Property Lease Registration & Renewal

The concept of Lease:

A lease is a term whereby there is an agreement between a lessor and lessee that defines how long an asset or property will be rented, as well as other housing-related specifications.

In India Section 105 of the Transfer of Property Act, 1882 deals with the term lease. The term as defined under the Act is as follows:

“105. Lease defined. — A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms.

Lessor, lessee, premium and rent defined. — The transferor is called the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service or other things to be so rendered is called the rent.”

From the term, it is understood as, a procedure, by which the Lessor or the original owner of immovable property transfers rights of the property to the Lessee for a certain period, as stipulated in the Agreement. The period generally is around 99 years and the stamp duty to be charged on the lease varies depending on the statewide Stamp Acts.

A lease can be granted with an expressed amount of time duration mentioned in the Agreement, or implied term or in perpetuity. A lease guarantees the lessee the use of an asset and warrants the lessor or the property owner or landlord, to regular payments for a specified period in exchange.

Procedure for Registration of Lease

Leases are legal and binding contracts that define the terms of rental agreements in real estate and real and personal property. They are formulated like regular Agreements, after paying requisite Government fees as under:

Depending upon the duration of the lease, stamp duty is calculated as under:

1. 5 Years - 10% of Market Value
2. Duration above 5 Years and but up to 10 Years-  25% of Market Value
3. Above 10 Years and but up to 29 Years- 50% of Market Value
4. Above 29 Years-  90% of Market Value

 Under Section 107 of TPA, it is detailed how the leases of immoveable property shall be made in the law. The said section is reproduced as under:

“107. Leases how made. — A lease of immovable property from year to year, or for any term exceeding one year or reserving a yearly rent, can be made only by a registered instrument.

All other leases of immovable property may be made either by a registered instrument or by oral agreement accompanied by delivery of possession.

Where a lease of immovable property is made by a registered instrument, such instrument or, where there are more instruments than one, each such instrument shall be executed by both the lessor and the lessee:

Provided that the State Government may from time to time, by notification in the Official Gazette, direct that leases of immoveable property, other than leases from year to year, or for any term exceeding one year, or reserving a yearly rent, or any class of such leases, may be made by unregistered instrument or by oral agreement without delivery of possession.”

Hence, it classifies the procedure into 2 parts viz

1. When the lease of the immovable property is from year to year, or for a term exceeding a year, or lease reserving a yearly rent and this can only be made by a registered document; and
2. All other leases can be either made by a registered instrument, or the said lease to be made by an oral agreement accompanied by the release of possession.

Renewal of Lease:

Once the period of  lease is nearing the end, if the Agreement provides the same can be renewed by expressly writing to the Lessor, preferably almost 3 months in advance, then the Lease is a renewable one. Thereafter, a new lease Agreement would however have to be created.

The Maharashtra government mandates that the lease renewal policy for the government plots in the State except, Mumbai, wherein no lease would be renewed for more than three decades, and rents would be revised every five years. The reason for this is that a total of 1,843 plots were leased out in Maharashtra and 776 plots had expired leases but could not be renewed in the absence of a sound renewal policy. Further, 537 plots in the State were let out for residential purpose, of which, the lease of 285 plots were terminated and was awaiting renewal. Therefore, to expedite the lease renewal process the State government mandated a lease renewal policy in Maharashtra, except Mumbai.

Nonetheless, for a cooperative housing society, the Lease rent has been pegged at one percent. If the lessor violates the lease terms, the lease of the plot would be renewed only after the violator pays a fee to regularize the violation. Conversely, if the lessor fails to apply for lease renewal before its termination, a penalty of 0.1 percent on 25 percent of the RRR would be imposed in addition to the rent. The district collector has the sole authority for all the lease renewals.