What is a ‘lease’?

As per Section 105 of the Transfer of Property Act, the definition of ‘Lease’ can be
understood as a transfer of a right to enjoy property for a certain time or in perpetuity; in
consideration of a price paid or promised or of money, a share of crop, service or any other
thing of value to be rendered periodically or on specific occasion to the Lessor by the Lessee
who accepts the transfer on such terms.

In this context,

 Lessor is the absolute owner of the property which is the subject matter of the
lease;

 Lessee is the person acquiring the rights to use and enjoy the property on lease
from the Lessor;

 Duration is the term for or period for which the rights to use and enjoy the
property is granted. The duration of the lease can be for a certain time, express or
implied or can also be in perpetuity;

 Premium or Rent is the consideration for granting the rights to use and enjoy the
property can be in the form of a one-time price paid or promised i.e. Premium or
on payment of money or any other thing of value, periodically or on specific
occasions or intervals, known as Rent.
Therefore, by executing a Lease Deed, what is transferred by the Lessor to the Lessee is only
his right to enjoy the property, subject to the terms agreed upon, and not the whole or any part
of the absolute ownership rights, this type of transfer in conveyancing parlance is known as a
‘demise’.

A lease can be understood as the rightful separation of ownership and possession i.e. prior to
the grant of the lease, the Lessor has the right to enjoy the possession of the land but during
the concurrence of the lease, he excludes himself from that right (Anwarali vs Jaminilal Roy,
AIR 1940 Cal. 89).
 The usage of the term ‘demise’ in a Lease Deed or instrument of lease triggers the Lessor’s
liability for the warranty of quiet enjoyment of the property the Lessee is entitled to remain in
possession until the lease is terminated by due process of law (Jaswantsinh Mathurasinh &
Anr. vs Ahmedabad Municipal Corporation & Ors., 1992 Supp. (1) S.C.C. 5, 12.).

Difference between Sale and Lease

Sale / Purchase Lease

1 The Purchaser gets absolute The Lessee only gets a right to enjoy the property but not
. ownership rights of the property ownership rights
The Lessee’s right to possession and enjoyment of the
2 There is no logical end to the
property comes to an end upon the termination of the lease
. ownership of the property
unless the lease is in perpetuity
The sale consideration is usually
3 The consideration can either be in the form of a one-time
paid once at the time of purchase of
. premium or as rent at periodic intervals
the property
Lease grants only the right to possession and use of the
A sale grants the right to
4 property. Although some arrangements do allow a sublease or
possession, enjoyment of benefits
. transfer of lease but the rights of the Owner are always valid
and the right of further sale
and subsisting
The overall cost of purchasing a
5
property is usually higher than Leasing is a relatively cheaper mode of
.
leasing.
6 The purchaser can enjoy the
The Lessee cannot enjoy the residual value of a property
. residual value of a property
Documents involved are Agreement
7
to Sell, Sale Deed, Transfer Deed, Documents involved are Agreement to Lease or Lease Deed
.
Deed of Conveyance etc.

Lease License
 The Lessee gets a right to possession and
1 The Licensee gets a right use the property for a
enjoyment of the property but not ownership
. fixed time and for a predetermined consideration
rights
2 Usually involves a long-term duration, can also Involves a short-term duration, generally for 1 year
. be in perpetuity but up to 5 years at maximum (in Maharashtra)
The consideration can either be in the form of a
3 The consideration is usually in the form of a
one-time premium or as rent at periodic
. monthly license fee
intervals
License can be easily terminated by the Owners
4 The lease cannot be easily terminated by the
considering the temporary nature of the
. Owner
arrangement
Although there is a level of care required the
5 The maintenance and upkeep of the property is
burden of maintenance and upkeep of the property
. the duty/responsibility of the Lessee
falls on the owner
6 A deposit involved in the costs involved are
Relatively higher cost of the transaction
. usually quite less
The preferred mode of transaction for long-
7 Preferred mode of the transaction is short-term
term residential arrangements and commercial
. residential arrangements
setups
8 Documents involved are Agreement to Lease Document involved is a Leave and License
. or Lease Deed Agreement

Difference between Lease and License

Stages of a Lease Deed

The entire transaction executing the Lease Deed can be broken down into the following
stages:

1. Negotiation Stage: This is the very first stage of the transaction and it comes into
effect right after the Lessee has identified a property suitable for his use. The
parties involved shall need to discuss the various commercial aspects of the deal
 such as duration of the lease, consideration, mode of payment etc. The focus at this
stage is more on the commercial aspects rather than the legal aspects.

