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How to draft a lease deed

A contract by which one party conveys land, property, services, etc. to another for a specified time, usually in return for a periodic payment.

By: Sanya Barman, 3rd year, BLS LLB, Rizvi Law College, Mumbai.

Introduction

Lease can be understood as a contractual arrangement of transfer of right to property for a certain period of time, in consideration of a price promised to pay periodically to the lessor by the lessee who accepts the transfer with terms and condition. Broadly put, a lease is a contract between two parties, the lessor and the lessee.

As per Section 105 of the Transfer of Property Act, the definition of lease can be understood as a contract drawing the terms and condition under which one party agrees to rent property owned by another party.

It guarantees the lessee, also known as the tenant, use of an asset and the guarantees the lessor, the property owner or landlord, regular payments for a specific period of exchange. Both the lessee and lessor face consequences if they fail to maintain the terms and conditions.

The contract contains the following:

  • Lessor- he is the entire owner of the property which is a subject for drawing lease.
  • Lessee- he is the person who acquires the right to use and enjoy the period for certain point of time.
  • Duration- Time duration for which the lessee is granted to enjoy rights of the property of the lessor.
  • Premium or Rent- It is a consideration for granting the right to enjoy the property in the form of one-time price paid or promised to pay known as rent.

Stages of a Lease deed

Negotiation Stage: this is the first stage of drafting a lease. The parties who are supposed to bind in contract must discuss all the aspect such as consideration, duration, mode of payment, etc.

  • Preliminary Documentation Stage: once the negotiation is done and all the terms and condition have been accepted by the lessee, the parties get into an agreement to understand the aspect of the deal and the duties and obligation of the respective parties.]
  • Title Investigation Stage: At this stage lessors title to the property and the Lessor’s ability to demise the property by way of lease in favour of Lessee is verified.
  • Drafting and Payment of Stamp Duty Stage: The lease can be demised by way of an Agreement to Lease however the preferred mode is a Lease Deed as it is not liable on future instrument. Once the document is drafted and approved by the parties; the payment of stamp duty can be undertaken on the lease deed.
    Execution and Registration Stage: At this stage premium is paid to lessor by the lessee. The parties can simultaneously exchange the consideration amount, take possession of the property and execute the Lease Deed.
  • Post Registration Stage: Once the registration is done and property is in possession of the Lessee, it is advised to jurisdiction over the property by government and semi-government bodies and be notified in writing about the change of holder.

It is important to note that as per Section 107 of the Transfer of Property Act,1882 and the Section 19 (1) (d) of the Indian Registration Act, 1908, it is mandatory to register the lease of an immovable property like office, house, etc. for a term exceeding one year or system of yearly payment of rent.

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