One of the key elements of any city from the point of corporates and executives is the cost of rent/lease and the complexity of the laws governing these. Since this is a Bangalore focused issue, I chose the recent changes in the rent control Act as the focus for this article. To make it easier for reading, I have done it point-wise.

Under the new act proposed, most tenants are now bound by contract to terminate the lease on the expiry of the lease period. Protection to tenants is offered only if the office premises are less than 150 sq. ft.

Before I move into some of the changes and the necessary action for the readers, let me cover the current market practice quickly and briefly. The usual market practice in the matter of renting an office or a house has so far been to enter into a lease agreement  for 11 months.  Most of these agreements are not properly stamped. They are usually not registered. The market seems to follow its own rules in this matter and the laws relating to lease are often ignored. This was because the mere payment of rent to the landlord by the tenant was enough in the court to establish a tenancy relationship. The courts could then be moved to protect such a tenancy under the old law. An unregistered or under stamped lease deed or lease agreement could not take away such a right. The right of the landlord to demand his property back on the termination of the lease continued to operate on trust and not law.  It is submitted that this state of affairs need not continue any longer, as the statutory protection of tenants from eviction is now no longer available in most cases.

The areas impacted by the new act and proposed action by parties is outlined below:

REGISTRATION AND STAMP DUTY: The Transfer of Property Act mandates that lease deeds for a period of more than one year should be registered. (Leases for periods less than a year do not require registration.)

LEASES FOR LESS THAN A YEAR:

The best practice is to enter into a lease deed for a period of 11 months with a conditional option to renew it at the end of that period by another 11 months, provided certain conditions are fulfilled. Such leases should also be properly stamped.  The stamp duty is about 5% of the total amount of rent payable under such a lease. This duty is applicable even to an agreement of lease. However under stamping of a lease agreement or lease deed does not by itself make the lease void. In case of dispute, the court will demand that the excess stamp duty be paid along with penalty prior to hearing the case.

LEASES FOR MORE THAN ONE YEAR:

All leases for a period of more than one year should be compulsorily registered. The stamp duty payable on such lease deeds and lease agreements are high and are computed on the average annual rent along with deposit payable. The amount of stamp duty is almost equal to that of a sale deed.  The usual practice is to split up the rent into two halves and make out one of them as an amenities agreement, which does not require registration. The amenities agreement will have to be stamped as per the article relating to lease of movables.

Non-registration of leases for more than one year is a serious offence. It does not establish any rights between the landlord and the tenant. It cannot be produced in court for want of registration. While under stamping a document is excusable, non-registration simply makes the document inadmissible as evidence. As the statutory protection of tenants has been removed in most cases, registration of a lease for more than one year is advisable in all cases where the lease value is large and protection of the contract by law is deemed necessary. On the other hand, even in cases of lease for more than one year, an agreement of lease can be entered into and possession given to the lessee by a later act. The lease deed remains pending for registration. This transaction will be protected by the doctrine of part performance.  The stamp duty will remain high, but the serious consequences of non-registration do not arise. Under stamping such an instrument is not an un-rectifiable offence.

LEAVE AND LICENCE:

Documents that are styled as leave and licence, also require a similar type of stamp duty as a lease, but they do not have to be registered. In case of dispute, if the matter goes to court, then the courts will look into the true nature of the transaction and if it is determined that notwithstanding the language of the deed, a lease had in fact been entered upon, then the laws relating to lease will be deemed to apply.

For offices coming with readymade infrastructural facilities, the rent for the facilities offered over and above the rental for space must be fixed through a separate agreement since they are amenities provided by the landlord. This is nothing but an agreement to rent movables. The stamp duty for a lease for less than a year should be 5% of the aggregate amount of premium and annual rent.

If a person wants to guarantee his occupation for say, 3 to 5 years or more, a registered lease deed is required. The stamp duty on this has to be paid. Normally this is not followed in the market place. Landlords too were reluctant to register lease deeds. However, the new act offers very little protection to the majority of tenants but the old fears remain.  Termination of lease is now bound by contract and not by law.

Overall, the new act is a welcome change and would make the process of renting or leasing an office more streamlined and the landlords to breathe a lot easier.

(The author of the article is Vatsala Dhananjay, a leading advocate in estate law in Bangalore. Feedback can be mailed to This e-mail address is being protected from spam bots, you need JavaScript enabled to view it )

Issue BG19 Oct02

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