2. Preliminary Documentation Stage: Once the commercial aspects of the

transaction have been agreed upon, the parties involved can get into an Agreement
to Lease or preferably a Memorandum of Understanding recording the commercial
aspects of the deal and the broad duties and obligations of the respective parties.
This creation of an Agreement to Lease or Memorandum of Understanding is to
place on record the intention of the parties and thus allow the next stage of the
process.

3. Title Investigation or Due Diligence Stage: The focus of this stage is to verify
the Lessor’s title to the property and the Lessor’s ability to demise the property by
way of the lease in favour of the Lessee. This typically involves a thorough
reading of the title deeds, verification with the Government records by way of a
Title Search at the respective office and finally the issuance of Public Notices
inviting objections. The issuance of Public Notice is not mandatory and can be
avoided based on the situation. At this stage, it is also necessary to see what
permission are mandatory and the steps required to obtain the same.

4. Drafting and Payment of Stamp Duty Stage: The lease can be demised by way
of an Agreement to Lease however the preferred mode is a Lease Deed as it is not
contingent upon a future instrument. Once the document has been drafted taking
into consideration the various terms of the transaction and the draft approved by
the parties; the payment of stamp duty can be undertaken on the Lease Deed. Since
Stamp Duty is a State subject, let us consider an example of Maharashtra; an
Agreement of Lease needs to be stamped as per Article 25 of Schedule I whereas a
Lease Deed can be stamped as per Article 36 of Schedule I of Maharashtra Stamp
Act (Schedule I of The Maharashtra Stamp Act, 1958).

5. Execution and Registration Stage: This stage involves the payment of premium
by the Lessee to the Lessor. The parties can simultaneously exchange the
consideration amount, take possession of the property and execute the Lease Deed.
Though not mandatory, it is accepted practice for two people to record their
signature as witnesses to the execution of the Lease Deed. Once the instrument has
 been executed it can be put up for registration at the Office of the applicable Sub-
Registrar of Assurances having suitable jurisdiction over the property.

6. Post Registration Stage: Once the registration of Lease Deed is done and the
property is in possession of the Lessee, it is advisable that the various
governmental and semi-governmental bodies having jurisdiction over the property
be notified in writing about the change of holder. This would ensure a smooth
transition and make the process of making applications and acquiring Licenses
relatively easy.
It is important to note that as per Section 107 of the Transfer of Property Act, 1882 and
Section 19 (1) (d) of the India Registration Act, 1908 it is mandatory to register the lease of
an immovable property for a term exceeding one year or system of yearly payment of rent.
(The Transfer of Property Act, 1982) (The Registration Act, 1908). A lease deed that needs to
be mandatorily registered is void if not registered (Usha Ranjan Ray Burman vs Sova Das,
AIR 1990 Cal I).

Template

Here is a short template of a standard Lease Deed for setting up a small scale industry in an
Industrial area.
 LEASE DEED

THIS DEED OF LEASE entered into at Mumbai on this ____ day of ________ March 2018 between MR.
ABC residing at ________________________________________________________ Mumbai – __________.
hereinafter referred to as ‘THE LESSOR’ which expression unless be repugnant to the meaning or context
thereof will mean and include his heirs, survivors and legal assigns of the ONE PART;

AND

M/S. XYZ PVT. LTD. represented herein by its Director MR. ___________ having its address at
_________________________ ____________________________ Mumbai – _______________ hereinafter
referred to as ‘THE LESSEES’ which expression unless be repugnant to the meaning or context thereof will
mean and include the said Company, its Directors, Managers, Subsidiaries and Permitted Assigns if any of the
OTHER PART.

WHEREAS:

1. The Lessor is the exclusive owner of a plot of land, admeasuring _______ Guntas at Village
_______, Survey No. _____________, Bhiwandi, Thane more particularly described in the Schedule
A. The Lessor has acquired this premises vide a Deed of Conveyance dated 29th September 2011
bearing Registration Serial No. BVD1 – ________ – 2011 from MR. _________________ and
MRS. _________________, for the sake of brevity and convenience, hereinafter referred to as ‘THE
LAND’.

