Class date: 28/01/2021

Topic: Real Estate Leases.

Expected question in exams:

State the law as to Real Estate Leases.

Or
What remedies are available to a landlord for a breach of the lease by the
tenant? On what grounds can the landlord usually terminate the lease and
what restrictions and procedures apply? What is the effect of the tenant's
insolvency under general contract terms and insolvency legislation?

Or

Can the tenant withhold rent payments in certain circumstances, for example
for serious damage to the leased premises? Can the tenant terminate the lease
in certain circumstances?

Study material: As given below

Negotiation and execution of leases

 Are contractual lease provisions regulated or freely negotiable? Which

legislation applies?
Contractual lease provisions are freely negotiable. Subject to a contract to the
contrary, the Transfer of Property Act 1882 (TPA) provides for certain rights and
liabilities which govern the relationship between the landlord and the tenant.

 What are the formal legal requirements to execute a lease? Does the
lease have to be executed by certain parties or as a deed? How do the
formalities differ for a company, partnership and for individuals?
The Transfer of Property Act 1882 (TPA) stipulates that a lease from year to year
or any term exceeding one year and reserving a yearly rent must be executed by a
registered instrument (section 107). Any other type of lease can be made by
registered instrument, oral agreement or delivery of possession. The landlord and
the tenant are required to execute the lease deed. The execution formalities differ
for a company, partnership and individuals, in that a company or partnership has to
authorize a specific individual (and record such authorization in its minutes) by
way of a power of attorney or a resolution to execute the lease deed.

Rent payments

 How are rent levels usually reviewed and are there restrictions on this?
Is stamp duty and VAT (or equivalent) payable on rent? Is a rent
security deposit required and does it have to be managed in a certain
way?
The determination of rent is a market driven process and there is no restriction
under law other than certain rent control legislations which vary from state to state.
Accordingly, parties are free to determine the mechanism for rent increases.
Stamp duty is paid on the instrument of the lease, and calculated based on the
tenure of the lease and the rent and security deposit (in some cases) payable. It is
very common for leases to provide for payment of security deposits (typically
equivalent to three to six months' rent) as security against any damage caused to
the property by the tenant during the lease period.

Length of term and security of occupation

 Is there a typical length of lease term and are there restrictions on it?
Do tenants of business premises have security of occupation or rights to
renew the lease at the end of the contractual lease term?
The duration of a lease depends on many factors, including the type of leased
premises (for example, commercial, institutional, residential, or government lease).
The landlord and the tenant can contractually agree to give the tenant a right to
renew the lease deed at the end of the contractual term, without any delay or
objection from the landlord.

Disposal

 What restrictions typically apply to the disposal of the lease by the

tenant? Can the tenant assign or sublet the lease with the landlord's
consent? Can tenants share their premises with companies in the same
group? What is the effect of a legal reorganisation or transfer/sale of
the tenant on the lease and on a guarantee of the lease?
The Transfer of Property Act 1882 (TPA) permits tenants to sublease or mortgage
their interests in the leased premises, subject to an agreement to the contrary.
Leasing arrangements generally provide for the tenant's right (with or without the
prior consent of the landlord, which cannot be unreasonably withheld) to:
 Sublease.
 Assign.
 Sub license.
 Encumber the leased premises
 Sub lease the whole or part of the leased premises to its affiliate.
The landlord and tenant can agree that the resulting entity from a restructuring of
the tenant can enjoy the lease for the rest of its duration on the same terms and
conditions.

 Does a landlord or tenant retain any liability under the lease after the
lease is assigned?
On assignment or transfer of a lease by the landlord, the landlord does not cease to
be subject to any liabilities imposed on it by the lease, unless the tenant elects to
treat the transferee as the person liable (section 109, Transfer of Property Act
1882).

Repair and insurance

 Who is usually responsible for keeping the leased premises in good

repair and for insuring the leased premises? Are there provisions for
the ownership of lease improvements?
Generally the tenant assumes the obligation to insure the equipment, fixtures and
furniture inside the premises, and the landlord obtains insurance over the
buildings/premises. Similarly, any improvements to the leased premises can be
retained by the tenant on termination of the lease, unless the lease provides
otherwise.

Landlord's remedies and termination

 What remedies are available to a landlord for a breach of the lease by

the tenant? On what grounds can the landlord usually terminate the
lease and what restrictions and procedures apply? What is the effect of
the tenant's insolvency under general contract terms and insolvency
legislation?
Leases generally provide for a mechanism by which the landlord retains the right
to terminate the lease in certain circumstances such as:
 Default in payment of lease rentals
 Breach of any covenant, representation or warranty by the tenant.
The landlord can only determine a lease by forfeiture on breach of an express
condition, by serving a notice on the tenant seeking rectification of the breach
which should mention, among other things, (section 114A Transfer of Property Act
1882):
 Details of the breach.
 Time period within which the lessee should remedy the breach if it is
capable of remedy.
If the breach relates to non-payment of rent, the tenant is entitled to contest the
forfeiture, by depositing a sum equivalent to the rent, interest and costs of the suit
in the court where forfeiture proceedings are initiated.
On termination, if the tenant has not vacated the premises, the landlord can initiate
eviction proceedings under the applicable state rent control legislation. However,
the eviction process is quite cumbersome and usually takes a number of years to
complete.
Insolvency of the tenant can be one of the termination events under the lease, and
in this case the landlord can reserve the right to sue the tenant to evict him or her
from the property.

 Can the tenant withhold rent payments in certain circumstances, for

example for serious damage to the leased premises? Can the tenant
terminate the lease in certain circumstances?
The landlord and the tenant can contractually agree situations where the tenant is
permitted to withhold rent payments, for example, where the landlord fails to carry
out necessary maintenance or repair works in the stipulated period, resulting in the
tenant undertaking the work himself, or other breach of the lease by the landlord.
Tenants can also withhold payment during a force majeure event which renders the
leased premises unfit for the lessee's use. The tenant can withhold rent payments
until the leased premises is repaired and brought back to its original state.
Apart from termination due to the term ending, lease deeds provide for certain
circumstances in which tenants can terminate the lease, such as:
 The landlord voluntarily filing for bankruptcy/being declared insolvent.
 Fraud, willful misconduct or gross negligence by the landlord.
 Breach of any representation, warranties and covenants by the landlord
and/or the maintenance agency.
 If the leased premises become the subject of any court proceedings rendering
them unfit for the lessee's use.
 A force majeure event which leaves the leased premises unfit beyond repair.