The Transfer of Property Act, 1882 make provisions for the transfer, usage, and exchange of property from one party to another. This Act deals with various modes of transfer which include Sale, Exchange, Mortgage, Lease and much more. The Lease Deed is a document that allows a person to transfer a property to another for a specific period on the condition that a consideration is paid on the property. The rights and obligations of the tenant to the landlord and vice versa are contained in the lease deed. Such instruments allow the transferee to retain its rights on the property and as such the deed must be registered to offer it a legal status.
WHAT IS A LEASE?
A lease can be defined as the transfer of the rights and benefits on a property to another for a specific time based on the amount paid or the promise for a payment in money or anything that may be considered of value to be offered occasionally to the owner on the terms of their agreement. The detail of the agreement is contained in a document called Lease deed.
WHAT IS A LEASE DEED?
A lease deed is defined as a document that contains the terms of a contract where the tenant or the lessee has agreed to pay the lessor or the landlord a rent for the use of the property periodically.
GENERAL TERMS THAT ARE COMMONLY FOUND IN A LEASE DEED
- LESSOR: the lessor is the main party in the lease and is the owner of the property.
- LESSEE: this is the person who has obtained from the lessor the rights to access and use the property on lease.
- DURATION: this is used to describe the period for which the property will be used by the lessee. The period of the lease can be for a specific time or for perpetuity.
- PREMIUM OR RENT: this is the price you pay in exchanged for the rights to use and enjoy the property. It can be a one-time payment or a promise. When it paid at a time it is called a premium and when the payment is on specific intervals or occasion then it is known as a rent.
PROCEDURE FOR THE REGISTRATION OF A LEASE DEED
- Legally draft the lease deed
- Submit the request for its registration along with the copies of the relevant documents.
- Pay the stamp duty fees
- Visit the registration office
- Pay the registration fee
WHAT IS IMPLIED BY THE EXECUTION OF A LEASE DEED?
Execution of a lease deed implies that the lessor has only transferred to the lessee the rights of usage of the property in accordance with the terms agreed by the parties. The partial or absolute ownership rights of the property are not transferred during the lease execution process. Absolute transfer of rights of ownership or conveyance of parlance from one party to another is referred to as demise.
A lease is the separation of the rights of ownership and possession. This implies that prior to the execution of the lease, the owner can enjoy the rights to possess the land but once the lease is in force, such rights is excluded from him.
WHAT ARE THE MINIMUM PROVISIONS THAT MUST BE FOUND IN A LEASE DEED?
The lease deed must clearly state:
- The rent amounts and
- Time required to be paid
- The notice period for terminating the rent (mostly one month)
- The provisions for a security deposit
- The penalty against damage to the property
HOW TO USE THE LEASE DEED?
- All the required facts and tenant to landlord relationship for the rented property are specified in the document.
- The names and addresses of the tenants and landlord are stated in the deed.
- The obligations and limitations of the tenant to the property can be stated in the lease deed.
- The document must be printed on a non-judicial stamp paper.
- The lease deed must be drafted based on the tenancy to landlord law of the various states in India.
WHAT ARE THE STAGES INVOLVED IN A LEASE?
The stages of transaction involved in the execution of the lease deed is as follows:
- Negotiation: this is the first stage in the transaction process and takes place immediately the lessee has discovered a suitable property. The lessor and the lessee shall meet to discuss the different ingredients in the deal which include duration, mode of payment and consideration of the lease among other things. At this stage, the parties will focus more on the commercial aspects of the transaction.
- The preliminary stage of documentation: immediately an agreement has been reached on the commercial aspect of the transaction, the parties will then proceed to record by writing the mutual understanding they have with regards to their duties and obligations to the property. This will serve as an introduction to the next stage in the lease.
- Title Investigation stage: the purpose of this stage is to ensure that the lessor is the owner of the property and that he has the rights to lease out the property to the lessee. This stage involves a thorough verification of records with the government and diligently examining the title deeds. Any permission that is necessary and the steps to obtained them must be considered at this stage.
