Landlord-Tenant relationship is a jural relationship and is governed by the provisions of Transfer of Property Act, 1882 (Act). In a landlord/tenant relationship, the parties are often referred to as lessor (landlord) and lessee (tenant). The contract under which the landlord-tenant relationship is bound is a lease agreement. The term ‘lease’ is defined under Section 105 of the Act and states as follows – 

“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 specific occasions to the transferor by the transferee, who accepts the transfer on such terms”. Thus, a lease of an immovable property is a contract between two principal parties the lessor and the lessee, whereby the lessor creates an interest in favour of the lessee with regard to property for a specific duration.

When a landlord decides to sell his property to the tenant and the tenant agrees to purchase the property, and both parties thereafter enter into an agreement for sale/purchase of the property, then the following questions emerge:

i) Does the lease in the property in favour of the lessee come to an end, the moment both the parties enter into an agreement for sale/purchase?

ii) Does the landlord/tenant relationship cease to exist on entering into an agreement for sale/purchase, and

iii) Whether execution of such an agreement would ipso facto result in determination of the lease?

The Supreme Court of India in its ruling in the case of H.K. Sharma v. Ram Lal[1] has answered the question by distinguishing its own judgment on facts in the case of R. Kanthimathi and Anr. V. Beatrice Xavier[2]. While dealing with the above questions, the Supreme Court has considered the provisions of Section 111 of the Act and intention of the parties to the lease – whether the parties intended to surrender the lease on execution of such an agreement in relation to the tenanted premises or subsistence of the lease notwithstanding the execution of an agreement for sale/purchase.

While, Section 111 (a) to (h) set out the grounds on which lease of an immoveable property can be determined, Section 111 (e) provides that a lease of an immovable property can be determined by an express surrender; in case, the lessee yields up his interest under the lease to the lessor by mutual agreement. On the other hand, Section 111 (f) provides that the lease can be determined by implied surrender. While express surrender is clear, an example of implied surrender would be in case the lessee accepts a new lease of the property from the lessor during the subsistence of the lease, it is an implied surrender of the former lease; hence, the former lease stands determined.

In the light of these provisions, the Apex Court, in the abovementioned case has, upon perusal of the ‘Agreement to Sell’ entered between the parties and the conditions mentioned in the agreement, opined that neither the conditions in the agreement provide the fate of the tenancy nor these conditions can be construed as intention of the parties was to surrender the tenancy.

In case the parties intended to surrender their tenancy rights while entering into the Agreement to Sell; they would have made the necessary provision to effectuate the same by providing specific clauses akin thereto in the agreement, which was not the present case.

The Apex Court held that the conditions set out in the agreement do not make a case of express surrender under Section 111 (e) or implied surrender under Section 111 (f) of the Act, hence, the tenancy between the parties did not result in its determination merely due to execution of the Agreement to Sell. The terms in the agreement have been examined very strictly for deciding the question as to whether the execution of agreement, in any manner whatsoever, would result in determination of the existing tenancy between the parties in relation to the property in the context of the Act and not beyond it.

In conclusion, merely an execution of an agreement for sale/purchase would not ipso facto terminate the landlord-tenant relationship nor translate into a buyer-seller relationship unless there is a stipulation in the lease agreement itself to that effect, and since the landlord-tenant relationship survives even after execution of an agreement for sale/purchase, the landlord would not be barred from initiating eviction proceedings against the tenant. The case lays out a clear foundation for interpretation of leases with or without covenants for sale/purchase and its due performance by the parties, in each instance.

[1] (2019) 4 SCC 153

[2] (2000) 9 SCC 339