REG 040 Lease and Registration

Lease and Registration: Section 107 of the Transfer of Property Act, Section 17(1)(d), the Unregistered Lease, and the Tenancy That Arises From Possession

The law of leases turns on a single line drawn at one year. A lease from year to year, a lease for a term exceeding one year, and a lease reserving a yearly rent must be made by a registered instrument; every other lease may be made either by a registered instrument or by oral agreement accompanied by delivery of possession. That is Section 107 of the Transfer of Property Act, 1882, and Section 17(1)(d) of the Registration Act, 1908 is its mirror image on the registration side. Almost every practical question about leases, from the eleven month agreement to the tenant who stays on after the term, is worked out from that line.

Section 107 and Section 17(1)(d), and what happens when a registrable lease is left unregistered

1. The Two Provisions

• The two provisions are deliberately identical in scope. Section 107 prescribes the mode of making the lease; Section 17(1)(d) commands registration of the instrument. A lease that falls within one falls within the other.
• There is no monetary threshold for leases. Unlike Section 17(1)(b), clause (d) contains no value limit. A lease of a hut for a term of two years is compulsorily registrable however small the rent.
• Section 107 requires execution by both parties. This is peculiar to leases. A sale deed is executed by the vendor alone; a registered lease must be signed by the lessor and the lessee both, because a lease imposes obligations on each.
• A lease is a transfer of an interest in the property, and that is why it is caught at all. Section 105 defines a lease as a transfer of a right to enjoy the property for a term, in consideration of a price or rent.

2. The Three Categories That Must Be Registered

1. A lease from year to year. This is a lease that continues from one year to the next until determined, as distinct from a lease for a fixed term of one year. The words describe the mode of its continuance, not its length.

2. A lease for any term exceeding one year. The excess need only be a day. A lease for one year and one month is registrable; a lease for exactly one year is not.

3. A lease reserving a yearly rent. This catches a lease of short duration where the rent is fixed and computed annually, even though the term is less than a year. A lease for nine months at a rent of twelve thousand rupees per year reserves a yearly rent, and is registrable.

3. The Eleven Month Lease

The eleven month lease is the commonest document in Indian tenancy practice, and it exists for exactly one reason: it falls in the second paragraph of Section 107. It is not from year to year, it does not exceed one year, and if it is drawn at a monthly rent it does not reserve a yearly rent. It therefore requires no registration, and may be made even orally with delivery of possession.

• It must be drawn carefully to stay outside the first paragraph. An eleven month term with a covenant for automatic renewal from year to year, or an eleven month term at an annual rent, will not achieve the object.
• A clause for renewal is not the same as a lease for the renewed term. An option to renew for a further eleven months, exercisable by notice, keeps each term within the second paragraph, but a covenant that the lease "shall continue for three years by successive terms of eleven months" is in substance a lease exceeding one year.
• It may still be registered voluntarily, under Section 18(d), which makes leases not covered by Section 17(1)(d) optionally registrable, and voluntary registration gives the tenant the benefit of Section 48 and of constructive notice.
• Rent control legislation is not avoided by it. Whether a tenancy falls within a State rent Act turns on that Act, and the form of the lease does not by itself take the tenant outside its protection.

4. The Unregistered Lease: What Survives

Suppose a lease for five years is reduced to writing and never registered. Section 107 says a lease of that kind can be made only by a registered instrument, and Section 49 says the document shall not affect the property or be received as evidence of the transaction. The five year lease therefore does not come into existence. But the tenant is in possession, and he is paying rent, and the law does not treat him as a trespasser.

1. The instrument fails as a lease for the term it recites. The long term is gone, and neither party can enforce it as such.

2. A tenancy may nonetheless be inferred from conduct. Where the landlord puts the tenant into possession and accepts rent, a tenancy arises by implication of law, independently of the failed document.

3. That implied tenancy is ordinarily a month to month tenancy under Section 106 of the Transfer of Property Act, where the rent is paid monthly, and a year to year tenancy where the purpose is agricultural or manufacturing and the statutory presumption applies.

4. Its incidents are supplied by Section 106 and not by the failed deed. The notice required to determine it is the statutory notice, and the parties cannot fall back on the deed to claim a longer notice or a different term, because that would be to use the unregistered instrument to prove the very transaction it could not effect.

5. Collateral Purpose, and How Far It Now Goes

The proviso to Section 49 permits an unregistered document to be received as evidence of a collateral transaction not required to be effected by registered instrument. For leases this was long understood to allow the document in to show the nature and character of possession, which is a fact that needs no registered instrument to exist. The Supreme Court has since narrowed the way that principle may be used.