- Drafting and purchase of stamp duty: the best way to demise a property is by a lease deed which is a vital document in the transaction. Once the deed has been drafted and the conditions contained has been acceptable to the parties, then the payment for stamp duty should be made for the document.
- Registration and Execution stage: before the registration of the deed, a payment either by rent or premium must be made by the lessee to the lessor. Now, the rights to use and enjoy the property can then be transferred between the parties. It is an acceptable practice that two or three persons sign on the document as a witness to the lease. Now that the lease has been executed, the next step is to approach the registrar’s office for the registration.
- Post registration stage: on the completion of the registration of the lease deed and the property is now with the lessee, it is important for the various government bodies and other organizations functioning within the jurisdiction of the location of the property be notified of the change in possession of the property by writing.
WHAT IS THE DIFFERENCE BETWEEN SALE AND LEASE?
|1||The buyer gets the total right of ownership of the property.||The tenant can only enjoy the rights to use the property.|
|2||The use of the property has no limit.||The lessee rights to possess the property comes to an end once the lease is terminated except on the condition of perpetuity.|
|3||The amount charged on the property is paid once.||The money is paid once like a premium or on specific intervals.|
|4||Purchase of a property allows the buyer to enjoy and the freedom to sell off the property in future.||In a lease, the lessee can only enjoy the use of the property. In most cases, a transfer of lease can be allowed but the ownership rights to the property lies with the lessor.|
|5||The cost of buying a property is usually larger than the lease of the same property.||A lease is much cheaper.|
|6||The residual value of the property can be transferred to the buyer.||The lessee cannot have the residual value of the property.|
|7||Sales usually involve documents such as an agreement to sell, Deed of conveyance, sale deed etc.||The document in the lease is lease agreement and deed of lease.|
WHAT ARE THE DIFFERENCES BETWEEN A LEASE AND A LICENSE?
|1||The lessee is allotted the rights to use the property but not to own it.||The licensee is allotted the right to enjoy the property for a specific time for a given consideration.|
|2||The duration is usually a long one and can be perpetual.||Usually short-term in duration with a maximum time of 5 years.|
|3||One time premium or rent can be agreed for the consideration||The payment is usually a monthly fee.|
|4||Termination of the lease by the owner is often difficult.||Considering the ephemeral nature of the arrangements, the license can be terminated by the owners.|
|5||It is the responsibility of the lessee to maintain the property.||The burden of the maintenance of the property is on the owner even though a little is expected from the licensee.|
|6||The cost of the transaction is relatively high.||It is usually cheap.|
|7||It is the preferred transaction for residential and business setups with long-term goals.||Usually the standard mode of transaction for residential arrangements for a short duration.|
|8||Lease deed and agreement to lease are the only document involved.||Leave and license agreement are the documents involved.|
SIMPLE DRAFT OF A RESIDENTIAL LEASE DEED
This deed is made at ——- on ——– by ———- residing at ———- (hereinafter shall be referred to as the ‘lessor’ which expression shall refer to the owner) of the FIRST PART
———- residing at ——- (hereinafter shall be referred to as the ‘lessee’ which expression shall refer to as the tenant) of the SECOND PART
- The lessor is the owner and the possessor of the property which is located at ———- (hereinafter shall be referred to as the ‘lease apartment’)
- The lessee has contacted the lessor for a grant of lease based on the lease apartment for which the lessor has accepted.
- The lessor and the lessee have now agreed to execute the lease deed based on the terms and conditions provided hereunder.
TERMS AND CONDITIONS
- Grant of lease
- Lease rent
- Duration of the lease
- Security deposit
- Utility bills
- Structural additions
- Obligations of lessee
- Obligations of lessor
- Dispute resolution
- Right to mortgage
This lease deed is hereby witnessed by: