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Understanding Lease Deed: A Guide for Landlords and Tenants
Updated : July 27, 2023
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Imagine you're a tenant searching for the perfect apartment, or you're a landlord looking to rent out your property. In both scenarios, a lease deed becomes a crucial document that solidifies the rental agreement between the two parties.
It provides legal protection, establishes rights and obligations, and ensures a smooth and transparent leasing experience for everyone involved. Whether it's a residential, commercial, or industrial property, understanding the ins and outs of a lease deed is essential to safeguarding your interests and maintaining a harmonious landlord-tenant relationship.
In this blog, we will explore the significance of lease deeds, examine their essential components, and offer insights to help you navigate the world of leasing with confidence.
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What is a Lease Deed?
A lease deed, also known as a "deed of lease agreement," is a legally binding document that formalizes the rental arrangement between a landlord (lessor) and a tenant (lessee). It outlines the terms, conditions, and rights of both parties regarding the leasing of a property.
The lease deed specifies important details such as the duration of the lease, rent amount, payment terms, maintenance responsibilities, and any additional clauses or provisions agreed upon by both parties.
Understanding key terminologies is essential when dealing with a lease deed. Familiarize yourself with these terms:
- Lessor – The Lessor is the legal owner of the property that is the subject of the lease.
- Lessee- The Lessee is the individual who acquires the rights to use and enjoy the property under lease from the Lessor.
- Duration- The time or period for which the rights to use and enjoy the property are given is referred to as the duration. The lease can be for a certain period, either explicitly or implicitly, or it can be for an indefinite period.
- Premium or Rent- Generally, it is considered to give the right to use and enjoy the property. Rent is a term used to describe the payment of money or any other valuable items regularly or at given specified times or intervals.
How to create a lease deed?
Creating a lease deed in India involves a legally binding agreement between a lessor (landlord) and a lessee (tenant) for the lease of a property. Here's a general outline of the process to create a lease deed:
- Understand the requirements: Familiarize yourself with the legal requirements and regulations related to lease agreements in India. Different states might have specific rules and regulations, so it's important to research and ensure compliance.
- Identify the parties: Identify the lessor and lessee by including their full names, addresses, and any additional details required for identification.
- Describe the property: Provide a detailed description of the property being leased, including the address, size, boundaries, and any specific conditions or limitations.
- Term and rent details: Specify the duration of the lease, start and end dates, and any renewal options. Clearly state the rent amount, payment frequency, and due dates. Additionally, mention any penalties or late fees for delayed payments.
- Security deposit: If applicable, mention the amount of the security deposit and the conditions for its refund at the end of the lease term.
- Maintenance and repairs: Outline the responsibilities of the lessor and lessee regarding property maintenance, repairs, and utility payments.
- Termination clause: Include provisions for the termination of the lease, such as notice period requirements, reasons for termination, and any penalties for early termination.
- Additional clauses: Depending on the specific situation, include any additional clauses relevant to the lease agreement. For example, restrictions on subletting, rules for alterations to the property, or any other specific terms agreed upon by both parties.
- Witness and notarization: In India, it is generally advisable to have two witnesses present during the signing of the lease deed. Additionally, consider notarizing the document to add an extra layer of authenticity.
- Execution and registration: Both the lessor and lessee should sign the lease deed along with the witnesses. In some states, lease deeds may require registration with the Sub-Registrar of Assurances or local authorities. Check the specific requirements of your state to determine if registration is necessary.
- Stamp duty and registration fees: Pay the applicable stamp duty and registration fees, if required, as per local laws. Stamp duty rates vary across states, so consult the local authorities or an expert for accurate information.
- Retain copies: Make multiple copies of the executed and registered lease deed. Keep one for each party involved, including the witnesses. These copies serve as legal evidence of the agreement.
Stages In the Creation of a Lease Deed
Extensively there are three types of lease deeds- a registered lease deed, an unregistered lease deed, and a perpetual lease deed. Each of the steps involved in completing the Lease Deed can be divided into the following categories:
1. Negotiation Stage
The negotiation stage is the first step of the transaction, and it takes effect immediately after the Lessee has selected a property that is appropriate for his purposes. Each of the parties involved will need to address the many business elements of the transaction, including the length of the lease, the amount of consideration, the method of payment, and other related issues. It is more important to concentrate on the business elements of the transaction at this point than the legal ones.
2. Preliminary Documentation Stage
Once the commercial aspects of the transaction have been agreed upon, the parties involved can enter into an Agreement to Lease or, preferably, a Memorandum of Understanding, which will record the commercial aspects of the transaction and the general duties and obligations of the respective parties.
