What is Lease in the law of property

Lease" means a contract authorizing the use and possession of land and/or building for a fixed time and for specified rent or fee to rent a building or property by contract. Word, " Lease " would imply a contract of occupation of land for a fixed term.

A lease is a transfer of property as contemplated by Transfer of Property Act. Hence as required by section 5 it can only be effected by an act of a living person. A lease cannot be created by a will, as it is not a transfer within the meaning of section 5, the reason being that a will takes effect only from the death of the testator. The requirement of consideration for a lease shows that it can only be the outcome of a contract. Where there is no contract there can be no lease. Merely because one person occupies another person’s land a lease will not come into existence. AIR 1929 Nag. 13

(2) Two competent parties

The parties to a lease are:

• (1) the lessor, called the Landlord; and
• (2) the tenant, which term includes joint tenants, tenants-in-common, and tenants for life.

(a) Lessor:

Section 7 shows that the following conditions are necessary to entitle a person to transfer property

• (1) he must be the owner of the property or must be authorized to transfer such property;
• (2) he must be competent to contract;
• (3) he can transfer only in the circumstances, to the extent and in the manner allowed and prescribed by any law for the time being in force. 

The above principles are applicable to leases also as they are transfers of property. Thus, a person who is neither the owner of the property nor authorized to transfer it cannot grant a lease of it. On the same principle, a person cannot grant a lease so as to outlast his own interest in the property. 

(b) Lessee:

Every person, not rendered incompetent by some legal disability, can be a lessee, provided that he obtains a lease from a person competent to grant it. So, the assignee of a lessee is not a lessee, for there is neither a lease in his favor nor a privity of contract between him and the lessor. 

(3) Subject Matter of lease 

The subject matter of a lease must be immovable property, as defined in Sec. 3 of this Act. The immovable property may be corporeal or incorporeal. Corporeal immovable property is not only land but all substantial and permanent objects such as houses, buildings, and minerals embedded in the earth. Incorporeal immovable property includes benefits to arise out of lands, such as fisheries ferries, market dues, or a hat right to collect certain dues or even a right to fell trees for a term of years so that the transferee derives benefit from their further growth.

The word “immovable property” sometimes denotes the land itself, as a physical object, and sometimes the estate in the land. Leases may be made of all kinds of immovable property and all interests therein. 

(4) Right to enjoyment 

The section defines a lease as the transfer of a right to enjoy the immovable property. The fundamental conception of a lease is that it is the separation of the right of possession from ownership. Though the section uses the Word “enjoy” instead of the word “possess” there is no authority for holding that it contemplates the exclusion of possession when it refers to enjoyment. The word “enjoy” must, therefore, be taken to include possession also. 

(5) Duration of Lease:

One of the requisites of a valid lease is that it must be granted for a certain time express or implied or in perpetuity. Thus, a provision as to the period of the lease is an essential part of a lease. But the period may be expressed or implied. Further, a provision implied by law or usage will be sufficient for the purpose. This follows from Sec 106 which provides that in the absence of a contract or local law or usage to the contrary a lease will be deemed to be one from year to year or from month to month according to the purpose of the lease. 

(a) Lease silent as to duration:

A lease may be granted for a certain term, or in perpetuity; but a mere general letting, where the lease is silent as to the duration of the term, is void as a lease. Such a lease can create a tenancy-at-will which is converted by payment of rent into a tenancy from year to year or month to month. An agreement of lease that does not mention any term but only an annual rent operates either as a permanent lease or as a lease from year to year. 

(b) Lease for life:

A lease for life is a lease for a certain term, for it terminates with the death of the lessee, an event that is certain to happen. A lease for so long as the lessee pays rent has been held to be a lease for life. So, also one, where no rent is fixed, but there is an agreement not to raise the rent too long as the tenant pays it regularly. 

The period of the lease need not be certain on the date of the lease itself. It is enough, if it is fixed with reference to a future event that must happen, and on the happening of which the lease will stand determined. The period is “certain”, if it can be made certain on a future date. A lease for the life-time of the lessor or lessee, or of any other living person, is valid in law. AIR 1957 AP 619 (c) Periodic Lease:

(c) Periodic Leases are:

• (a) tenancies from year to year; and 
• (b) tenancies from month to month. 

The period may be a year, a half-year, a quarter, a month, a fortnight, or even a week. The mode in which the rent is reserved affords a presumption as to the period of the lease.

The following are the essential elements of such leases: 

1. (1) The lease must be intended, normally, to go on indefinitely, till it is terminated by either the lessor or the lessee.
2. (2) The termination contemplated must be by a notice which satisfies certain requirements. These requirements are:

• (a) In the case of a lease from year to year, the notice must be at least six months and must expire with the end of the year of the tenancy.
• (b) In the case of a lease from month to month, the notice must be at least 15 days and must expire with the end of a month of the tenancy.

(d) Lease in perpetuity:

This section expressly provides that a lease may be granted in perpetuity. Under English law, a permanent lease is not valid. The question of whether a lease is a permanent one or not is one of construction depending on the facts and circumstances of each case. Merely because a lease is silent as to its term, it cannot be held to be a permanent lease. In such a case, it will be deemed to be a lease from year to year or month to month under S. 106. Similarly, where the lease is intended to go on indefinitely and no definite term is fixed for the lease, it will be deemed to be a lease for the life of the lessee and not a permanent lease.

