Tag: immovable property

LEASES OF IMMOVABLE PROPERTY

LEASE (SECTION 105)

A lease of an immoveable property is a transfer or handing over of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a value paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered intermittently or on specified or stated occasions to the transferor by the transferee, by whom transfer on such terms is accepted.

The person who transfers the property (transferor) is known as the lessor. The person to whom the transfer is made(transferee) is known as the lessee. The price here is acknowledged as the premium and the money, share, service, or any other thing so rendered in acknowledged as the rent.

A lease is the enjoyment of immovable property for a certain period of time or in perpetuity. But, in lease transfer of immovable property is not absolute like there it is in sale. The right of possession is separated from the right of ownership. In a sale, all the rights of ownership, which the transferor has, passes on to the transferee. In a lease, there is a partial transfer, that is a transfer of a right of enjoyment for a certain time.

A lease is transfer of an interest in an immovable property which is the subject matter of the lease and interest is the right to occupy and utilize the property for which the lease is given for period on terms and conditions as settled between the parties to lease agreement.

ESSENTIALS OF A LEASE AGREEMENT

2 Parties:

There should be two parties to a lease. The lessor and the lessee. Parties must be competent. The parties in a lease agreement should be competent to enter into a contract. Lesser should be authorised to a property and have absolute rights over that property.

Right of possession:

Ownership rights are not transferred in a lease, only the possession of the property is transferred or the right to use and enjoy the property.

Rent:

Consideration for a lease agreement can be reserved in the form of a rent or a premium.

Acceptance:

Lessee, who get the interest in the property after lease, has to agree to the lease agreement along with the time period and terms & conditions levied on the transfer.

Time Period:

Lease can continue for a certain time period which has to be specified in the lease agreement.

DURATION OF CERTAIN LEASES IN ABSENCE OF WRITTEN CONTRACT OR LOCAL USAGES (SECTION 106)

Section 106 provides for the duration of the lease in the absence of the lease agreement. It lays down that in the non-existence of a contract, lease can be terminated by both parties to the lease agreement by issuance of a notice to quit. The specified time period always initiates from the date notice to quit is received.

According to section 106 of TPA, 1882, if there is an absence of a written contract or a local usage to the contrary then in the case, a lease of immovable property for manufacturing and agriculture purpose will be from year to year and will be valid till the time until it was terminated by either of the party, by six months’ notice and if there is a lease any other purpose except agriculture or manufacturing will run from month to month then it will be terminated by 15 days’ notice.

LEASE HOW MADE (SECTION 107)

Section 107 states about lease how made. This section covers three aspects:

A lease of Immovable property for the term of 1 year or exceeding a year– This can only be prepared by a registered deed.

Another leases of Immovable property for the period less than one year can be either prepared by a registered deed or a verbal agreement or settlement, accompanied by delivery of possession of that property.

When the lease is of multiple properties that require multiple deeds, it will be made by both the parties of the lease.

DETERMINATION OF LEASE (SECTION 111)

Section 111 states concerning the determination of the lease, which sets down the methods to terminate lease:

Lapse of time – When the prescribed time of the lease expires, the lease is terminated.

Specified event – When there is a condition on termination of time of lease i.e. lease will terminate on happening of an event.

Interest – Lessor’s interest to lease the property may cease, hence the lease is terminated.

Same owner – When the interest and rights of both lessor and lessee are relocated or vested in the same person.

Express Submission– Happens when the lessee ceases to own an interest in the property and gets into a mutual agreement with the lessor.

Implied Submission – When the lessee goes into a contract with some other lessor for the lease of property, it is an implied surrender of the current lease.

Forfeiture – There are three ways in which a termination of lease can be done:

When there is a breach of an express condition by the lessee. The lessor may get the possession of his property back.

When lessee renounces his character or gives the title of the property to a third person.

When the lessee is called as insolvent by the banks, and the conditions provided for it, the lease will be held terminated.

Expiry of Notice to Quit – When the notice to quit by the lessor to the lessee expires, the lease will also expire.

RIGHTS OF LESSOR

Right to accretions- If during the tenancy period any further accession, accumulation or addition is made in the property whether naturally or artificially by the expense of the lessee. On the termination of the lease period, the lessee must surrender the accession to the lessor.

