Kausar Ahmed.docx

A PROJECT REPORT ON CONCEPT OF LEASE AND ITS FORFEITURE

BA,LLB 6thSEMESTER SESSION -2016 -2021

Submitted To

Submitted By :-

ASSN PROF

Kausar Ahmed

MS RITIKA

Reg :- 46016210015

TABLE OF CONTENTS:1. 2. 3. 4. 5. 6.

Declaration……………………………………………………………………………………………..i Certificate……………………………………………………………………………………………….ii Acknowledgement………………………………………………………………………………….iii List of cases…………………………………………………………………………………………….iv Introduction……………………………………………………………………………………………v Concept of Lease and its Forfeiture I) Merit II) De-Merit III) Types of Lease

7. Waiver Of Forfeiture 8. Determination of lease by Forfeiture a)Breach of Express Condition b)Disclaimer or Denial of the landlords Title c)Insolvency

Leasing: Definitions, Types, Merits and Demerits A “lease” is defined as a contract between a lessor and a lessee for the hire of a specific asset for a specific period on payment of specified rentals. The maximum period of lease according to law is for 99 years. Previously land or real resate, mines and quarries were taken on lease. But now a day’s plant and equipment, modem civil aircraft and ships are taken Defination:(i) Lessor: The party who is the owner of the equipment permitting the use of the same by the other party on payment of a periodical amount. (ii) Lessee: The party who acquires the right to use equipment for which he pays periodically. Lease Rentals: This refers to the consideration received by the lessor in respect of a transaction and includes: (i) Interest on the lessor’s investment;

(ii) Charges borne by the lessor. Such as repairs, maintenance, insurance, etc;

(iii) Depreciation;

(iv) Servicing charges.

At present there are many leasing companies such as 1st Leasing Company, 20th Century Leasing Company which are doing quite a lot of business through leasing, It has become an important financial service and a lucrative avenue of making sizable profits by leasing companies.

Types of Leases: The different types of leases are discussed below: 1. Financial Lease: This type of lease which is for a long period provides for the use of asset during the primary lease period which devotes almost the entire life of the asset. The lessor assumes the role of a financier and hence services of repairs, maintenance etc., are not provided by him. The legal title is retained by the lessor who has no option to terminate the lease agreement. The principal and interest of the lessor is recouped by him during the desired playback period in the form of lease rentals. The finance lease is also called capital lease is a loan in disguise. The lessor thus is typically a financial institution and does not render specialized service in connection with the asset. 2. Operating Lease: It is where the asset is not wholly amortized during the non-cancellable period, if any, of the lease and where the lessor does not rely for is profit on the rentals in the non- cancellable period. In this type of lease, the lessor who bears the cost of insurance, machinery, maintenance, repair costs, etc. is unable to realize the full cost of equipment and other incidental charges during the initial period of lease. The lessee uses the asset for a specified time. The lessor bears the risk of obsolescence and incidental risks. Either party to the lease may termite the lease after giving due notice of the same since the asset may be leased out to other willing leases. 3. Sale and Lease Back Leasing: To raise funds a company may-sell an asset which belongs to the lessor with whom the ownership vests from there on. Subsequently, the lessor leases the same asset to the company

(the lessee) who uses it. The asset thus remains with the lessee with the change in title to the lessor thus enabling the company to procure the much needed finance.

4. Sales Aid Lease: Under this arrangement the lessor agrees with the manufacturer to market his product through his leasing operations, in return for which the manufacturer agrees to pay him a commission. 5. Specialized Service Lease: In this type of agreement, the lessor provides specialized personal services in addition to providing its use. 6. Small Ticket and Big Ticket Leases: The lease of assets in smaller value is generally called as small ticket leases and larger value assets are called big ticket leases. 7. Cross Border Lease: Lease across the national frontiers is called cross broker leasing. The recent development in economic liberalisation, the cross border leasing is gaining greater importance in areas like aviation, shipping and other costly assets which base likely to become absolute due to technological changes. Merits of Leasing: (i) The most important merit of leasing is flexibility. The leasing company modifies the arrangements to suit the leases requirements. (ii) In the leasing deal less documentation is involved, when compared to term loans from financial institutions.

(iii) It is an alternative source to obtain loan and other facilities from financial institutions. That is the reason why banking companies and financial institutions are now entering into leasing business as this method of finance is more acceptable to manufacturing units. (iv) The full amount (100%) financing for the cost of equipment may be made available by a leas ing company. Whereas banks and other financial institutions may not provide for the same. (v) The ‘Sale and Lease Bank’ arrangement enables the lessees to borrow in case of any financial crisis. (vi) The lessee can avail tax benefits depending upon his tax status. Demerits of Leasing:

(i) In leasing the cost of interest is very high. (ii) The asset reverts back to the owner on the termination of the lease period and the lesser loses his claim on the residual value. (iii) Leasing is not useful in setting up new projects as the rentals become payable soon after the acquisition of assets. (iv) The lessor generally leases out assets which are purchased by him with the help of bank credit. In the event of a default made by the lessor in making the payment to the bank, the asset would be seized by the bank much to the disadvantage of the lessee.

In section 112 of TPA Its defined about : Waiver Of Forfeiture A forfeiture under section 111 ,clause (g) is waived by acceptance of rent which has become due since forfeiture , or by distress for such rent ,or by any other act on the part of the lessor showing an intention to treat the lease as subsisting : Provided that the lessor is aware that the forfeiture has been incurred:

Provided also that , where rent is accepted after the institution of suit to eject the lessee on the ground of forfeiture , such acceptance is not a waiver.

113. Waiver of notice to quit A notice given under section 111, clause (h), is waived, with the express or implied consent of the person to whom it is given, by any act on the part of the person giving it showing an intention to treat the lease as subsisting. ILLUSTRATION (a) A, the lessor, gives B, the lessee, notice to quit the property leased. The notice expires. B tenders and A accepts, rent which has become due in respect of the property since the expiration of the notice. The notice is waived. (b) A, the lessor, gives B, the lessee, notice to quit the property leased. The notice expires, and B remains in possession. A gives to B as lessee a second notice to quit. The first notice is waived 114 Relief against forfeiture for non-payment of rent Where a lease of immovable property has been determined by forfeiture for non-payment of rent, and the lessor sues to eject the lessee, if, at the hearing of the suit, the lessee pays or tenders to the lessor the rent in arrear, together with interest thereon and his full costs of the suit, or gives such security as the court thinks sufficient for making such payment within fifteen days, the court may, in lieu of making a decree for ejectment, pass an order relieving the lessee against the forfeiture; and thereupon the lessee shall hold the property leased as if the forfeiture had not occurred. This article deals with laws related to waiver of forfeiture and waiver of notice to quit in respect of determination of lease... “Laws relating to Waiver of Forfeiture and Waiver of Notice to Quit” Sec 111 of the Transfer of Property Act, 1882(herein after referred as Act) talks about determination of lease. For example, by efflux of time, or where such time is limited conditionally on the happening of some event, or where the interest of the lessor in the property terminates on by the happening of such event. Clause (g) of the section lays down the determination of lease by forfeiture.[2] According to the provision, a lease of an immovable property determines by forfeiture in breach of express condition or disclaimer or denial of the landlord’s title or if in case the lessee being judged insolvent. Further, clause (h) talks about determination of lease on expiration of notice to quit or on the expiration of a notice to determine the lease or of intention to quit the property leased. However, Section 111 and 112 of the Act provides expressly for waiver of right to

determination of lease and lays down the conditions in which this right is waived. In this project I have tried to explain these concepts in light of the provisions under the Transfer of Property, Act, 1881. This consists of detailed explanation of the concepts, relevant sections, their explanations, scope, application etc. This also includes justifications and interpretations by the way of several judicial pronouncements. Determination of lease by forfeiture Sec 111 of the Transfer of Property Act, 1882(herein after referred as Act) talks about determination of lease. Further, clause (g) of the section lays down the determination of lease by forfeiture.[3] According to the provision, a lease of an immovable property determines by forfeiture in the following cases: 1. Breach of Express Condition When the lessor imposes upon lessee any express condition and lessee fails to perform that condition, there is a breach of condition by lessee. The lessee’s right under the lease is lost upon breach of such condition. In Raghuram Rao v Eric P. Mathias; SC held hat Section 111(g) itself requires that for the forfeiture of lease, the lessee should commit breach of an express condition which must provide that on breach thereof, the lessor may re-enter. 2. Disclaimer or denial of the landlords title In the second place, without any express condition contained in the lease, a case for the forfeiture arises when the lessee repudiates the landlord’s right and sets up title in himself or in third person (for example, by executing a kabuliyat in his favour ). Such conduct on the part of the lessee is sufficient to justify the landlord in forfeiting the lease. To work forfeiture under this sub-clause, the denial must be unequivocal for the law leans strongly against forfeiture. However, an omission to pay rent or even refusal to pay does not constitute a disclaimer. The principle of forfeiture is founded on the rule that a man cannot approbate and reprobate at the same time. Since the consequence of applying the rule is very serious, it must be held that the denial has to be clear and in unequivocal terms. 3. Insolvency Insolvency of the lessee is another condition for the applicability of Sec111 (g) even though it by itself does not forfeit the lease. There must be a stipulation between the parties that the lessee’s right shall be lost in case of his insolvency and lessor would be entitled to resume the possession. However, lease in such case is not determined ipso facto. A written notice must be served by the lessor to lessee regarding the same. This right of determination of lease by forfeiture, as defined under Sec. 111(g), however, can be waived by the lessor. Sec 112 of the Transfer of Property Act, 1882 lays down the provision regarding the same. II. Waiver of Forfeiture i. Principle Section 112 of the Transfer of Property Act, 1882 lays down the provision regarding the

waiver of forfeiture. It says that forfeiture under section 111, clause (g), is waived by acceptance of rent which has become due since the forfeiture, or by distress for such rent, or by any other act on the part of the lessor showing an intention to treat the lease as subsisting. In all these cases the lessor is estopped from, afterwards, enforcing forfeiture. But, of course, there can be no waiver of that the lessor does not know., and the rule is therefore subject to the proviso which enacts that lessor shall not be deemed to have waived forfeiture under any of the above circumstances unless “he is aware that the forfeiture is incurred” at the time he elects to waive it.[7] This section is intended only for the benefit of the landlord and whether or not there was a waiver or not there was a waiver of forfeiture depends upon the action of only one party, namely, the landlord independent of tenant.1 ii. Waiver: Meaning Waiver is an intentional relinquishment of a known right or such conduct as warrants an inference of the relinquishment of such right. It was also held in Surendra v. Smt. Panchi Bibi[10] that the foundation of waiver is the knowledge of the person who said to waive his rights and there cannot be waiver in ignorance. Unless, therefore, the lessor is aware that forfeiture has been incurred there cannot be any question of waiver of forfeiture. In the ultimate analysis on the juristic foundation the concept of waiver is in essence based on agreement. In other words, the landlord must agree to waive the forfeiture or more accurately the breach of the express condition which leads to forfeiture. iii. Waiver of Forfeiture : A Detailed Explanation Sec 112 enacts that a forfeiture incurred under Sec 111(g) could be waived in any of the following cases:(1) By Acceptance of rent accrued due after the forfeiture was incurred, but if it be accepted after institution of an ejectment suit against the lessee it is no waiver. (2) By distress for rent accrued due after the forfeiture was incurred. (3) By the lessor doing an act shewing an intention to treat the lease as subsisting. Provided, that the lessor was aware of his rights that the forfeiture was incurred. (1) Acceptance of Rent A forfeiture incurred u/s 111 (g) is waived by the lessor or his agent having a general authority to receive rent accepting rent accrued due after the forfeiture has been incurred. But acceptance of rent after institution of a suit to eject lessee on the ground of forfeiture is no waiver. The election to forfeit is complete and irrevocable once the suit for ejectment is instituted. The acceptance of rent after the determination of the lease would not amount to waiver since the payment of rent by a statutory lessee does not amount to lease money in the true sense of rent but it is a statutory solatium which a lessee is required to pay to the landlord, there being no element of contractual liability. Therefore, in W. Suryabhan v. Maharashtra Revenue Tribunal, Nagpur, where the landlord recovers the rent from statutory lessee after obtaining an order of nomination of lease under Berar Regulation of Agricultural Leases Act, 1951, it was held that there is no waiver of his right to obtain the possession of land. The institute of the suit is simply a mode of manifesting the possession of land. On readmission after determination of the tenancy upon the forfeiture the old tenancy is not 1

