What Clauses Should Be Included In A Lease Deed?

A lease deed plays an important role in India as a document which formally sets forth the legal relationship existing between a lessor or landlord and a lessee or tenant. It contains the terms as well as the conditions under which the present lessee is to be in occupation of the lessor’s property. A proper lease deed may contain actual disputes, safeguard parties to the deed, and make it enforceable. According to the Transfer of Property Act, 1882, all leases of immovable property for a period more than 11 months shall be in writing and duly registered.  

This article will provide the key clauses that should, at the very least, appear in every lease deed in India and reinforce this with case law to understand the existing legal framework.  

Essential Clauses in Lease Deed in India

1. Parties to the Lease: Who’s Involved?

Before anything else, a lease deed should clearly identify who is involved. This is not just a formality. There have been many cases where the incorrect parties’ names have caused legal confusion. 

• Full names as well as the legal capacity of both parties (the landlord & tenant)
• Proper addresses and identification details (e.g. PAN or Aadhaar) 

Real-World Insight: Often, landlords forget to detail the proper particulars of tenants when they are renting to groups or companies, which may create a hurdle if the tenant isn’t paying or damages the property. Detailing this small part of identity provides accountability for both parties over who is liable. 

Case Law: In K.K. Verma v. Union of India, AIR 1954, it was held that failure to mention the complete identity of the parties can result in ambiguity regarding who holds obligations under the lease.

2. Description of the Property

The property you are leasing is the key element of the agreement, and therefore, it is critical that the description of the property leaves no room for uncertainty. 

• Address, type (residential, commercial), boundaries, size
• Floor/unit number (if applicable)

Real World Insight: Once one client had a case where a tenant claimed that the boundaries of the property were not clearly identified which created problems over what was being rented. Detailing the property is important so there is no confusion over what is rented and to avoid litigation in the future.  

3. Term of the Lease: How Long Are You Staying?

The term of the lease is not just dates but understanding how long you are committed to the property.

• Clearly specify start and end dates
• Renewal terms: Is the lease renewable? What is the renewal process like?

Real World Insight: Many tenants and landlords forget about the renewal clause. Where there is no clear option for renewal, tenants may find themselves forced to vacate the property even if they may really want to stay longer. Having a renewal clause would give clarity regarding the possibility of renewing the lease. 

Legal Insight: As per Section 106 of the Transfer of Property Act, in the absence of any written agreement, lease duration is presumed to be monthly for any residential properties.

4. Rent and Security Deposit: Protecting Both Sides

These clauses often become the most contentious points in a lease agreement. It’s essential to set expectations early on rent payment and security deposit terms.

Rent Clause: Rent amount, payment mode, as well as the due date

Security Deposit Clause: Amount (generally 2-10 months’ rent), refund conditions agreed to, any deductions related to damages, or unpaid bills 

Real-World Insight: Our clients have seen security deposits lead to numerous disputes related to damages. A property status report might prove beneficial to both parties to assess the state of the property at transfer.

Case Law: The Court upholds the significance of a mutual rent agreement in Ganga Dutt Murarka v. Kartik Chandra Das (1961), with the objective to prevent disputes over arrears.   

5. Maintenance or Utilities: Who is Responsible?

Every lease must provide for matters of maintenance and repair of the property: 

• Is it responsible for repairs? The tenant or the landlord? 
• Utility bills: Who has to pay for water, electricity, gas, internet, etc.?  

Real World Advice: One of our clients have seen many situations where tenants are charged for utilities they did not use or were no longer liable for. Clearly defined clauses can alleviate issues arising from the maintenance responsibilities being unclear.

Practical Tip: Insert a clause that makes the tenant responsible for their own damage to the property. This makes a lot of sense as to the tenant’s liability and ensures less confusion when getting back the security deposit. 

6. Use of Premises: Setting Boundaries

Is the tenant allowed to run a business in a residential unit? Can they sublet the property? All the issues need addressing in the lease: 

• What is the purpose for the grant of lease? (residential, office, godown, etc.) 
• Are there any restrictions on use? (such as no subletting, no commercial use of residential space, etc.)

Reality Check: A client who unwittingly leased a residential apartment to a businessman. This led to complications with the local council (who changed their plans) for commercial use of a residential building in that area. Notice the clear restrictions could have mitigated any dispute.