Right to collect rent- The lessor has the right to collect rent or any form of consideration as mentioned in the terms and conditions of the contract from the tenant without any form of interruptions.

LIABILITIES OF A LESSOR

Duty of disclose material defects- The lessor is bound to disclose to the buyer any material defect in the property. There are two kinds of defects:

So basically, a lessor is bound to disclose those apparent defects to the lessee, which are material with reference to the intended use of property or interfere with the enjoyment of the property by the lessee.

To give possession- The lessor must deliver possession of the leased property to the lessee on being requested by lessee. The lessor is not entitled rent unless he has fulfilled his obligations to put lessee in possession of the leased premises.

Covenant for quiet enjoyment- the lessor is deemed to contract with the lessee that if the lessee pays the rent and performs his own obligation, he may hold property during the time limited by the lease without any interruption. The Madhya Pradesh HC stated that actions such as physical interference or direct interference in the premises lead to a breach of enjoyment and interruptions.

RIGHTS OF A LESSEE

To deduct the cost for repair- If the lessor commits a breach of the covenants which the lessor is bound to do in that case the lessee can make such repairs by his personal expenses. The lessee after giving reasonable notice to the lessor, may do such repairs by his personal expenses, and recover the amount expended by him by him together with interest by deducting it from the rent.

Right to remove fixtures- Lessee has right to remove the fixtures or trees planted by him in the property during the time continuance of lease. However, after the termination of the lease deed the lessee is allowed to remove his possession in the property. It is considered optimal that property is left in the condition in which it was received by lessee.

Right to assign his interest- The lessee may transfer absolutely or by way of sub-lease or mortgage the whole or any part of his interest in the property.  However, if the lease deed restricts a lessee to dispense his interest then the lessee is barred to do so and even after the transfer of his rights, the lessee is still subordinate to all the liabilities related to the lease deed.

Right to have benefits of crops- a lessee who holds the lease of uncertain duration then, in that case, the lessee or his/her legal representative has been given the right to take benefits from all the crops cultivated by them.

LIABILITIES OF A LESSEE

Duty to disclose material facts- The lessee is bound to disclose facts concerning the lessors title which increase the value of lease and of which the lessor is ignorant.  In case if the lessee does not disclose material fact and the lessor undergoes any loss then the lessee is bound to compensate the lessor.

Duty to pay rent- The lessee’s liability for rent is regulated by term of the lease. He is bound to pay the rent or the premium to the lessor or his agent in the appropriate time and suitable place. In case the lessee fails to pay his/her rent then, in that case, the lessor can expel the lessee on the ground of non-payment of rent or file a suit for arrears of rent.

Duty to maintain the property- The lessee is bound to maintain and restore the property in the condition he was given the possession of the property. Only the changes caused by uncontrollable forces can act as an exception for this liability.

Duty to give notice of encroachment- duty of lessee to inform lessor when he becomes aware that any person has tried or is trying to damage the rights of the lessor or the title of the lessor is endangered then, in that case, the lessee must give notice to the lessor.

Duty to use the property in a reasonable manner- The lessee is under an obligation to use the property as a person of ordinary prudence would.

Duty not to erect any permanent structure- prohibits lessee from erecting any permanent structures except the agricultural cultivation without the consent of the lessor.

Duty to restore possession- On determination of the lease, the lessee is bound to the possession of the property to the lessor. If the lessee does not vacate the premises even after the expiry of the notice, then lessee remains liable for the rent.

CONCLUSION

The fundamental conception of a lease is that it is the separation of possession from ownership. For a lease of immovable property, there must be lessor and lessee. An agreement of lease must be executed lawfully by the parties to lease agreement.

CHARGE UNDER TRANSFER OF PROPERTY ACT, 1882

INTRODUCTION

Concept of Charge is defined under Section 100 of Transfer of Property Act, 1882 and Companies Act 2013[1] covers its registration.

AS DEFINED IN TPA, 1882:

Section 100 of the TPA, 1882 defines charge as,

“Where immovable property of one person is by an act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property; and all the provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge.

Nothing in this section applies to the charge of a trustee on the trust-property for expenses properly incurred in the execution of his trust, and, save as otherwise expressly provided by any law for the time being in force, no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge.”

