Monday, 5 January 2015

Execute a watertight lease agreement

Subletting, assignment and/or parting with possession of tenanted premises without the consent of the landlord can be serious. Interestingly, the term sublease is not defined under the Transfer of Property Act, 1882 (‘the Act’). Albeit, the Act does not define subletting, terms as they apply to a lease would also apply to sub-lease mutatis mutandis (a Latin phrase meaning ‘ changing only those things which need to be changed’). So whilst, the same would be governed by the Act, subletting is not perse illegal. Whether subletting, assignment and/or parting with possession is permitted or not, would be determined by the language of the lease agreement executed between the landlord and tenant.

 Since a lease amounts to a transfer of property, it is imperative for a tenant to protect himself adequately by inserting clauses in the lease that prevent the tenant from subletting. The lease should also specifically prohibit assignment, alienating and/or parting with possession of a premises in any manner whatsoever.

Although, the Act does not prohibit subletting, interestingly, the Delhi Rent Control Act, under Section 14 1 (b) specifically states that sublease, assignment or parting with possession, with part or whole of the tenanted premises, would be a ground for eviction by the landlord.

Over the years, operating partnership firms in tenanted premises have courted much controversy. Opening and operating partnerships amounted to subletting have been an issue and have also been at the heart of many disputes.

In the matter of Madras Bangalore Transport Co (West) v. Inder Singh, the Hon’ble Supreme Court, in 1986, drew a distinction between continuing to own the tenancy rights and allow only its use to the firm or for the benefit of the firm and where the tenant transfers his tenancy rights to the partnership firm so as to make it the property of the firm. In case of the latter, the Hon’ble Court, held there was no subletting or parting with possession and therefore no consent of the landlord would be required.

So long as the tenant remains a partner there is no subletting. However, where the firm was dissolved and the business passed to the other partners operating from the same premises, subletting would begin from the date of dissolution. This was the proposition held in Trilok Singh v Ramprasad, in 1971, by the Madhya Pradesh High Court.

Therefore, while executing partnership deeds, readers are advised to ensure the deed specifically provides that the tenant retains the tenancy right to the premises and there is no passing of the tenancy, as an asset, to the partnership.

The matter of Amar Nath Agarwalla v Dhillon Transport Agency, threw up an interesting situation.The original tenancy was in favour of one firm known as Chuni Lal Gherulal which had three partners, namely Chuni Lal, Gheru Lal and Megh Raj. The partnership closed down before November, 1955 and after that the shop began to be used by another firm under the name and style of Meghraj Bansidhar of which one of the partners was Meghraj of the old Chuni Lal Gherulal firm and one Bansidhar. The Hon’ble Court held there was no subletting from the old firm in favor of the new firm. One of the propositions postulated by the Hon’ble Court was that was not a legal entity and a firm’s name was ‘only a compendious way of describing the partners of the firm’. Occupation by a firm is only occupation by its partners. Since Meghraj had been in occupation of the shop in his individual capacity, both as a member of the old firm as well as of the new firm, there was no subletting.

Source: PropertyatNeoDevelopers.Wordpress.Com

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