3 February 2021
INTRODUCTION
More often than not, the central procedural question on the minds of parties entering into a lease deed is whether the registration thereof is mandatory. This central query pervades the gamut of situations ranging from lease of residential to commercial properties, and from short-term to long-term leases.
The law governing registration of lease deeds is primarily contained in the Registration Act, 1908 (“Registration Act”) and the Transfer of Property Act, 1882 (“TOPA”). A lease of an 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 as defined in Section 105 of TOPA. According to the Registration Act, ‘lease includes a counterpart, kabuliyat, an undertaking to cultivate or occupy, and an agreement to lease[1]’.
REGISTRATION OF LEASE
Section 17(1)(d)[2] of the Registration Act and Section 107[3] of the TOPA mandate registration of lease deeds in case an immovable property is leased
-
from year to year, or
-
for any term exceeding one year, or
-
reserving a yearly rent.[4]
Thus, a lease for a period exceeding one year can only be made by way of a registered instrument. All other leases of immoveable property may be made either by a registered instrument or by oral agreement accompanied by delivery of possession[5]. Similarly, Section 18(c) of the Registration Act exempts a lease deed granting lease of an immovable property for any term less than one year from compulsory registration.
Period within which lease is to be registered
Section 23 of the Registration Act provides a window of four months from the date of execution for presenting the document for registration before the competent authority. However, the competent authority is empowered to condone such delay (not exceeding four months from the expiration of the aforesaid time period) on account of an urgent necessity or an unavoidable accident.[6] In such cases, the party in delay is required to pay a fine not exceeding ten times the amount of the appropriate registration fee.[7]
Duration of lease in certain cases
Section 106 of the TOPA clarifies that in the absence of a written contract or local law or usage, a lease of immovable property (except for agricultural and manufacturing) shall be deemed to be a lease from month to month, terminable, on the part of either lessor or lessee, by 15 days’ notice. Recently, the Supreme Court in Siri Chand (Deceased) thr. L.Rs. v. Surinder Singh[8] observed that in cases where a lease deed does not mention the period of tenancy, other conditions in the lease deed as well as intention of the parties have to be gathered to find out the true nature of the lease deed.
Effect of non- registration
Section 49 of the Registration Act, 1908, sets out the consequences of non-registration of documents, which are required to be compulsorily registered. Section 49 makes it clear that a lease deed which is compulsorily registerable, if not registered, will not affect the immovable property comprised therein in any manner. Such a lease deed will also not be received as evidence of any transaction affecting such property, except for two limited purposes (i) as evidence of a contract in a suit for specific performance; and (ii) as evidence of any collateral transaction which by itself is not required to be effected by a registered instrument. In this regard, the Supreme Court in K.B Saha And Sons Private Limited v. Development Consultant Limited[9] has inter alia set out the following: (i) a document required to be registered, if unregistered is not admissible into evidence under Section 49 of the Registration Act; (ii) such unregistered document can, however, be used as an evidence of collateral purpose as provided in the proviso to Section 49 of the Registration Act; (iii) a collateral transaction must be independent of, or divisible from, the transaction to effect which the law required registration; (iv) a collateral transaction must be a transaction that will not require to be effected by a registered document, that is, a transaction creating any right, title or interest in immovable property of the value of one hundred rupees and upwards; (v) if a document is inadmissible in evidence for want of registration, none of its terms can be admitted in evidence; and to use a document for the purpose of proving an important clause would not be using it as a collateral purpose.
Presumption of lease:
As discussed above, a lease for a period exceeding one year can only be made by way of a registered instrument. However, a presumption of the existence of a lease can be made from the actions of the party (delivery of possession, payment of rent, etc.).
In Anthony v. KC Ittoop and Sons and Others[10], the Supreme Court held that an unregistered instrument cannot create a contractual lease exceeding one year due to the three-pronged statutory restrictions under law (i.e. under Sections 17 and 49 of the Registration Act and Section 107 of TOPA). However, it also held that ‘the presumption, that a lease not exceeding one year stood created by conduct of parties, was un-rebutted’.
This principle was reiterated by the Supreme Court in Park Street Properties (Pvt.) Ltd. v. Dipak Kumar Singh and Ors.[11] wherein it was inter alia held that ‘in absence of a registered instrument, the courts are not precluded from determining the factum of tenancy from the other evidence on record as well as the conduct of the parties’. The duration of such a lease shall be on a month-to-month basis as provided under Section 106 of TOPA.
CONCLUSION
All leases for immoveable property with a term exceeding one year are required to be mandatorily registered at the earliest, regardless of the four-month window provided under law to effectuate the same. In consonance with the principles of TOPA, such a lease shall only be enforceable once registered. As mentioned hereinabove, if there has been a delivery of possession, payment and acceptance of rent, the lease shall, however, be construed as one between the parties on a month-to-month basis, which can be terminated by giving a 15-day notice.
For further information, please contact:
Aditya Mehta, Partner, Cyril Amarchand Mangaldas
aditya.mehta@cyrilshroff.com
[1] Section 2(7) Registration Act
[2] 17. Documents of which registration is compulsory. —(1) The following documents shall be registered, if the property to which they relate is situate in a district in which, and if they have been executed on or after the date on which, Act No. XVI of 1864, or the Indian Registration Act, 1866, or the Indian Registration Act, 1871, or the Indian Registration Act, 1877, or this Act came or comes into force, namely:
…(d) leases of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent
[3] 107. Leases how made. — A lease of immoveable 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.
[4] Sms Tea Estates Private Limited v. Chandmari Tea Company Private Limited, 2011 AIR SC 4484.
[5] Section 107 of TOPA
[6] Section 25 of the Registration Act
[7] Section 25 of the Registration Act
[8] AIR 2020 SC 3249
[9] 2008 AIR SC 4829
[10] AIR 2000 SC 3523
[11] AIR 2016 SC 4038