It says that:

Where immovable property of one person is, by act of parties or operation of law, makes security for the payment of money to other person, and that transaction does not values as mortgage then the latter person is said to have a charge on the property, and all the provisions which apply to simple mortgage are also applied to charge.


This is an exception to charge, provisions of this section does not apply to trustee who has paid or incurred all the expenses properly in execution of his trust for the trust property. Acc. to section 32 of Trust Act: Every trustee may re-imburse himself, or pay or discharge out of the trust property, all expenses properly incurred in or about the execution of the trust, or the realization, preservation or benefit of the trust property, or the protection or support of the beneficiary. If he pays such expenses out of his own pocket, he has a first charge upon the trust property for such expenses and interest thereon; but such charge shall be enforced only by prohibiting any disposition of the trust property without previous payment of such expenses and interest.[2] This means a trustee may repay himself for such expenses only out of the trust income and can prohibit transfer of trust property if payment of his expenses has not been done.

Hereby, exception 2 says that no charge shall be enforced on a transferee i.e. the person to whom property has been sold or transferred for the exchange of consideration and without the notice of charge. Therefore, he has taken the ownership of the property in good faith without any knowledge of such charge being associated to the property.

MEANING:

Charge means, where immovable property of one person is, by act of parties or operation of law, made security for the payment of money to another, and the transaction does not amount to mortgage, the latter person is said to have charge on the property, and all the provision hereinbefore contained which apply to simple mortgage shall, so far as may be, apply to such charge.

If charge is attached to the property charged?

The charge for maintenance, present and future, is recurring charge and is not extinguished by a decree for sale. A recurring charge is not identical with mortgage. The auction purchaser will not get the property free from the charge. The charge will continue as long as the decree holder has right to recover future maintenance. Such person can bring the property to sale whenever maintenance becomes due to her notwithstanding the fact that the property is in the hands of an auction purchaser, who purchased it in sale held previously in satisfaction of the decree for arrears of maintenance.

The words “which apply to apply to a simple mortgage shall, so far as may be, apply to such charge” in this section were substituted by section 53 of Transfer of Property (amendment) Act, 1929, for the words “as to a mortgagor shall, so far as may be, apply to the persons having such charge.” Evidently, the effect of the amendment was that all the provisions of TP Act which apply to simple mortgages were made applicable to the charges.

Case Law:

Haryana Financial Corporation v. Gurcharan Singh[3]

“An ordinary charge created under the Transfer of Property Act is compulsorily registerable. The first portion of Section 100 of the TP Act lays down that where immoveable property of one person is by act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property; and all the provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge. The words “which apply to a simple mortgage shall, so far as may be, apply to such charge” in this Section were substituted by Section 53 of the Transfer of Property (Amendment) Act, 1929, for the words “as to a mortgagor shall, so far as may be, apply to the owner of such property, and the provisions of Sections 81 and 82 shall, so far as may be, apply to the persons having such charge.” Evidently, the effect of the amendment was that all the provisions of the TP Act which apply to simple mortgages were made applicable to charges.”[4]

EXCEPTIONS TO CHARGE

  • Charge of a trustee

It is a charge created on immovable property which is also a trust property in trustee’s favour i.e. responsible for the maintenance. This charge doesn’t extinguish by the sale of the property as it would lead to destroying the trust. A trustee can be reimbursed from the expenses out of the income of the trust, therefore he can stop the transfer of the trust property.

  • Transferee who had no notice about the charge

Transfer of property in hands of a person who was unknowledgeable about the charge on property i.e. no notice was given to him by the transferor therefore, charge cannot be enforced upon the transferee. A charge is ad rem and can be enforced upon transferor who got the consideration if he has taken transfer with the notice of charge.

ESSENTIALS OF CHARGE

  1. IMMOVABLE PROPERTY
  1. The charge must be created against an immovable property which can be a current or future property belonging to the borrower.
  2. A charge cannot be created if the immovable property is not owned by the person from whom the payment is due.
  • DOES NOT AMOUNT TO MORTGAGE

A charge is not a mortgage as there is no transfer of property and interest. Right in ad rem i.e. right to payment out of a specified property is generated. It has been mentioned in section 100 that a charge doesn’t amount to mortgage, although all the provisions which apply to a simple mortgage shall also be applicable to charge.

