Contingent Clause in Rent Deed to Increase Rent each Year

Siri Chand (Deceased) Thr. Lrs. Vs. Versussurinder Singh (Supreme Court)

Mere Clause in Rent Deed to Increase Rent each Year not means continuance of Rent Agreement

Whether require compulsory registration under Section 17(1)(d) of the Act?

[Reportable Judgment dated 17.06.2020 in Civil Appeal No. 2617 of 2020 before Hon’ble Supreme Court of India]

Everybody (or through their Advocate/consultant) knows that as per Section 17(1)(d) of the Registration Act, leases of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent requires compulsory registration. Therefore, generally it has been found in the society that landlord and tenant execute a Rent Deed only for eleven months (not exceeding one year) to avoid compulsory registration of rent deed.

Recently, in a matter of Civil Appeal No. 2617 of 2020, the Supreme Court, vide their judgment dated 17^th June, 2020,  has observed that where a rent deed contains a contingent clause which binds the tenant to increase the rent by certain percentage each year, it cannot be read to mean that the tenancy was for a period of more than one year.

First issue, which has arisen for consideration in this appeal is as to whether the rent note dated 27.07.1993, which is brought on record as Annexure P3 to the appeal was a document, which required compulsory registration under Section 17(1)(d) of the Registration Act, 1908.

Section 17(1)(d) of the Registration Act deals with documents of which registration is compulsory.

“(d) leases of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent;”

as per Section 17(1)(d), leases of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent requires compulsory registration.

The Apex Court consider in the aforesaid matter whether the rent note dated 27.07.1993 can be treated to be a lease of immovable property – (i)from year to year, (ii) for any term exceeding one year, (iii) or reserving a yearly rent?

The Apex Court observed in this matter that they should notice the relevant clauses of the rent deed to find out as to whether Section 17(1)(d) was applicable in the facts of the present case making Rent Note compulsorily registrable.

The agreement/rent deed, which is written and signed by the respondent in the aforesaid matter alone contains 16 clauses, which were promises made by the respondent written in the rent deed. Clause 1 to 3, 9, 10, 14, 15 and 16, which are relevant, are as follows:

“1) I will make the payment of the sum of Rupees 2,000/- (Two Thousand only) each month in advance in cash currency up to date 5 (Five) to the owner of the shop, Sri Chand.

2) The rent deed will be applicable from 28.07.1993

3) The amount of the house tax and the electricity bills regarding the abovesaid shop will be paid by me.

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9) I will be bound for making the payment of the rent money by increasing 10% (ten percent) each year.

10) If I may not make the payment of the rent up to the prescribed date in advance and then there will be right to the shop owner that he can get the shop vacated.

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14) I have paid the amount of Rupees 3600/- (Three Thousand Six Hundred only) to the shop owner as a security, vacating the shop, handing over the possession to the shop owner, I will be entitled for the refunding of this security amount.

15) If the shop owner is in need of this shop and then serving the notice of one-month period, he can get the shop vacated from me, there will be no objection to me in this regard.

16) If in any situation, I may not comply with this agreement/rent deed and then there will be right to the shop owner that vacating the shop forcible, he can take over the possession from me and may dispossess me, there will be no objection and claim of mine or any of my legal heir.”

Clause (1) of the rent deed specifically makes it clear that monthly tenancy was created on payment of rent of Rs.2,000/- per month.  The payment was to be made before 5th of each month to the owner.  The rent deed does not provide for any specific period for which the rent deed was executed.  When a rent deed/lease deed does not provide for a period and when it provides for payment of rent monthly, whether tenancy can be treated from year to year or for any term exceeding one year or reserving a yearly rent?The rent deed does not reserve yearly rent, hence the third condition as noted above is not applicable.The rent deed is not also a lease of immovable property from year to year.  There is no mention in the rent deed that it is a lease from year to year,hence the said condition is also not applicable.

Only clause which need to be, thus, considered is as to whether the rent deed was “for any term exceeding one year”.  The present is a case where rent deed does not prescribe any period for which it is executed.

In such a situation, the Apex Court observed:

“When the lease deed does not mention the period of tenancy, other conditions of the lease/rent deed and intention of the parties has to be gathered to find out the true nature of the lease deed/rent deed.”

In the said matter, the rent deed in question does not reserve yearly rent and there is no mention in the rent deed that it is a lease from year to year. But there is a clause (9), which provided that the tenant will be bound for making the rent money by increasing 10% each year.

Referring to this clause, the Court said:

It is true that although in clause (9), it was mentioned that the tenant will be bound for making the rent money by increasing 10% each year,that was promise by the tenant to increase the rent by 10% each year for the period of tenancy, though the period of tenancy was unspecified.

The Court also said:

“Clause (9) may or may not operate in view of specific clauses reserving right of landlord to evict the tenant on committing default of non-payment of rent by 5th of every month or when landlord requires shop by giving one month’s notice.

Clause (9) was a contingent clause which binds the tenant to increase the rent by 10% each year, which was contingent on tenancy to continue for more than a year, but that clause cannot be read to mean that the tenancy was for a period of more than one year.”

Therefore, the Court concluded that the rent note was not such kind of rent note, which requires compulsory registration under Section 17(1)(d) of the Act.

Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.