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Lease and its Types in India

Introduction:

In India, lease deed mentions that a person can enjoy another person’s property for a specified period. It also says that property may be tangible and intangible property and also movable and immovable property. Under the Transfer of Property Act,1882 lease is defined as:-

“A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms.”

The person who transfers any property such as tangible and intangible or movable and immovable is known as transferor or lessor and the person who receives the property or to whom transfer is made is known as transferee or lessee.

Essential conditions for lease according to Section 105 of the Transfer of Property Act, 1882 are:-

1. The first essential condition is immovable property.

2. When a person transfers the right of the property that must only involve the right to use the property. This means that he will have possession but not ownership.

3. There should be periodical payment for any consideration of the lease which may be rent or premium or both.

4. A registered document can only be used to extend the lease for a period of more than a year.

Types of lease are as follows:-

  1. Financial lease:- Under this type all the risks and rewards which are related to the asset transferred to the lessee by the lessor. This lease is irrevocable in nature and also a long term lease. Here, the lessee maintains the property and lessor does not provide any service.
  2. Operating lease:- Here, all the risks and rewards of the property or asset are not transferred to the lessee by the lessor. There is limited time for the lessee to use the asset or property and burden of the cost of maintaining the property lies on the lessor.

3. Sale and Lease Back Leasing:- Here, the lessor gets the property which is sold by the lessee with an advance agreement between them and which urges the leasing of asset back to the lessee for a fixed rental per period. This is also called a Bipartite lease

4. Direct Lease:-In simple words, here lessor holds the asset or owned by him or he acquires it. There are three parties included here. This is a tripartite lease.

5. Single Investor Lease:- Here, lessor arranges money to finance his asset by debt or equity.

6. Domestic Lease:-This is important to lease because it is done in the country. This says that when the parties to the lease are residing in the country is called a domestic lease.

8. International Lease:-There are two types of lease under here. They are Cross border lease and Import lease.

Merits of Leasing:

(i) The first and most important merit is that it has flexibility.

(ii) There is documentation in leasing deal when compared to term loans from financial institutions.

(iii) It is a better source to get a loan and other facilities from financial institutions.

(iv) The ‘Sale and Lease Bank’ arrangement enables the lessees to borrow in case of any financial crisis. When the person is in financial crisis, the Sale and Lease Bank arrangements helps them to borrow some amount.

(vi) The lessee gets tax benefits.

Demerits of Leasing:

(i)Here, the cost of interest is huge in leasing.

ii)Leasing is not so preferable for bringing up new projects because rentals are generated soon after the acquisition of assets.

iii)The lessor or transferor leases out assets purchased by him with the help of bank credit.

Conclusion:

Under the Transfer of Property Act,1882 lease is a mode of transfer of property. There are eight different types of lease which are explained above that are used in India and outside India. There is an equally high benefit for owners and tenants if they consult with experts during the transactions. Most of the people prefer to get experts as they give correct and solid advice.

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