3. Title Investigation or Due Diligence Stage
The purpose of this stage is to determine whether or not the Lessor has legal title to the property and whether or not the Lessor has the power to diminish the property in the Lessee’s favour via the execution of the lease contract.
A comprehensive examination of the title deeds is followed by confirmation with government records via a Title Search at the appropriate agency and, ultimately, the publication of Public Notices inviting objections.
4. Drafting Payments
This step entails the payment of the premium by the Lessee to the Lessor, and it is also known as the execution and registration stage. They have the option to pay the discussed amount of money, take possession of the property, and sign the Lease Deed all at the same time.
Even though it is not required, it is common practice for two witnesses to execute the Lease Deed to sign and date the document. As soon as the document has been signed, it can be submitted for registration at the Office of the relevant Sub-Registrar of Assurances, who has authority over the property in question.
5. Registration Stage
Immediately after the lease deed has been registered and the property has been transferred to the Lessee’s possession, it is recommended that the different governmental and semi-governmental organizations with jurisdiction over the property be informed in writing of the transfer of ownership. This would guarantee a seamless transition and make the process of submitting applications and obtaining licenses reasonably straightforward.
Lease Deed Format
By creating a lease deed, both landlord and the tenant can ensure clarity, transparency, and protection of their rights and obligations during the lease term. The lease deed provides a comprehensive record of the agreement, covering essential details and terms agreed upon by the lessor and lessee.
Download: You can download the sample sale deed format in Word document by clicking the following link:
[Lease Deed Format for Residential Property]
Stamp Duty on Lease Deed
Stamp duty is imposed by the Indian government and it applies to various legal documents, including lease deeds. The exact amount of stamp duty to be paid is determined by factors such as the value of the property being leased and the state in which the property is located.
In India, the Indian Stamp Act of 1899 governs the stamp duty on lease deeds and provides specific rates for different types of lease agreements.
| State | Residential | Commercial |
| Andhra Pradesh | 6% | 8% |
| Assam | 6% | 8% |
| Bihar | 6% | 8% |
| Chhattisgarh | 6% | 8% |
| Delhi | 5% | 8% |
| Goa | 5% | 6% |
| Gujarat | 6% | 8% |
| Haryana | 7% | 12% |
| Himachal Pradesh | 7% | 10% |
| Jammu and Kashmir | 6% | 8% |
| Jharkhand | 6% | 8% |
| Karnataka | 5% | 7% |
| Kerala | 8% | 12% |
| Maharashtra | 5% (male) 6% (female) | 0.25% (up to 5 years)1% (5-10 years)2% (above 10 years) |
| Manipur | 6% | 8% |
| Madhya Pradesh | 7.5% | 11% |
| Meghalaya | 6% | 8% |
| Mizoram | 6% | 8% |
| Nagaland | 6% | 8% |
| Odisha | 6% | 8% |
| Punjab | 6% | 8% |
| Rajasthan | 6% | 8% |
| Tamil Nadu | 7% | 10% |
| Telangana | 5% | 7% |
| Tripura | 5% | 7% |
| Uttar Pradesh | 6% | 8% |
| Uttarakhand | 6% | 8% |
Key Considerations for Creating a Legally Binding Lease Deed
- A lease creates a separation of ownership and control, where the Lessor retains ownership rights but excludes themselves from enjoying possession during the lease period.
- Commercial property leases often utilize a lease deed format to document the agreement, which must be jointly signed by the Lessor and Lessee to express consent to the lease conditions.
- The lease deed serves as a legally binding document that courts may refer to as evidence in case of disputes between the Lessor and Lessee.
- In India, lease deeds must be printed on Non-Judicial Stamp Paper to be legally binding, with specific formats for different types of properties such as shops, houses, commercial properties, agricultural lands, and residential properties.
- The stamp duty value or cost of the stamp paper for the lease agreement is determined by the state and the rent amount specified in the agreement.
- Lease deeds can also be registered with the Sub-Registrar Office having jurisdiction over the leased property. Typically, two copies of the lease deed are executed, with each party retaining an original copy.
- The use of the term "demise" in a lease deed or other lease instruments implies the Lessor's guarantee of providing peaceful enjoyment of the property to the Lessee.
- The Lessee has the right to remain in possession of the property until the lease is legally terminated through appropriate legal action.
