Thinking through Timelines: Acceptance of Rent Amounts to Waiver of Termination of Lease?

Background

The dispute in this matter arose in connection with unregistered lease agreements for the lease of shop premises at Banaswadi Main Road, Bengaluru. Pursuant to the expiry of the last lease deed executed between the parties, the respondent-lessor filed a suit for ejectment before the Small Causes Court against the petitioner-lessee to obtain vacant possession of the shop premises. The Small Causes Court dismissed the suit for ejectment on the grounds that the suit was not maintainable as there was no valid termination of tenancy under section 106 of the Transfer of Property Act, 1882 (“ToP Act”) (detailed hereinbelow).

Aggrieved by the aforesaid dismissal, the respondent-lessor preferred a revision petition before the Karnataka High Court (“High Court”). Upon appreciation of the evidence on record, which inter alia consisted of unregistered lease agreements executed between the parties during the period of 1989 to 1995, the High Court noted that the duration of the lease agreements could be inferred to be for a period of 11 (eleven) months each, and thus the lease granted thereunder stood terminated by efflux of time. Hence, the petitioner-lessee was not entitled to notice under section 106 of the ToP Act. The High Court thus set aside the judgement of the Small Causes Court.

The petitioner-lessee thereafter filed a special leave petition (“Special Leave Petition”) before the Supreme Court challenging the judgment and final order of the High Court.

Applicable Provisions and Contentions

The primary contention in the matter was the applicability of section 106 of the ToP Act, which provides that where there is no written contract for the lease of immovable property, not being leased for agricultural or manufacturing purposes, the period of the lease shall be deemed to be from month to month and terminable by 15 (fifteen) days’ notice. The contention of the petitioner-lessee before the Small Causes Court was that no valid notice was served by the respondent-lessor as per this provision. On the basis of the aforesaid, the Small Causes Court ruled in favour of the petitioner-lessee. However, based on the aforementioned evidence evaluation, the High Court determined that the lease in this case stood determined by virtue of section 111(a) of the ToP Act, which provides that a lease may come to an end by efflux of time limited therein.

The Supreme Court, in the Special Leave Petition, took note of the contention of the petitioner-lessee that after the expiry of the period of the last lease agreement, the petitioner-lessee was continuing as a tenant in sufferance and had paid the rent till the date of the filing of the suit for ejectment.

Verdict

Considering the above provisions and contentions, the Supreme Court appreciated the reiteration of the High Court, based on the precedents relied upon by the High Court, that mere acceptance of the rent does not amount to a waiver of the termination of the tenancy. The Supreme Court, however, granted the request of the petitioner-lessee for a grant of time to vacate the shop premises by allotting a period of 6 (six) months from the date of its judgement to hand over the possession of the shop premises to the respondent-lessor. The aforesaid extension was granted subject to the petitioner-lessee submitting an undertaking on affidavit to pay the arrears of rent at the rate of INR 1400/- (Indian Rupees One Thousand Four Hundred only) per month for the arrears pending from the year 2017 (as determined by the High Court) and extending to the aforesaid period of 6 (six) months.

Accordingly, the Supreme Court upheld the decision of the High Court and dismissed the Special Leave Petition for being devoid of merit.

The Takeaway

The reaffirmation of the Supreme Court on non-waiver of termination in this matter reinforces the significance of capturing the duration of the lease in crystal clear terms in lease agreements. Detailing timelines for termination and notice period is just as important. As seen in the facts of the discussed case, the absence of such agreed timelines can further complicate disputes arising between the parties. Hence, customising such timelines on a case-specific basis is critical, while adopting timelines based merely on common practice is best avoided.