In India, commercial leases are term based and have a specific time limit after which the leases expire. The Transfer of Property Act, 1882 ("Act") entitles a lessee to further lease the property to others. In the original lease the original leaseholder become the master lessee when a sub-lease is created. In Sub-lease the original lessee becomes the sub-lessor and assigns some or all of his interests in the premises to a third party called the sub-lessee.This article highlights the rights available to a sub-lessee to protect its interest in the leased premises sub-leased for commercial purposes.
SUB-LEASING OF THE PREMISES
Section 108(B) (j) of the Act, provides that the lessee may sub-lease the whole or any part of his interest in the property, and any transferee of such interest or part may again transfer it. However, the lessee does not (by reason only of such transfer) cease to be subject to any of the liabilities attaching to the lease.
RIGHTS AND LIABILITIES
Rights and liabilities of the lessor and the lessee are governed by Section 108 of the Act. Section 109 of the Transfer of Property Act,1882 states, if the lessor transfers the property leased, or any part thereof, or any part of his interest therein, the transferee (in the absence of a contract to the contrary) shall possess all the rights, and, if the lessee so elects, be subject to all the liabilities of the lessor as to the property or part transferred so long as he is the owner of it; but the lessor shall not, by reason only of such transfer cease to be subject to any of the liabilities imposed upon him by the lease, unless the lessee elects to treat the transferee as the person liable to him. The lessor, the transferee and the lessee may determine what proportion of the premium or rent reserved by the lease is payable in respect of the part so transferred, and, in case they disagree, such determination may be made by any court having jurisdiction to entertain a suit for the possession of the property leased.
"In the absence of the contract to the contrary" means that the rights of lessor's transferee are governed by the contract entered into between the parties and in case the parties do not have any contract in place, such rights are governed as per Section 109 of the Act. The expression 'in the absence of a contract to the contrary' appearing in the above mentioned section enables a transferor and the transferee of a property leased to agree to such a term1.
DETERMINATION OF A SUB-LEASE DEED:
So far as determination of a sub-lease is concerned, the same can be determined upon happening of certain events as mentioned in Section 1112 of the Act. As per the Act the Lessor or the Sub-Lessor as the case may be may determine the lease as per following:
- By efflux of the time limited thereby i.e. upon expiration of the term of a Sub-Lease.
- If the interest of the original lessor (or the sublessor) in
the property terminates, on the happening of any
- Express surrender: for instance, if the sublessee gives up his interest under the sublease to the sub-lessor, by mutual agreement between them.
- Implied surrender: for instance in case the sub-lessee accepts from the sub-lessor a new lease of the property lease, to take effect during the continuance of the existing lease, then the existing lease will be considered determined.
- Forfeiture by lessor: (1) In case the lessee breaks an express condition which provides that, on breach thereof, the lessor may reenter; or (2) in case the lessee renounces his character as such by setting up a title in a third person or by claiming title in himself; or (3) the lessee is adjudicated an insolvent and the lease provides that the lessor may re-enter on the happening of such event; and in any of these cases the lessor or his transferee gives notice in writing to the lessee of his intention to determine the lease.
Thus, in case the sub-lessor to determine the lease (for breach of any express condition in the sub-lease) and seek re-entry, on account of forfeiture, the following conditions must be fulfilled:
- There must be a condition in the sub-lease;
- The condition must be an express condition;
- The express condition must provide that in case of breach of the said condition, the sub-lessor may re-enter;
- The sub-lessee breaches such express condition.
Further it is settled law, that in case terms of a lease deed does not confer any right to the lessor for re-entry (in case of violation of any of the terms of the deed), in such a situation, the lessor may be entitled to claim compensation for the loss actually suffered by him, if at all, for the breach of the agreement.3
In addition to the above, the Act also provides the effect on the sub-lessee, of the surrender of main lease by the sub-lessor: Surrender (express or implied) by the sub-lessor will not prejudice the sub-lease, if the sub-lease previously granted by the sub-lessor, continues on substantially on the same terms and conditions as those of the main lease. It is settled law that in such case the Sub-Lessee would come in direct relation with the original lessor.
However, forfeiture of the main lease will annul the sub-lease, unless the same has been procured in fraud of the sub-lessee4.
Rights and liabilities are governed by the contract entered into between the parties of leasing or sub-leasing the property. Further, a lease may be determined as per the provisions contained in Section 111 of the Act. In absence of any breach of any express terms of the lease which provides right to the sublessor to re-enter upon the premises, in case of leases for fixed term, the lease is determined only by efflux of time limited by the deed of lease and before that the lessee cannot be evicted.
1 Hafiz Mohd. V. Masoodbi AIR 1991 MP 23
2 Section 111: Determination of lease.—A lease of immoveable property determines—
- by efflux of the time limited thereby;
- where such time is limited conditionally on the happening of some event—by the happening of such event;
- where the interest of the lessor in the property terminates on, or his power to dispose of the same extends only to, the happening of any event—by the happening of such event;
- in case the interests of the lessee and the lessor in the whole of the property become vested at the same time in one person in the same right;
- by express surrender; that is to say, in case the lessee yields up his interest under the lease to the lessor, by mutual agreement between them;
- by implied surrender;
- by forfeiture; that is to say, (1) in case the lessee breaks an express condition which provides that, on breach thereof, the lessor may re-enter; or (2) in case the lessee renounces his character as such by setting up a title in a third person or by claiming title in himself; or (3) the lessee is adjudicated an insolvent and the lease provides that the lessor may reenter on the happening of such event; and in any of these cases the lessor or his transferee gives notice in writing to the lessee of his intention to determine the lease;
- on the expiration of a notice to determine the lease, or to quit, or of intention to quit, the property leased, duly given by one party to the other
3 Bharat Earth Movers Ltd. v. Purammal Kedial, F.A.T. Nos. 127-129 of 2008
4 Section 115 of the Transfer of Property Act, 1882.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.