C.V.O. Chartered & Cost Accountants' Association

Basic and Practical Aspects of
Law Relating to Transfer of Property

Contributed by Shri Ashok Dedhia

Page02

Lease

Lease of immovable property is a transfer of a right to enjoy such property.

Such transfer of right to use the property is made for a certain time, express or implied, or in perpetuity and for consideration paid or promised.

Such consideration may have to be rendered periodically or on specified occasions to the transferor by the transferee.

Last but not the least, for lease to become effective the transferee should have accepted the lease on such terms.

Leases how made

A lease of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent, can be made only by a registered instrument.

All other leases of immovable property may be made either by a registered instrument or by oral agreement accompanied by delivery of possession. Thus under TOP, a monthly tenancy does not require any written agreement or registration thereof.

Effect of Maharastra Rent Control Act, 1999

However, the Maharastra Rent Control Act, 1999 (“MRCA”) has overriding effect over the TOP and provides for compulsory registration of every tenancy agreement. Duty and obligation to register tenancy agreement is of the Landlord i.e. lessor. If the tenancy agreement is not registered contention of the tenant as to the terms and conditions of the tenancy, unless otherwise proved, shall prevail.

Under the TOP, unless otherwise agreed by the parties, any lease, monthly or otherwise, shall be freely transferable without requiring consent of the lessor (landlord). However in Maharastra, earlier the Bombay Rent Act and now the MRCA, has restricted rights of the tenant (lessee) to transfer the tenancy, unless otherwise agreed under the lease document.

Under the TOP, where no specific term is agreed upon, the tenancy of immovable property shall be deemed as a monthly lease and such monthly lease shall be terminable by either party by giving fifteen days notice. However, under the MRCA, rights of the lessor (landlord) to evict the tenant (lessee) are restricted.

Litigation in relation to constitutionality of the MRCA, is pending for quite some time in the Supreme Court. All the above rights of the tenants and the landlord, provided in the MRCA are statutory rights and almost all of them are issues under consideration by the Supreme Court. Future of such kind of statutory rights would largely depend upon orders of the Supreme Court.

In light of the provisions discussed in last two paragraphs and the on-going litigation in the Supreme Court in relation to constitutionality of the provisions of MRCA, it would be advisable for the persons acquiring tenanted properties to enter into appropriate tenancy agreement containing condition of non-eviction so long as the rent is paid and also to provide, impliedly or expressly, that the rent can not be revised upwards save and except on account of increase in municipal taxes. A prospective tenant, who presently might get merely statutory right against eviction by the landlord, shall try to get contractual right in that behalf under the tenancy agreement.

Leave and Licence

Having regard to restrictive provisions of Rent Control legislation in Mumbai, in recent past the owners intending to give their premises on rent are preferring to enter into leave and licence agreement as against the lease/tenancy agreement. Licence agreement does not create or transfer any right, title or interest in the property in favour of the Licensee. Thus, none of the provisions relating to lease in the TOP governs such licence agreement. The Easement Act, governs transaction relating to leave & licence. Till recently it was not necessary to register such licence agreement. However, now under MRCA, it is duty of the licensor to register the licence agreement.

While entering into licence agreement, one major issue that requires to be decided commercially by the parties is of the additional municipal tax. Parties shall have decided and the same shall be provided in the agreement that who would bear the additional municipal taxes that may be levied by the Municipal Corporation by reason of the property being given on licence basis.

Exchange
When two persons mutually transfer the ownership of one thing for the ownership of another, neither thing or both things being money only, the transaction is called an “exchange”.

A transfer of property in consideration of an exchange can be made only in the manner provided for the transfer of such property by sale. For example, transfer of immovable property in consideration of movable or immovable property shall be made by registered document only.

Gift
“Gift” is the transfer of certain existing movable or immovable property made voluntarily and without consideration, by one person, called the donor, to another, called the donee, and accepted by or on behalf of the donee.

Acceptance when to be made ?

Such acceptance must be made during the lifetime of the donor and while he is still capable of giving such gift; i.e. at the time of acceptance of gift by the donee, the donor should have still the right to make that gift of the property. For example, if at the time of offering gift he had right to gift that property as an owner, he should retain such right without any other encumbrances at time when the gift is accepted by the donee. Even the donor should be capable of making gift at the time the gift is accepted by the donee (for ex. person of unsound mind or a minor is not capable to make gift).

Transfer by gift how effected

For the purpose of making a gift of immovable property, transfer must be effected by a registered instrument signed by or on behalf of the donor, and attested by at least two witnesses.

For the purpose of making a gift of movable property, transfer may be effected either by a registered instrument signed as aforesaid or by delivery. Such delivery may be made in the same way as goods sold may be delivered.

Stamp Duty

In India, levy and collection of stamp duty on instruments (documents) is a state subject save and except few instruments like share transfer form, promissory note, bill of exchange etc. for which the rates of stamp duty are provided under the Indian Stamp Act, 1899 (“ISA”). For all other dutiable instruments, rates are provided under the respective state's Stamp Acts e.g. Bombay Stamp Act, 1958 (“BSA”). Schedule I to the BSA (“Schedule”) provides the rates at which the stamp duty is applicable in relation to various instruments.

Instruments chargeable with duty

Section 3 of the BSA, inter alia, provides that subject to the exemptions, every instrument mentioned in the Schedule, executed in Maharastra is chargeable with duty of the amount indicated in the Schedule.