revived. The lessee is bound to pay compensation for use and occupation. Also the waiver of the past breaches does not preclude the lessor from enforcing forfeiture when the same or any other condition is subsequently broken, the condition being such that the breach thereof provides for re-entry. The rent accepted which is pleaded as a waiver under Sec. 112, T.P. Act, must have accrued after the date of the forfeiture and not prior to it. (2) Distress for rent Forfeiture is waived by distress for rent due since the forfeiture[19]. In case of a continuing forfeiture as for non-repair, there is no waiver after the time of distress. Distress is regulated by the Presidency Small Causes Courts Act. However, proviso 1 of the Sec.112 lays down that no waiver is operative unless the lessor waives with knowledge that the forfeiture has been incurred. The onus would be on the lessee to prove knowledge of the lessor. Similarly the Proviso 2 expressly says that where rent is accepted after the institution of suit to eject lessee on ground for forfeiture, such acceptance is not a waiver. In State v SS Devi it was held that he rent claimed for the period subsequent to the forfeiture in a suit for eviction on ground of forfeiture can be accepted by the landlord only after the institution of the suit. It was further laid down that if the acceptance itself does not amount to waiver, the mere claim acceptance in respect whereof can take place only after the institution of the institution cannot be said to be under the mischief of the clause ‘any other act on the part of the lessor showing an intention to treat the lease as subsisting’ in Sec112. Once the election to forfeit is complete and irrevocable by the institution of the suit, claim for rent in that suit cannot be taken as waiver of forfeiture. However, there is an exception to the general rule. The section provides that acceptance of rent due after forfeiture has been incurred is not waiver, if it be accepted after the institution of a suit in ejectment against the lessee. iv. Scope of the Section An act of forfeiture on the part of the tenants as contemplated by Cl. (g) of sec 111 of the Act only renders the lease voidable at the option of the landlord. The landlord, after such forfeiture has taken place by the happening of any of the event specified in Cl. (g) of the Sec 111, is obliged to make an election as soon as he becomes aware of the tenant’s default either to forfeit the lease or alternatively to treat the lease as still continuing by waiving the act of forfeiture. Essentially, the rule of waiver of forfeiture is designed to prevent the landlord from taking two consistent positions. He cannot be allowed to both approbate or reprobate. But if he chooses to do something such as demanding or receiving the rent which can only be so consistently with the existence of continuance of lease or tenancy he cannot thereafter be heard to say that he has elected the forfeiture. The waiver of a right to forfeit is to be treated as an aspect of wider doctrine of election. However, Halsbury has observed that a landlord does not waive the forfeiture by merely standing by and seeing it occur where, for instance, the tenant makes alterations in breach of covenant and the landlord does not interfere; there must be some positive act of waiver.

Similarly, as per Sec 111(h) of the Act, lease is also determined by a notice to quit which is explained hereunder.

III. Determination of lease by Notice to Quit Sec 111(h) talks about the determination of lease by notice to quit. A lease may be terminated by a notice to quit given by the lessor, or of his intention to quit given by the lessee.A lease may be terminated 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 another.] In other words, a tenancy at will is terminated by a demand for possession. A tenancy for a fixed term determines on the expiration of the term. A periodic tenancy, however, is terminated only by a proper notice to quit. Since notice is a unilateral act performed in the exercise of a contractual right, it must conform to the terms of the contract; and the onus of proof of its validity is upon the person who gives it. IV. Waiver of Notice to Quit According to Section 113 of the Transfer of Property Act, 1882; a notice to quit is waived with the implied or express consent of the person to whom it is given, by any act on the part of the person giving it showing an intention to treat the lease as subsisting. i. Principle Once a valid notice is given, the tenancy will be determined upon its expiration. The parties can waive the notice. The consent of the parties makes a new agreement. The parties can nullify the operation of the notice as to quitting, by agreeing upon a new tenancy, whether on the terms of the former or not, to commence from the time of its expiration. However the tenant has to establish that the rent taken by the landlord was legal rent indicating his assent to the former’s continuing in possession. A waiver of notice to quit cannot be merely inferred by an act on part of one of the parties and either one of the actions or any act which thereby does not spell a contract or agreement between the parties to a particular effect spelling a waiver. Waiver essentially presupposes an election by the landlord and also on the part of the tenant where the tenant consents to the notice being waived. An election is not a matter of inference but is a matter of positive choice. Hence an election should not be merely inferred from the circumstances that after the institution of the suit for the ejectment, payment was received by the landlord. Section 113 would come into picture only when there is an act on the part of the lessor showing an intention to treat the lease as subsisting. There could not be any occasion for the landlord to show such an intention when he has already filed a suit on the basis of the termination of tenancy. In such a case, it is the suit that has to be decided and mere payment of some amount of rent would be irrelevant, unless a party pleads and proves that on account of the said payment, there was a compromise of the suit.