Case Law:

MatlubHasan v Mt Kalawati[5]

It was held that:


“If an instrument is expressly stated to be a mortgage and gives the power of realization of the mortgage money by the sale of the mortgaged premises, it should be held to be a mortgage. The fact that the necessary formalities of due execution were wanting would not convert the mortgage into a charge. If, on the other hand, the instrument is not on the face of it a mortgage, but simply creates a lien, or directs the realization of money from a particular property, without reference to sale, it creates a charge.”

KINDS OF CHARGE

  1. CREATED BY ACT OF PARTIES

An agreement which gives immovable property as security for satisfaction of a debt without transferring any interest in property constitute a charge by act of parties. No particular form of word is needed for creation of a charge. It is sufficient if having regard to all the circumstances of the transaction, the document shows an intention to make the land security for the payment of money mentioned therein. Further, the Act nowhere prescribes any particular mode of creating orally. Where however, it is created by an instrument, such instrument must be registered unless amount involved is less than Rs. 100 [Section 17 (1) (b) of Registration Act].

  • ARISING BY OPERATION OF LAW

A charge by operation of law is one which arises irrespective of agreement of the parties. Such charges are known as equitable liens in English law.

  1. Vendors charge for unpaid purchase money

This is provided by Section 54 (4) (b): “where the ownership of the property has passed to the buyer before payment of the whole of the purchase-money, to a charge upon the property in the hands of the buyer before payment of whole of the purchase money, the seller is entitled to charge upon the property in hands of the buyer, any transferee without consideration or any transferee with notice of the non-payment, for the amount of the purchase-money, or any part thereof remaining unpaid, and for interest on such amount or part 1[from the date on which possession has been delivered.”

  1. Vendees charge for purchase money paid in advance

Under Section 55 (6) (b), the vendee is entitled “to a charge on the property, as against the sellers and all persons claiming under him to extent of seller’s interest in the property, for the amount of ant purchase money properly paid by the buyer in anticipation of delivery and for interest on such amount.”

Other instances of charge arising by the operation of law are mortgagee’s lien under Section 73 on surplus sale proceeds, a revenue sale, the right of maintenance under Section 39 and the right of a holder of a detective title who makes improvement on property under Section 51.

CASE LAWS

Pujjuru Suryanarayana vs. Union Bank of India, Rep. by It’s…

The objection raised in the execution petition was rejected by the learned Judge relying upon the provisions of Sub-rule (2) of Rule 15 of Order XXXIV CPC. Questioning the said order, the present civil revision petition is filed by the first judgment-debtor as mentioned above.

CPC has no application to a mortgage decree and that the reliance placed by the lower Court on the judgment of this Court in Rama Mandiram v. Raghavamma, (1984(1) ALT 8) is not sustainable. The reference to ‘charge’ in Sub-rule (2) of Rule 15 is preferable to the ‘charge’ created under Section 100, Transfer of Property Act, as mentioned in Sub-rule (1) of Rule 15. The learned Judge, in the said decision, dealt with the question whether there is any necessity of obtaining any separate final decree to enforce a decree of a charge created under Section 100 of the Transfer of Property Act.

The provision clearly indicates, that till the passing of final decree and even till the confirmation of the sale made in pursuance of the final decree, the defendant is entitled to redeem the mortgage.[6]

Debendra Chandra Roy v. Behari Lal Mukherji and Anr.

The lower Appellate Court held, and we think rightly, that the Court of first instance was wrong in holding that any charge on the property described in the document could be held to be created by the document. Section 100 of the Transfer of Property Act expressly states that where immoveable property of one person is by act of parties or by operation of law made security for the payment of money to another and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property; and, in this case, there can be no doubt that the document, if valid, amounted to a mortgage. In these circumstances, it is impossible to hold that any charge by it was created on the property.[7]

CONCLUSION

Hence, every mortgage is a charge but not every charge is a mortgage. A charge is an interest created over an immovable property for securing payment of the amount which is due to the party. The property is not transferred to the lender and only interest is created. It is neither a lien nor a mortgage but some properties of both are present in a charge.

[1] Section 77, Companies Act, 2013

[2] Section 32 in The Indian Trusts Act, 1882

[3] 2014(1) AWC 212 (SC)

[4]https://indiankanoon.org/doc/183708144/

[5] 147 IC 302, AIR 1933 All 934

[6] 1991 (2) ALT 361

[7]15 IndCas 666