2. The Lessee is in business of Textiles and is already having manufacturing facilities at

______________________ Mumbai. In course of expansion of their existing business, the Lessee
have requested the Lessor to grant on lease basis a part of the land for the purpose of setting up a
textile manufacturing unit thereon which will be used for their industrial and manufacturing purpose
of carrying on Textile Weaving, Dyeing, Bleaching, Printing and other related activities. The area to
be given on lease is more particularly described in the Schedule and herein after referred to as ‘The
Leased Land’.

3. The Lessor has agreed to grant lease of the Leased Land for a period of 10 years subject to terms and
conditions hereinafter appearing.

4. The Lessor has made out his marketable title to the leased land free from all encumbrances, claims
or reasonable doubts.
NOW THIS DEED WITNESSETH AS FOLLOWS:

1. The Lessor agrees to give on lease and the Lessee agree to take on lease a plot of land admeasuring
________ Guntas or __________ sq. mtrs. at Village _________, Bhiwandi, Thane more
particularly described in the Schedule hereunder written, for a period of 10 years.
Checklist

Here is a checklist of key elements to consider and include when drafting a lease deed for
commercial purposes:

1. Property Description: A detailed description of the property should be provided

along with the area, the exact location, respective Survey No.(s) etc. It is also
advisable to include a description of all the structures standing on the property
along with the list of all the fittings and fixtures thereon.

2. Term: The exact duration of the lease should be mentioned along with the
commencement date and expiry date.

3. Title Search: Proper Title Search should be conducted and public notices issued
to ensure that the Lessor is entitled to give the property on lease and that there is
no legal impediment in the property being demised in favour of the Lessee.

4. Lock-In Period to be mentioned if any.

5. Termination: The grounds for termination of lease like breach, non-payment of

rent, force majeure, failure to pay rent etc., to be included along with the agreed
process for termination by the parties and the notice period.

6. Rent Payment: The quantum of rent, the mode of payment, due dates, the
procedure for delay, rent escalation etc., to be discussed and reduced to writing.

7. Security Deposit, if any.

8. Maintenance Charges and Land Taxes: Who is responsible for payment of

maintenance charges, society charges, land taxes and other government charges?
Effect of non-payment and the process for dealing with that.

9. Utility Charges: It should be clearly defined whose obligation it is to pay for the
utilities such as water, electricity, telephone, internet etc and in whose name the
receipts are to be generated.

10. What are the permitted uses of the demised property?

11. Whose obligation is it to ensure the maintenance and upkeep of the demised
property and the procedure with repairs.
 12. Restriction of material alteration of the property without the express consent of the
Lessor.

13. Sub Letting: Whether sub-letting of the demised property is permitted and if so
then under what terms and only with the express approval of the Lessor.

14. Inspection of the demised property should be permitted by the Lessee at

reasonable hours and with prior notice.

15. Study the applicable law pertaining to the payment of Stamp Duty and
Registration of the Lease Deed and ensure that adequate payments are made and
the correct forum followed.

16. Legal Charges: Whose obligation is it to pay the Stamp Duty, Registration Fee
and other governmental and incidental charges in the transaction?

17. Procedure for the handover of possession at the end of the lease and the
execution of a Deed of Surrender of Lease, if applicable should preferably be
mentioned in the Lease Deed itself.

18. It is recommended that either of the parties get their own insurance cover on the
demised property to protect against any unexpected event.

19. Clearly identify the jurisdiction of the relevant Court and the dispute redressal
mechanism in the event of a dispute arising between the Lessor and Lessee.

20. Respective Indemnities: Ensure that there are adequate Indemnity clauses in the
Lease Deed to cover foreseeable incidents like defaults in payment of rent, damage
to property, breach of terms, wrongful representations and warranties, defect in
title etc.
The aforementioned is a basic outline of the process of drafting a legally competent and
balanced Lease Deed concerning commercial lease deed with a corporate purpose in mind.

A corporate lease deed needs to be drafted and scrutinized more thoroughly than a lease of
residential premises or tenancy as there are various aspects of commercial transactions of
commercial use of a property which are not present or do not have a very large role to play in
non-commercial transaction.