ii. Detailed Explanation of the section In order to understand the provision properly, a detailed explanation is required which is explained under. According to the section, once a valid notice to quit has been served it automatically brings the tenancy to an end on the expiration of the notice and cannot be withdrawn or waived. After a valid notice to quit has been served, however, the landlord and the tenant may expressly or by implication for the grant of a new tenancy to take effect on the expiry of the notice. Questions of waiver usually arise when some act is done by the landlord after the expiration of the notice, which either necessarily or prima facie imports the recognition of an existing tenancy. Where a landlord having instituted a suit pursues it in spite of receiving rent, there is no question of waiver, although he may not specifically call it compensation for use and occupation and may inaccurately call it rent. The payment of the rent by the tenant for a period subsequent to the termination of the tenancy and acceptance of the same has been laid down as a statutory proof of the intention of both the parties to treat the lease as subsisting. Undoubtedly, it one of the modes of proof of the agreement to treat the lease as subsisting. But the amount is paid as rent and received as such. In order to constitute waiver the two ingredients must exists concurrently. Otherwise, the act of acceptance of rent by itself without reference to the intention of the lessor cannot be deemed to be waiver. In addition to the receipt of the rent by the landlord to establish waiver there should be other conclusive evidence to show that the landlord is inclined to treat the lease as subsisting. The notice can be waived by the mutual consent of the lessor and the lessee. The consent of the lessee can be given expressly or by implication, it can be inferred and the intention on part of the lessor to continue to treat the lease as subsisting can be shown by any act of the lessor. The acceptance of rent expiry of the notice by itself may not constitute waiver. But it is an act on the part of the lessor which will go to show the intention on his part to treat the lease as subsisting. If after the service of notice landlord accepts rent Section 113 of the Act will be attracted. The acceptance of rent subsequent to the filing of the suit will not operate as a waiver in the usual course. There is no warrant for the view that mere receipt of rent, whatever may be the intention of the lessor, should be of its own force, divorced from the circumstances of the case, be regarded as amounting to a waiver. iii. Scope of the Section If after determining the tenancy by notice the landlord chooses to accept rent again from the tenant, a notice for determination of the lease already given by the landlord to the tenant will be deemed to have been waived. No question of waiver arises after the landlord has brought a suit on the basis of a valid notice given for determination of the lease, though it is always open for the landlord to renew the lease at any time he pleases. Section 113 clearly indicates that there should be an indication on part of both lessor and lessee. In order to determine the question of waiver of a notice to quit, it is necessary to find out from the conduct of the landlord, whether the lease is intended to be treated as subsisting iv. Applicability

Section 113 of The Transfer of Property Act, 1882 can hardly come into play in the case of a statutory tenant, that is, a person who is entitled to remain in possession of the premises by virtue of the provisions of a Rent Control Act. Section 113 is restricted to a notice given under Section 111(h) of The Transfer of Property Act, 1882, namely, the consequences of waiving a notice to determine the lease or to quit the property. However, in the case of a statutory lease, he is bound to pay the amount of lease money not only till the statutory lease comes to end by an order of the Court but until possession is given. The right being created by statute, the corresponding obligation to pay the statutory rent until possession is delivered is implicit in such a situation. v. Impact of Rent Control Legislation The Rent Restriction Act creates a kind of statutory tenancy with certain incidents not to be found in ordinary relation of landlord and tenant. Under such an Act a tenant includes which under the ordinary law of landlord tenant is an ex-tenant. In an English decision, it is made clear that the tenant governed by the Rent Restriction Act continues to be in possession even after the notice to quit and if the tenant pays rent, the landlord has no choice but to accept it and cannot sue for trespass or for mesne profits because it is provided in The Transfer of Property Act, 1882, that notwithstanding notice to quit the tenant cannot be treated as a trespasser so long as he pays rent and performs other conditions of the lease. vi. In case of Joint Owners A joint notice of demand relating to a joint tenancy by the two co-landlords could not be waived by a single landlord. In Chhangur Ram v. Ganesh it was observed that a waiver to be effective or binding must be made by the entire body of the joint owners and it was not open to one of the joint owners to waive such notice.

V. Conclusion in order to conclude, after having a detailed look on the determination of lease by way of forfeiture or by way of notice to quit and also the provisions related to their forfeiture as specified in Sec 112 and 113 of the Act, it can be clearly inferred that if there is a breach of condition by the lessee, the lease is not determined ipso facto but it gives an option to the lessor to elect whether he would determine the tenancy or not. This is so because of the policy of the courts that is to lean against forfeiture and therefore if the lessor with full knowledge that the forfeiture has incurred, acknowledges the continuance of the tenancy, he will be deemed to have waived the forfeiture. The intention to waive forfeiture implies that the person waiving it is aware of the fact that there has been forfeiture. Similarly, in order to constitute a waiver of notice to quit, the tenant has to prove that the landlord, by accepting the sent for the period subsequent to the termination of tenancy, had an intention to treat the lease as subsisting. However, in the absence of any such intention on the part of landlord being proved, mere acceptance of rent during the pendency of the ejectment suit cannot amount to waiver. Moreover, there is distinction between the two sections that is prima facie evident from the bare perusal of the sections i.e. the forfeiture can be waived without the consent of the lessee, whereas in a waiver to notice to quit, the consent of the lessee is necessary.