Lease instruments define the rights and obligations of lessors and lessees, and deal – through law and necessity – with the contingencies and exigencies that affect leases. Leases must be adequately stamped, registered and competent, and are driven by contracts agreed between the parties, and are governed by the Transfer of Property Act, 1882 (TPA), and state-specific rent legislations.
Disputes over such instruments are caused by matters of interpretation, inconsistencies, inadmissibility and unenforceability. These disputes stem from improper frameworks, convoluted drafting and the absence of provisions to cover all contingencies and exigencies. In order to avoid common pitfalls, the following matters should be considered when drafting leases.
Proper formatting and drafting is vital to ensure that leases carry out the intentions of the contracting parties. Clear drafting of the terms of leases, particularly regarding rentals, duration, premiums, security deposits, mutual rights and obligations, is important to safeguard the value of the underlying asset, prevent its diminution, safeguard the investment of lessees and set out sufficient deterrents, covenants and undertakings. Any other arrangements or contracts pertaining to a lease, such as maintenance or fixture or fitting agreements, must be in complete agreement with the lease, and must exist and terminate with the lease deed.
The ongoing covid pandemic has brought the relevance of force majeure provisions to the fore when handling unforeseen exigencies. There has been extensive analysis of force majeure clauses and governing laws to ascertain whether the invocation of force majeure clauses in lease deeds entitles tenants to relief from paying rent and to determine whether landlords have any legal recourse in disputes over rent and lease agreements. While the efficacy of force majeure entitlement is governed by the contractual terms, the Delhi High Court, in Ramanand and Ors v Dr Girish Soni and Anr, has laid down broad parameters for resolving issues that arise from lease and tenancy agreement disputes.
Given the prolonged timelines for dispute resolution in India, having a clear dispute resolution mechanism can prove vital. Regarding lease deeds and arbitration, the Supreme Court in its recent judgment in Vidya Drolia and Ors v Durga Trading Corporation, refused to follow its own decision in Himangni Enterprises v Kamaljeet Singh Ahluwalia by ruling that landlord and tenant disputes are arbitrable except when they are covered by a special term of the agreement.
Compliance with applicable law, including the TPA and rent legislation, is mandatory. As an illustration, the requirement of registration should be clearly evaluated to ensure that an underlying document is admissible in a dispute. In Siri Chand v Surinder Singh, the Supreme Court held that the Registration Act, 1908, required mandatory registration of a lease deed pertaining to an immovable property let out from year to year, or for any term exceeding one year or reserving a yearly rent. The lack of registration will render leases as monthly tenancies, which does not augur well for the contracting parties, lessors and lessees. Both will suffer if the other party can easily determine the contract contrary to their intent to effect the lease for a definite period.
To address some of these concerns, lease deeds should be effectively negotiated, should be skilfully and properly drafted and should ensure that any important contractual provisions such as lock-in periods, commercial agreements and payments, insurance, terms of contract, covenants on use and so on, are specifically incorporated. Default events, their consequences and mitigation must be set out. Similarly, clauses dealing with such matters as force majeure and termination must be clearly drafted to encapsulate the understanding of the parties relating to exigencies and to ensure that, through suitably cross-referenced clauses, the instrument has no inconsistencies. The instrument must deal with unforeseen catastrophes such as covid. Lastly, adequate attention has to be paid to boilerplate clauses, to ensure that they do not set up contradictions between the contract and the agreement.
Amaresh K Singh (left) is a partner and Prashant Sood is a senior associate at HSA Advocates
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