name is Anthony v K C Ittoop, Ramji Lal v Sahib Ram, Burmah Shell v Khaja Midhat Noor, State of Punjab v Brij Mohan, B Arvind Kumar v Government of India, Trustees of HEH Nizam's Pilgrimage Trust v Lakshmibai, Chapsibhai v Purushottam AIR 1971 SC 1878, Juthika Mulick v M Y Bal, Vidya Drolia, Rajendra Pratap Singh v Rameshwar Prasad, and Janaki Nath v Dina Nath. The four sibling chapters supply the line-by-line treatment of Sections 106, 108, 111 and the interplay with rent control.

Frequently asked questions

What are the five essential elements of a lease under Section 105?

The five elements drawn from the section are: (i) the parties — a lessor and a lessee, both competent to contract; (ii) the subject-matter — immovable property as defined in Section 3; (iii) the demise — a partial transfer of the right to enjoy, not of ownership; (iv) the term — for a certain time, express or implied, or in perpetuity, capable of being made certain; and (v) the consideration — premium or rent, money or share of crops or service or any other thing of value, rendered periodically or on specified occasions. The absence of any one element is fatal to the lease.

What is the test for distinguishing a lease from a licence?

The test is whether exclusive legal possession is transferred. The Supreme Court in Associated Hotels of India Ltd v R N Kapoor AIR 1959 SC 1262, reiterated in B Arvind Kumar v Government of India (2007) 5 SCC 745, held that the substance of the transaction governs over the label. If the document confers exclusive possession on the transferee, it is a lease whatever the parties have called it. If it confers only a permission to use the premises with the transferor retaining legal possession, it is a licence. The intention is gathered from the document as a whole and the surrounding circumstances; the test is one of substance, not form.

What are the consequences of non-registration of a lease under Section 107?

The Supreme Court in Anthony v K C Ittoop and Sons (2000) 6 SCC 394 held that an unregistered instrument required to be compulsorily registered under Section 107 read with Section 17(1)(d) of the Registration Act, 1908 cannot create a lease. The court is disabled from using the instrument as evidence of the terms. However, the court may yet determine that a periodic tenancy under the second part of Section 107 has come into existence by delivery of possession and acceptance of rent. The instrument may also be looked at for the limited collateral purpose of establishing the nature of possession.

Can a lease be granted in perpetuity in India?

Yes. Section 105 expressly contemplates a lease in perpetuity. The Privy Council in Janaki Nath v Dina Nath AIR 1931 PC 207 held that a benami kabuliyat without a term may operate either as a permanent lease or as a lease from year to year, depending on the construction of the document. Even in a perpetual lease, an interest still remains with the lessor — Sir Lawrence Jenkins in Kalti Dass Ahiri v Monmohini Dassee (1897) ILR 24 Cal 440 explained that a man who grants a lease in perpetuity carves a subordinate interest out of his own. The reversion may be valuable even though it is delayed indefinitely.

What is the difference between a lease and an agreement to lease?

A lease is a transfer of an interest in immovable property — a demise in praesenti of the right to enjoy. An agreement to lease is a contract to grant a lease in future; it creates no interest in the land but only an obligation to enter into a lease. The distinction governs the requirement of registration (an agreement to lease for more than a year is registrable under Section 17(2)(v) of the Registration Act, 1908 only if it creates an interest in the land), the applicability of Section 53A on part performance, and the remedies available — specific performance is the remedy for breach of an agreement to lease, while a suit for possession lies under a completed lease.

Are landlord-tenant disputes arbitrable?

Yes, but with an important exception. The Supreme Court in Vidya Drolia v Durga Trading Corporation (2021) 2 SCC 1 held that disputes governed by the TPA are arbitrable, as they pertain to subordinate rights in personam arising from rights in rem; the arbitral award is enforceable as a decree of the civil court. But disputes covered by State rent control legislation, which assigns exclusive jurisdiction to a specific court or forum, are not arbitrable. The special protections conferred on tenants by the rent statute can only be adjudicated by the designated forum, not by an arbitrator.