News update:Supreme Court on termination of lease due to execution of Sale agreement

The Supreme Court held that when a lessor enters into an agreement to sell the tenanted property to his lessee during the subsistence of the lease, the execution of such agreement would not ipso facto result in the termination of the lease unless the parties intended to surrender the lease, either expressly or impliedly.

The judgment was delivered by a Bench of Justices AM Sapre and Dinesh Maheshwari.

The respondent, the owner of house had let out a portion of his house to the appellant on a monthly rent of Rs.750/­ as per the tenancy agreement entered into between them.

Subsequently, the respondent filed an application under Section 21(1)(a) of the UP Urban Buildings Regulation of Letting Rent and Eviction) Act, 1972 for eviction of the appellant from his house. The eviction was sought on the ground of respondent’s bona fide need for his and his family members’ residence.

The respondent contended that he had retired and had no other suitable house of his own where he can live and, therefore, required the house for his personal residence as also for the residence of the members of his family.

The appellant opposed the same submitting that he had entered into an agreement with the respondent for the purchase of the house in question and had also paid a huge sum to the respondent pursuant to the agreement.

It was contended that since the parties had already entered into an agreement of sale/purchase of the house, the relationship of landlord/tenant between them had ceased to exist. It was also contended that consequent upon the execution of the agreement between the parties for the purchase of the house, the appellant was no longer in possession of the house as a tenant but was in possession as a purchaser of the house in part performance of the agreement.

In other words, it was contended that the relationship of landlord and tenant between the parties had come to an end and the same stood converted into the new relationship of buyer and seller of the suit house. It was, therefore, argued that the application filed by the respondent under Section 21(1) (a) of the UP Act against the appellant for his eviction from the house was not maintainable.

This stand of the appellant was accepted by the Prescribed Authority which dismissed the respondent’s plea. The Appellate Court upheld that decision and dismissed the respondent’s appeal. The respondent then filed a writ petition before the Uttarakhand High Court which allowed the same and set aside the order of the Prescribed Authority and Appellate Court.

The High Court held that mere agreement to sell the house would not result in termination of landlord­/tenant relationship between the parties unless there is a stipulation in the agreement itself to that effect. It was also held that since the agreement in question relied on by the appellant is not a registered agreement, he is not entitled to raise the plea of part performance based on Section 53­A of the Transfer of Property Act, 1882.

The appellant approached the Supreme Court against the decision of the High Court.

The question that arose for consideration before the Supreme Court was when the lessor enters into an agreement to sell the tenanted property to his lessee during the subsistence of the lease, whether the execution of such agreement would ipso facto result in determination of the lease and severe the relationship of lessor and the lessee in relation to the leased property.

The Court held that the above question has to be decided keeping in view the provisions of Section 111 of the Transfer of Property Act and the intention of the parties to the lease – that is whether the parties intended to surrender the lease on execution of sale agreement or they intended to keep the lease subsisting notwithstanding the sale agreement.

The Court noted that Clauses (e) and (f) of Section 111 of TP Act provides for express and implied surrender for termination of lease.

In the instant case, the sale agreement contained nine conditions but none of them provided either in specific terms or impliedly that the parties intended to surrender the tenancy rights.

“we do not find any such clause….. and nor do we find that the existing conditions in the agreement discern the intention of the parties to surrender the tenancy agreement either expressly or impliedly.”

Hence, the Court concluded that the tenancy remained unaffected due to the sale agreement. It, therefore, dismissed the appeal.
Source:Bar & Bench

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