11 MONTH LEASE DEED MUST BE REGISTERED

Advocate Selvakumar | property advocates in Bangalore | advocates in Bangalore

HC says if unregistered, such deeds cannot be ‘received as evidence of any transaction affecting the property’

The common practice of lease deeds (including rental agreements) between property owners and tenants for 11 months to avoid registering the deed is not the right thing to do. The high court of Karnataka has held that deeds where the term of the lease stated does not exceed one year alaso have to be registered.

In a particular case, the court held that such unregistered deeds cannot be received as evidence of any dispute between the tenant and property owner, unregistered deeds will only serve collateral purpose in courts and not as evidence.

Abdul Rasheed, a tailor and tenant of Srinivas, a retired district judge, approached the HC against a lower court order that refused to accept as evidence four unregistered lease deeds. Justice HG Ramesh probed the question “Whether a lease deed, where the term of lease stated therein does not exceed one year, requires to be registered under the Registration Act, 1908”.

In a significant order that comes as a surprise to common perception of this aspect of law, the courtheld, “In law, the lease deeds of the afore to be registered and therefore, such unregistered lease deeds cannot be received as evidence of any transaction affecting the property.”

Rasheed in his petition claimed that under the Act, if the term of the lease was less than one year, there was no need for registration.

Section 107 of the Act says, “ 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.” However, the HC order stressed the second paragraph of the section 107 which says, “All other leases of immovable property may be made either by a registered instrument or by oral agreement accompanied by delivery of possession.” Section 49 of the Act says that documents that need to be registered but are not cannot “be received as evidence of any transaction affecting such property.” The court held that the second paragraph of section makes it mandatory for lease deeds less than one year to be registered if they are not just oral. Therefore under section 49, they become inadmissible in court if not registered.

However, the court gave liberty to Rasheed to approach the trial court with the same documents specifically stating that they are for ‘collateral purpose’ only. Therefore unregistered lease agreements can be used only as collaborative evidence in court. The order renders most rental agreements invalid as evidence in court ifa dispute arises between the lessor and lessee.

 “Usually in disputes about rents, the rent receipts are produced as evidence. It is mostly residential properties that are registered for 11 months. Commercial properties usually have a longer lease agreement. The order is an eye-opener. In court, property owners do not produce the lease agreements as they are unregistered. If it is impounded by the court, they  will end up paying 11 times the stamp duty. This order may lead to a fresh struggle between house owners and tenants.”