A Lease Agreement is considered to be a contract formed between Landlord and Tenant which contains the provisions of renting the property. And it also contains such a set of conditions mutually agreed upon by the parties at the time of entering into it. A Rent Agreement usually occurs on a month-to-month basis whereas a Lease Agreement is created for long periods of time i.e., for a year or more.
Section-17(d) of the Registration Act, 1908 makes registration of Lease Agreement compulsory for property leased for a period exceeding one year.
- Name of the Parties:
In a lease two contracting parties are necessary. The parties are lessor and lessee. Every lease is based on an agreement between two persons competent to contract. Lessor is the person who transfers the right of enjoyment of his property to another person. Lessee is the person to whom property is transferred to. Both lessor and lessee must be competent to enter into contract – shall not be a minor and of unsound mind.
- Right to enjoyment or demise:
Lease is a transfer of enjoyment and not ownership, it is transfer of partial interest. Lease is therefore, transfer of limited estate. This right is right in rem.
- Immovable property:
In a lease, the property must be immovable. Immovable property here means only land but everything included in this term as defined under Section 3 of Transfer of Property of Act. Thus, the property may be a house, minerals, benefits arising out of land such as fisheries, ferries or right to collect rent from a market. However, the property being leased out must be definite and ascertainable.
- Duration of Lease:
Lease Agreement shall have a statement enumerating the duration for which the property is to be leased. The duration can vary from a year to a longer period of time. The date of commencement may also depend on some future event. The specific mention of date is not necessary. All that is required is that duration of lease is ascertainable, it should not be uncertain or ambiguous. The extent of the period during which the lease may remain effective may be perpetuity.
Consideration is an essential element for a valid Lease Agreement. Consideration depends upon the type of lease entered into for e.g., Agricultural Lease in such type of lease the consideration may be provided in the form of goods or other services. Rent payments are the usual form of consideration in Lease Agreements. It may be premium or rent (paid periodically). Rent fixed for lease must be certain.
Unless there’s a contract to the contrary the lessee can sub-let the whole or any part of his interest in the property to another subject to Terms & Conditions mentioned in the Agreement.
- Security Deposit:
A pre-agreed sum of amount between the parties for a specified period of time is to be given by the lessee and the same shall be held by the lessor as a security deposit. Usually security deposits are refundable at the end of the term of the lease.
- Notice Period & Terms of Renewal:
The said clause contains the period before which the landlord has to give a reasonable notice to the tenant to vacate the property. Moreover, some lease Agreements also contain provision of auto renewal or no renewal whatsoever. These terms of renewal should be clearly mentioned. And at the end of the lease period it’s at lessee’s discretion whether he wants to renew/terminate the lease or buy the asset.
- Exit clause:
In case the lessee terminates the lease before the prescribed period then in such case any loss suffered by the lessor shall be borne by the lessee. And the lessor shall be entitled to such other compensation as may be required.
- Signature and Date:
The Agreement must be read over and understood by both the parties then signed and dated under their hand to make the Agreement valid and enforceable.
The lessor has the right to inspect the property after giving due notice to the lessee to ensure that the lessee is complying with the Terms & Conditions of the Agreement. This legal document safeguards both landlord and tenant’s interest against any unlawful practices. Therefore, both the parties must comply and register their rental agreement for legal validity.
- Dr. R.K. Sinha, The Transfer of Property Act, 12th Ed Central Law Agency
- Chandni Agarwal, Essentials of Lease Agreement, 20 Aug 2020 https://blog.finology.in/Legal-news/essentials-of-lease-agreement