Case Law: In the case of M.C. Chockalingam v. Mangilal (AIR 1969), the Court ordered eviction when a tenant violated the terms of the lease by using residential premises for business. 

7. Subletting and Assignment: Retaining Control over Which People are on Your Property 

Subletting can certainly be a contentious issue. It is essential to have clarity on whether subletting is permitted by the tenant and if so, the terms that govern subletting.

• Can the tenant sublet or assign the lease? 
• Is the landlord’s prior written consent necessary? 

Reality Check: There are landlords who are dragged into court by tenants who have sublet property they are renting without the proper consent. It is always advisable to include terms in your lease in case of taking the necessary steps to enforce your lease protection which would otherwise be a huge headache. 

Legal Insight: Section 108(j) of the Transfer of Property Act, unless the lease otherwise provides, does not allow a tenant to sublease the property, so any such act done without the landlord’s consent would be unlawful. 

8. Termination Clause: How can the lease be terminated? 

• Notice to terminate (e.g., 1-3 months) 
• Grounds for termination (non-payment, illegal use, violation of conditions)

Real World Example: There was a case where the tenant refused to vacate the premises upon expiration of the term, thereby compelling the landlord to seek relief in court through eviction proceedings. A termination notices period and the grounds under which a landlord can terminate a lease will really save you loads of time and headaches! 

Case law: In V. Dhanapal Chettiar v. Yesodai Ammal, (1979), the Court held that a notice to terminate in writing to be given under Section 106 is mandatory, even if the lease term has expired.  

9. Renewal and Holding Over: What Happens If You Stay Longer?

What occurs if the tenant remains after the lease expires?

• Procedure for renewal
• Rent revision terms during renewal

The obvious solution to preventing this problem from arising is to include a clause, called a holding over clause, that clearly states what happens when a lease expires and the tenant stays continuously in the property that is rented. 

Case Law: In Bajrangi v. Bakhtraj Kuer, AIR 1952, the Court states that “holding over” is a new lease when a landlord accepts rent from a tenant after the expiry of a lease.  

10. Registration and Stamp Duty: Getting it in writing

If it is your intention to have a lease longer than 11 months, and you will be needing a landlord-tenant agreement to make things official.  

• Mention that the lease will be registered
• Specify who pays for stamp duty

Real-Life Advice: If lease documentation does not include a registered lease over 11 months, it is highly likely that the lease will not be enforceable in a court of law, which creates significant additional costs. 

Case Law: The Supreme Court of Canada explicitly declared in Anthony v. K.C. Ittoop & Sons (2000) that a lease deed that has been unregistered for more than a year cannot be enforced in a court of law.  

Conclusion

The term “lease deed” goes beyond terminology. It is a legal protection for both landlords and tenants. There are numerous considerations to take into account like the ones mentioned hereunder; every clause has to be tailor-made to fit one’s own particular situation in order to resolve any disputes and maintain an amicable landlord-tenant association.  

Statutory as well as judicial pronouncements have consistently prioritized clear and lawful lease agreements. In order that your lease documentation is well-drafted and in support of a secure lease experience without disputes. You can seek independent professional legal advice whenever drafting or signing of a lease deed.

One can talk to lawyer from Lead India for any kind of legal support. In India, free legal advice online can be obtained at Lead India. Along with receiving free legal advice online, one can also ask questions to the experts online free through Lead India.

FAQs

1. Is it compulsory for lease deeds to be registered in India? 

Yes, the lease deed is to be registered wherein the lease term is for more than 11 months as per Section 17 of the Registration Act, 1908, meaning the lease becomes binding on the parties in law and evidence can be admitted for the lease deed in a court of law.

2. Is it possible to modify the rent amount in a lease document over time? 

Yes, most of the lease agreements have a rent revision clause, which is usually exercised at the time of renewal of the lease. The lease should stipulate whether an increase in rent be allowed and, if so, the manner in which the revised rent is to be determined.

3. What happens if the lease deed is not registered?

An unregistered lease deed being for a period exceeding 11 months cannot be acted as evidence in a court of law u/s 49 of the Registration Act, 1908. It means any dispute relating to an unregistered lease deed cannot be enforced before a court of law.