What is a Lease?

A lease, in legal sense, is the transfer of possession of a property (immovable in nature) for a fixed tenure and consideration. A lease does not involve transfer of ownership of a property but merely the right to enjoy a property in question. The consideration for a lease could be a sum of money (rent), kind or any predetermined thing of value. The one who leases out the property is called 'Lessor' and the one who acquires it is called the Lessee.

The express definition of a Lease can be found under Section 105 of the Transfer of Property Act (TOPA), 1882.

What is a Lease Deed?

A lease deed is a written legal document/instrument through which a lease agreement is executed. A lease deed is necessary for legal authenticity of a lease between two parties so as to be recognized in a court of law in case of a dispute. A lease deed has to be registered under the registration Act, 1908 if the tenure of the lease exceeds 1 year.

The basic components of a lease deed include:

• The information about the type, size and location of the property in question
• The duration or tenure for lease
• The specified rent/lease amount agreed upon
• The clause for termination
• The method for dispute resolution as well as the jurisdiction involved

The method of making a lease by parties has been mentioned under Section 107 of the TOPA, 1882. Under the provisions of the The Registration Act, 1908, certain agreements and sale documents are required to be registered with the relevant government authorities in order of those agreements/documents to hold legal value. This is done in order to maintain an official record of taxable deals and sales.

Section 17 of the Registration Act, 1908 has made it clear as to what documents are compulsorily required to be registered with the district registrar office and this list includes lease deeds of immovable properties the tenure of which exceeds 1 year. The exception for lease deeds tenured below 1 year is mentioned in the subsequent Section 18 of the Act.

So in brief, the registration of lease deeds and all relevant laws regarding such matters are covered jointly under the Transfer of property Act, 1882 and the Registration Act, 1908.

Why should Lease Deeds be registered?

The basic tenets of laws relating to transfer of immovable property and the registration act cover the legal implications that non-registering of a lease deed can cause but the important and positive thing to note is that registering of such deeds (if they are made for over 1 year) gives a legal backing to the agreement between the parties thus creating a cause of action in case of disputes and helps protect the interests of the parties. So in short,

• It protects the interests of the parties to a lease agreement
• It provides legal backing and conformity to the deal by making a registered deed an admissible court document as well as collateral transactions.

Legal Implications of Non-Registration of Lease Deeds:

Firstly, an unregistered lease deed can incur fines by the district sub-registrar up to 10 times the original value of the stamp duty required in case it comes to the notice of the authorities.

The other basic implications of non-registration are given under Section 49 of the Registration Act, 1908. The gist of this section implies that a lease deed which was legally required to have been registered which is not so would not be acceptable or admissible as evidential material in a court of law.

Another important implication is the validity of such a lease deed.
This position of law has been elaborated upon in the case of Anthony V. KC Ittoop And Sons & Ors.:
Herein the Supreme Court of India observed that in the presence of 3 relevant statutes (Section 17 & 49 of the Registration Act and Section 107 of TPA) the position becomes clear that a lease deed which is unregistered (which was supposed to be compulsorily registered) will not result in a valid lease agreement. However the court also observed that even in the absence of such legal validity due to non-registration, a lease agreement would be assumed to be in existence based on the conduct of the parties.

That such an unregistered lease deed will be considered to be rented on month to month basis instead of a fixed tenure.

Very recently in 2016, the Supreme Court in the case of Park Street Properties Pvt Ltd. V. Dipak Kumar Singh And Anr. (2016):
Stated that if the deed remains unregistered and the actions of the parties show that a lease agreement is active then that lease agreement would come under the provisions of Section 106 of the TPA, 1882, which means that this type of lease deed would be a month-to-month basis and will follow all the regular rules in that manner.

Time Limit for Registration of Lease Deeds:

In the Registration Act, 1908, under Section 23, it is mentioned that any document other than a will has to be presented before the relevant authorities for their registration within 4 months from the date of their execution.

This is necessary particularly for commercial or corporate lease agreements that involve clear cut tenures and fixed sums of money with higher stakes. If such an agreement is not registered in time and is declared to be invalid then it gives the parties a cause of action to pull out of the lease agreement following the provisions of Section 106 of the TPA (15 day notice prior to termination)

In the case of Ram Singh Sant Ram V. Jasmer Singh Hardit Singh And Anr. (1959): A commercial deed for lease was considered to be inapplicable for registration by the Punjab-Haryana High Court as a period of 8 months had been elapsed since its execution.

A similar stance was taken by the High Court of Delhi, in the case of Aspire Investments Pvt Ltd V. Nexgen Edusolutions Pvt Ltd. (2015) Here, the lessor's building floor was leased for the purpose of running a school but the lease failed to pay the rent on multiple occasions which led the lessor/petitioner to send in an eviction notice to the defendant/lessee, when the matter came before the court it was found that the lessee had also not registered the lease deed for the building floor for a period of more than 10 years. The court held that such a long delay in registration was not a valid action as running a school in a leased building was not feasibly a monthly rental process.

How to Register a Lease Deed?

1. The process involves drafting of a lease deed (private, commercial or corporate deeds) that is agreeable to the parties involved. The deed has to contain information that has been mentioned above (See paragraph 2: 'What is a Lease Deed')
2. This deed can be of two types (required to be registered or not). Deeds with lease tenure of more than 1 year are compulsorily required to be registered at the sub-registrar's office, while deeps of tenure shorter than 1 year are governed under section 106 (TPA) and do not require registration.
3. The registration fees for a lease deed is typically 1% of the annual lease amount fixed for 5 years, there is also stamp duty (state government fixes fees for such transactions) that need paying – such payments can either be made by the lessee or shared between the parties.
4. The process requires the physical presence of both parties under the deed in front of the registrar with registration documents stamped alongside photo IDs, passport sized photos of both the parties and the witnesses present.
5. The process can take a few days or up to a month depending on circumstances.

Prior inclusion of an Arbitration Clause in an unregistered Lease Deed:

If a lease deed between parties happens to include an arbitration clause as an agreed method for dispute resolution then it has to be considered as a Separate Agreement other than the lease agreement, meaning that the non-registration of a lease deed would not affect the agreement to call for arbitration. However, it is important to note that the arbitrator, in such cases, would not award any affirmative enforcement action due to the deed being unregistered.

Conclusion:
Registering a lease deed in property related transactions is a prudent as well as crucial step to safeguard your interests in case of a legal predicament and as such should not be avoided even if the property transaction in question is small scale in nature. The prospects of law in this regard are quite streamlined and the process, though tedious on a ground level, is mostly hassle free, especially since the introduction of online registrations and appointments in many states.