It is also provided that every such instrument executed out of Maharastra, relating to any property situate, or to any matter or thing done or to be done in Maharastra shall be chargeable with the stamp duty upon its being received in Maharastra. For example, in case of a deed of conveyance of land situate in Maharastra, shall attract stamp duty if the same is executed in Maharastra and if it is executed outside Maharastra, stamp duty would be attracted upon its receipt in Maharastra. Even upon receipt of a copy, extract or a facsimile image etc. of such original instrument executed outside Maharastra, same shall be chargeable with full stamp duty if proper duty payable on such original instrument is not paid before the receipt of such copy etc. in Maharastra.

Such instruments shall be stamped within three months of receipt thereof in Maharastra.

Stamp duty by whom payable
In the absence of an agreement to the contrary, in case of an agreement relating to Deposit of Title-deeds, Pawn or Pledge, Bond, Customs Bond, Further Charge, Indemnity Bond, Mortgage Deed, Release, Deed of Settlement of Trust etc. expense of stamp duty shall be borne by the person drawing or making such instrument.

In case of a conveyance, lease and agreement to lease, stamp duty shall be borne by the grantee/purchaser/lessee, as the case may be.

In case of an instrument of exchange stamp duty shall be borne by the parties in equal shares.

In case of an instrument of partition stamp duty shall be borne by the parties thereto, in proportion to their respective shares in the whole property partitioned, or, when the partition is made in execution of an order passed by a Revenue Authority or Civil Court or Arbitrator, in such proportion, as such Authority, Court or arbitrator directs.

Generally in all other cases stamp duty shall be borne by the person executing the document.

Instruments not duly stamped inadmissible in evidence, etc.
Any instrument chargeable with duty but not duly stamped can not be admitted in evidence for any purpose by any person having authority to receive evidence (i.e. court, arbitrator etc.), and shall not be acted upon, registered or authenticated by any such person or by any public officer.

Such instrument can be admitted in evidence on payment of requisite duty and a penalty at the rate of 2 per cent of the deficient portion of the stamp duty for every month or part thereof, from the date of execution of such instrument. However, in no case, amount of the penalty shall exceed double the deficient portion of the stamp duty.

Non-payment of stamp duty does not invalidate the transaction.

Admission of instrument where not to be questioned ?
Where an instrument has been once admitted in evidence, such admission shall not be called in question at any stage of the same suit or proceeding on the ground that the instrument has not been duly stamped save and except applied by the Collector of Stamps in that behalf under section 58 of the BSA.

Transaction relating to redevelopment under MHADA or by using TDR
In recent past, transactions relating to redevelopment of existing properties under MHADA or by using TDR have increased.

In case of tenanted properties that were built before 1940, the owner thereof or its nominee can approach MHADA for permission to build the building consuming double the FSI than available under the existing rules and regulations. While opting for MHADA, the new building is required to be constructed by demolishing the old structure. Whereas in case of development by using TDR, new structure may be constructed either by demolishing the old one or by constructing over the old structure extending new pillars from near the existing structure.

Many builders find redevelopment of buildings much safe than purchasing whole of the property outright to develop the same. In case of redevelopment, builders generally under the development agreement agree to give/allot some specific constructed area in the new building to the landlords and the tenants. Thus builder acquires right to reconstruct the property, without requiring much of finance for the same. Owner of any property shall while negotiating with the builder, shall make sure that the builder has to shell out substantial sum of money on or before execution of any agreement registered or otherwise. Unless the same is done, the builder may not be interested in quickly carryout activities for completing the construction of the new building. In case of any future dispute, the owner would have cut its hands by signing the development agreement and the builder may sit tight on the property, as he does not have to loose any thing. In any case, whole of the monetary consideration shall be received by the landlord before issuing power of attorney for conveyance in favour of the builder and also before the builder completes construction of major part of the new building (as once major part of construction activity gets complete it becomes difficult to get the interim orders from the court to get back the possession or to stop the construction work).

From the point of view of the builder, it should never pay any sum of money unless the development agreement is executed and registered and an appropriate power of attorney is executed and delivered by the landlord. In any case substantial sum of money shall be paid only upon getting the vacant possession of the property. Also see to it that responsibility to negotiate and deal with the tenant remains with the landlord, unless the builder is confident of successfully dealing with the tenants.

From the point of view of the tenants, they should make sure that none of them issue NOC for redevelopment unless all the terms and conditions of the alternate accommodation, temporary and permanent, are finalized and the agreement in relation thereto is executed and registered. To the extent possible the tenants shall deal with the builder as a group and not individually. Tenant shall make sure that the agreement provides for permanent alternate accommodation in the new proposed building or in some other building on ownership basis and not on tenancy basis. The agreement shall provide for formation of co-op. society/company and conveyance to such society/company within a specific time limit. Plan of the proposed building and the premises allotted to the tenant shall also be annexed to the agreement.

Congratulations One of our members Shri Bharat K. Gosar has been elected as a member of Managing Committee of the Sales Tax Practitioners' Association of Maharashtra for 2002-03.	Attention 20th Annual General Meeting of our Association will be held at 3.30 p.m. on Saturday, 3rd August, 2002 at Nappoo Hall, Matunga (C.R.), Mumbai - 400 019.
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C.V.O. CA's News & Views

Vol.5 No.6 July - Aug 2002