(6) Consideration of Lease 

One of the essentials of a lease under this section is the presence of consideration for the transaction. This consideration must be either premium or rent as defined by the section. In other words, if the consideration for the transfer is not either premium or rent as defined by the section, the transaction will not be in a lease. The section speaks of the consideration being premium or rent. But it is conceived that it will cover cases, where the consideration is partly premium and partly rent.

(a) Premium:

Premium is a lump sum payment made outright, or promised, as the price for a lease. It is a sum paid or promised, sometimes in excess of the agreed rent in consideration of the grant, continuance or renewal of the tenancy. It is as purchase money which the tenant pays for the benefit which he gets under the lease. Premium does not include rent. 

The section defines premium as the price paid or promised for the lease.

“Price” means money only. But it will include not only actual cash but also money due. But it must be the price paid or promised for the lease, i.e. for the transfer of the right to enjoy the property. If it is a price for the property itself which is to vest in the lessee at the end.of the period of the lease, though the agreement for such payment and purchase of the property may be considered for the granting of the lease, it will not be premium. 

(b) Rent:

A rent is one of the forms of consideration prescribed by the law as essential for a lease. The following are the elements of rent as defined by the section: 

• (1) It must be a consideration for transferring a right to enjoy the immovable property for a certain time or in perpetuity. 
• (2) It must be money, the share of crops, service or other things of value. 
• (3) It must be rendered periodically or on specific occasions. 
• (4) The rendering must be to the lessor by the lessee.

(7) Rendition of Consideration 

The consideration of lease has to be rendered periodically, or on specific occasions, to the transferor by the transferee. The covenant in a lease with regard to time of payment is an essential term of lease. 

(8) There must be a Transfer of Interest 

The right of enjoyment contemplated by this section is an interest in the property. Unless there is a transfer of such an interest there can be no lease. The grant of a merely personal right of possession will not be a lease. It will only be a licence.

Lease and licence: Difference

Licence:

Licence merely would grant licence/permission to enter upon licensor's property and do something, which in absence of such grant, would be unlawful. in case of licence exclusive right of possession of the demised premises is not given and there is absence of transfer of interest in the immovable property. So it is purely a permissive right and is neither assignable nor heritable.

A license is normally created where a person is granted the right to use premises without becoming entitled to exclusive possession thereof; or, the circumstances and conduct of the parties show that all that was intended was that the grantee should be granted a personal privilege with no interest in the land. If the agreement is for the use of property in a certain way and on certain terms, while the property remains in the possession and control of the owner, the agreement will operate as a licensee even though the agreement may employ words akin to a lease. The instance of agreements to create licenses, include, the letting of book stalls on a railway platform, letting of space for a stall in an exhibition, permission to use a shed for particular purposes, an exclusive right to put pleasure boats on a canal, power to dig for fire clay, liberty to fasten a coal hulk to a mooring in a river, liberty to lay and stack coal on land, liberty to search and dig for coal and permission to erect or affix advertisements

Lease:

In case of lease the lessee is granted the exclusive right of possession of the demised premises and the right created is assignable and heritable and constitutes property 

In Lease a relationship of landlord and tenant, held to be existing, when one party confers on another the right to the exclusive possession of land, mines or buildings for a time, which is either subject to a definite limit originally, as in the case of a lease for a certain tenure, or which, though originally indefinite, can be made subject to a definite limit by either party, as in the case of a tenancy from years to years.  (PLD 1982 Karachi 532) (PLD 1963 Lahore 418)

The most distinctive feature between a lease and a licence is that, in the former there is a transfer of interest in immovable property whereas in the latter that element is expressly excluded.

Lease and Tenancy

Distinguishing factor between "tenancy" and "lease" is not the mode of payment of rent but period for which land is rented out by landlord

In case of 'lease' fixed period is stipulated while in case of "tenancy" occupier holds land tiT the same is terminated expressly or by implication. 1991 CLC 2125

CONCLUSION 

Section 105 of the Transfer of Property Act contemplates the prior existence of an agreement of a lease. So does every other transaction resulting in a transfer of property by the act of parties, intervivos, but it is not necessary in every case to enforce the agreement after the transfer is complete. In the case of a lease reserving a rent, the payment of rent is generally periodical and it may be said in a sense that a person enforces a contract of lease when he enforces payment of rent that was agreed upon before the lease was created. But even as once a lease comes into being in pursuance of the agreement between the parties, to enforce payment of rent reserved in the lease is enforcement of the obligation of the lessee to pay rent, which the law imposes upon him, It is not a case of a bare contract. It plainly means that in a case where the contract between the parties does not make a provision whether the lease is from year to year or from month to month, it shall be deemed to be a lease from month to month in case it is to be granted for any other purpose. If a lease could not be brought about without the existence of a prior contract in the sense of an agreement enforceable at law, there could be no lease without a contract and a complete absence of a contract between the parties would be ruled out by the existence of the lease.