Difference Between Lease Deed and Lease Agreement
A lease deed and a lease agreement are both legal documents that outline the terms and conditions of a rental agreement between a landlord and a tenant. However, there are some key differences between the two documents.
| Difference | Lease Deed | Lease Agreement |
| Definition | A lease deed is a legal document used to transfer ownership rights of a property from the lessor (landlord) to the lessee (tenant) for a specified period. It is a formal and registered document. | A lease agreement is a contract between the lessor (landlord) and the lessee (tenant) outlining the terms and conditions of the lease, but it may or may not be a registered document. It can be a written or oral agreement. |
| Legal Nature | Lease deeds have a formal and permanent legal status. They must be executed on stamp paper and registered with the appropriate authority to be legally valid and enforceable. | Lease agreements may be formal or informal, and their legal status depends on whether they are in writing, on stamp paper, and registered. Unregistered agreements may have limited enforceability. |
| Transfer of Rights | A lease deed transfers the ownership rights of the property to the lessee for the agreed lease period. The lessee gains possession and full control of the property during the lease term. | A lease agreement grants the lessee the right to use and occupy the property for a specified period, but the ownership remains with the lessor. The lessee does not have full ownership rights. |
| Registration | Lease deeds must be registered as per the Indian Registration Act. Registration provides legal validity, prevents disputes, and allows the document to be admissible as evidence in court. | Lease agreements may or may not be registered, depending on the state's laws. Registration, if done, provides additional legal protection, but unregistered agreements may still be valid to some extent. |
| Stamp Duty | Lease deeds attract stamp duty, and the amount varies from state to state, based on the property's location and type of lease (residential, commercial, etc.). | Lease agreements may or may not attract stamp duty, depending on the state's regulations. Unstamped or inadequately stamped agreements may have limited evidentiary value. |
| Applicability | Lease deeds are typically used for long-term leases, such as those exceeding 11 months. They provide more security and legal protection for both parties. | Lease agreements are commonly used for short-term leases, such as those for 11 months or less. They offer flexibility and are less cumbersome for shorter durations. |
| Witness and Attestation | Lease deeds often require witnesses and notarization for additional legal validity. | Lease agreements may or may not require witnesses or notarization, depending on local laws and preferences. |
| Revocation and Termination | Lease deeds are usually irrevocable during the lease term unless both parties agree to terminate the lease under specific circumstances. | Lease agreements are often revocable or renewable at the end of the agreed-upon lease term, allowing both parties to renegotiate or terminate the agreement. |
Is a legal deed registration mandatory?
The Indian Registration Act, of 1908 governs the registration of various types of documents, including deeds, agreements, and other instruments that involve the transfer or creation of rights in immovable property.
The Act specifies that certain types of documents must be compulsorily registered to be valid and legally enforceable. Section 17 of the Registration Act provides an exhaustive list of documents that require mandatory registration, such as:
- Deeds of sale or transfer of immovable property.
- Gift deeds relating to immovable property.
- Lease agreements for terms exceeding one year.
- Mortgage deeds.
- Partition deeds.
- Exchange deeds.
- Power of Attorney relating to the sale or transfer of immovable property.
Note: the Act mandates registration to provide legal sanctity, authenticity, and public notice to the documents.
The registration process involves submitting the document to the office of the Sub-Registrar of Assurances or the sub-registrar's office having jurisdiction over the property. The parties involved in the transaction, such as the buyer and seller, are required to be present during the registration process or may appoint an authorized representative through a Power of Attorney.
How can NoBroker help?
A lease deed must be drafted and scrutinized more thoroughly than a lease or tenancy of residential premises or tenancy because there are various aspects of commercial transactions and commercial use of a property. Drafting a fair lease deed can be confusing!
That is why you should consult the legal advisors available to you at NoBroker who will guide you through the entire process. If you have any questions, just click on the link below this article and our team will be in touch with you soon.
FAQ’s
Ans. There are two main types of lease documents in India: residential lease deeds and commercial lease deeds. Residential lease deeds are used for leasing out residential properties, such as apartments, houses, and flats. Commercial lease deeds are used for leasing out commercial properties, such as shops, offices, and warehouses.
Ans. The lease amount is generally refundable, but there are some exceptions. For example, if the tenant damages the property or fails to pay rent, the landlord may be able to keep some or all of the lease amount. The lease deed should specify the terms and conditions for the refund of the lease amount.
Ans. A land lease agreement is a legal document that outlines the terms and conditions for leasing a piece of land. The agreement typically specifies the duration of the lease, the amount of rent, and the rights and responsibilities of both the landlord and tenant.
Ans. When you lease a property, you are essentially renting it from the owner. You do not have any ownership rights over the property, and you are not responsible for its maintenance or repairs.When you own a property, you have complete control over it. You can do whatever you want with it, as long as you comply with the law.
Ans.The lease deed law in India is governed by the Transfer of Property Act, of 1882. The Act sets out the general principles of leasing, such as the requirements for a valid lease, the rights and responsibilities of landlords and tenants, and the termination of leases.
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