6. Effect of an Unregistered Long Term Lease, Summarised

• No lease for the recited term. The document cannot create it.
• A tenancy by implication. Possession plus rent gives rise to a tenancy at law.
• Its duration is month to month, where rent is paid monthly, under Section 106.
• Its determination is by the statutory notice, fifteen days for a monthly tenancy ending with the month of the tenancy, and six months for a year to year tenancy.
• The tenant cannot claim the benefit of the deed's covenants, such as a covenant for quiet enjoyment for the whole term or an option of renewal, because those are terms of the very transaction excluded by Section 49.
• The landlord equally cannot enforce the deed's covenants, such as a covenant to pay the whole term's rent or a penalty for early vacation.
• Stamp duty is a separate bar. An unstamped or insufficiently stamped lease is inadmissible under Section 35 of the Indian Stamp Act, 1899, and that bar, unlike Section 49, has no collateral purpose exception and is curable only by payment of duty and penalty.

7. Lease and Licence

Whether a document creates a lease or a licence decides whether registration is needed at all, because a licence transfers no interest in the property and is outside both Section 107 and Section 17. The distinction is not settled by the name the parties give the document.

8. Agreement to Lease and Lease Compared

An agreement to lease is to a lease what an agreement to sell is to a sale deed. It is a contract that a lease shall be granted, and it creates no interest in the land. The difficulty is that the same document may, on its true construction, operate as a present demise, in which case it is a lease whatever it calls itself, and must be registered if it falls within the first paragraph of Section 107.

• The test is whether the document passes a present right to enjoy the property, or only binds the parties to execute a lease in the future.
• Words of present demise, such as "the lessor hereby demises", together with a fixed commencement and delivery of possession, point to a lease.
• Words of contract, such as "the lessor agrees to grant a lease on the following terms", with the lease to be executed later, point to an agreement.
• An agreement to lease is specifically enforceable under the Specific Relief Act, 1963, and the proviso to Section 49 lets an unregistered document in as evidence of that contract.
• Section 17(1A) may apply. Where the agreement is a contract to transfer for consideration and the party relies on Section 53A, it must be registered if executed on or after 24 September 2001.

9. Renewal, Holding Over, and the Registered Lease

1. A renewal creates a fresh term and is registrable on the same principles. If the renewed term exceeds one year, or is from year to year, or reserves a yearly rent, the instrument of renewal must be registered.

2. A covenant for renewal contained in the original registered lease does not dispense with the instrument of renewal. The covenant gives a right to call for a renewal; the renewal itself is a fresh grant.

3. Holding over is governed by Section 116 of the Transfer of Property Act. Where a lessee remains in possession after the determination of the lease and the lessor accepts rent or otherwise assents to his continuing in possession, the lease is renewed from year to year or from month to month according to the purpose for which the property is leased, in the absence of an agreement to the contrary.

4. A tenancy arising by holding over is created by operation of law, not by an instrument, so no registration question arises.

5. A tenant who stays on without assent is a tenant at sufferance, whose possession is not a tenancy at all but is not a trespass ab initio, and who may be ejected without notice under the general law.

10. The Position Stated Shortly

1. A lease from year to year, for a term exceeding one year, or reserving a yearly rent, can be made only by a registered instrument, Section 107 of the Transfer of Property Act, and must be registered, Section 17(1)(d).

2. Every other lease may be made by a registered instrument or by oral agreement accompanied by delivery of possession.

3. There is no monetary threshold for leases, and a registered lease must be executed by both lessor and lessee.

4. The eleven month lease at a monthly rent falls in the second paragraph of Section 107 and needs no registration.

5. An unregistered long term lease creates no lease for the recited term.

6. A tenancy may still be inferred from possession and payment of rent, and is ordinarily month to month under Section 106, Anthony v. K.C. Ittoop & Sons.

7. The terms of that tenancy come from Section 106 and not from the failed deed.

8. An unregistered lease may be looked into to show the nature and character of possession only where that is not the main dispute, M/s Paul Rubber Industries v. Amit Chand Mitra.

9. Whether a document is a lease or a licence turns on whether it transfers a right to enjoy the property, Associated Hotels of India v. R.N. Kapoor.

10. An agreement to lease creates no interest unless it operates as a present demise, in which case it is a lease and is registrable as one.

11. A renewal is a fresh grant and must be registered on the same test; a tenancy by holding over under Section 116 arises by operation of law and needs no registration.