Understanding RERA's Jurisdiction Over Lease Transactions: Premium vs. Rent
The Real Estate (Regulation and Development) Act, 2016 aims to protect homebuyers, but its applicability to lease transactions is a contentious issue. This article explores the legal and judicial interpretations to clarify the jurisdiction of RERA over lease agreements.
ReraLease TransactionsReal EstateAllotteePremiumReal EstateJun 18, 2025
The ambiguity surrounding the Act's applicability to lease transactions arises from seemingly contradictory provisions. Section 2(d) includes within the definition of an 'allottee' a person to whom a plot, apartment, or building has been allotted, sold (whether as freehold or leasehold), or otherwise transferred. However, it explicitly excludes a person to whom such property is given on rent. This definition, when read alongside the sale-centric definitions of 'real estate project' and 'promotor', raises questions about RERA's jurisdiction in lease matters.
Judicial Interpretations: Substance Over Form Approach
The Bombay High Court, in Lavasa Corpn. Ltd. vs. Jitendra Jagdish Tulsiani, emphasized the long-term nature of the lease and the inclusion of 'leasehold' in the definition of 'allottee' under the Act. The court held that when the transaction is, in reality, a sale, the mere nomenclature of the document as 'Agreement of Lease' will not take away the rights under the Act. However, if the transaction is, in essence, an 'Agreement of Rent and Lease' and is purely based on rent, it falls outside the Act's purview.
Subsequently, the Maharashtra Real Estate Regulatory Authority (MahaRERA) clarified that only short-term leases for a term of five years would not fall within the Act's ambit. Similarly, the Tamil Nadu Real Estate Appellate Tribunal (TNREAT) held that the definition of 'allottee' under the Act includes leasehold rights if it is a long-term lease. However, it laid more emphasis on the rental aspect of the 'lease deed' to determine if the transaction is in the nature of a sale.
Furthermore, some jurisdictions, such as Delhi, have issued public notices requiring compulsory registration under the Act if certain conditions are met. These conditions suggest an intent to widen RERA's scope and include all real estate projects, whether for selling or leasing.
A Path to Uniformity: The Consideration Approach
Judicial pronouncements consistently hold that long-term lease agreements, which are in the nature of a sale transaction, fall within the Act's ambit. Short-term lease agreements, which are purely rental in nature, are not covered. However, there remains a lack of clarity in defining the guiding principles that qualify a lease transaction as a sale transaction for the Act's purpose.
For instance, unlike MahaRERA, TNRERA has not specified any fixed lease term threshold. Several other states and union territories, including Telangana, have yet to address the issue explicitly. Since the approach opted by MahaRERA or TNRERA is not binding on other jurisdictions, the uncertainty remains.
In light of the above, it is crucial to bring uniformity in RERA's jurisdiction regarding lease transactions. The following approach is suggested to understand the distinction created within the Act by including 'leasehold' and excluding rental transactions from the definition of an allottee.
In a purely rental transaction, where the amount is payable periodically rather than as a lump sum, both parties share equal risk in case of breach. Such risks are sufficiently governed and protected by their respective rights and obligations under the agreement. However, in the real estate sector, it is not uncommon to enter into lease deeds for '99+' or '999+' years to circumvent RERA's jurisdiction. In such lease transactions, a lump sum amount is often payable by the lessee at the time the lease deed is entered into, accompanied by a nominal or negligible rent paid annually. In such arrangements, since the lessee invests a significant amount at the outset, they bear a much higher risk and require stronger legal protection.
To further elucidate this distinction, reference must be made to section 105 of the Transfer of Property Act, 1882, which envisages the consideration in the form of either premium, rent, or both for creating a leasehold right with respect to an immovable property. The distinction between premium and rent has been discussed in numerous judgments, wherein the Supreme Court has clarified that the fundamental distinction between a rent-based leasehold and a premium-based leasehold lies in whether the amount paid or payable is accrued at the time the contract was entered into or periodically over its term.
For instance, if the lessor parts its interest in the property for an amount paid by the lessee once at the time of entering into a lease deed, it is considered a premium. If the lessee pays an amount periodically during the term of the lease for the continuous enjoyment of the interest in the property, it constitutes rent. When viewed through this lens, the amount being paid by the allottee in such lease transactions constitutes a premium rather than rent. Therefore, the intention of the legislature in including 'leasehold' and excluding 'rental transactions' from the definition of an allottee seems to be aimed at preventing attempts to circumvent RERA's jurisdiction, particularly from the perspective of the nature of the consideration involved.
Thus, a lease transaction involving a lease agreement for a period of 999+ years where the lessee is required to pay approximately 80% of the consideration upfront, with a nominal annual rent of Rs.1/-, would be a premium-based lease and would fall within the purview of the Act. On the other hand, a lease transaction involving a lease agreement for 99 years where the lessee is required to pay a certain amount periodically, with an upfront security deposit equal to two months of the amount payable periodically, can be considered a purely rental transaction and would be excluded from the Act's purview.
In view of the above, it is suggested that the determination of whether a particular lease transaction falls within the Act's ambit be undertaken through an analysis of the nature of consideration exchanged under the lease deed. This approach is preferable to any attempt to construe the lease deed as a sale deed or to characterize the lease transaction as one in the nature of a sale, as such interpretations may lead to unfair mischaracterization of the transaction based on the term period of the lease or other clauses of the agreement under consideration.
The courts or RERA authorities should interpret the ambiguity in section 2(d) of the Act in a way that gives a balanced effect to both the inclusion of 'leasehold' and the exclusion of 'rental arrangement' in the definition of allottee. Any interpretation to remove the ambiguity in a statute should aim to bring consistency and harmony rather than introducing or deleting words or meanings not explicitly included or excluded by the legislature. However, the approach taken by various RERA authorities, as described earlier, not only alters the very nature of the agreement between the parties but also gives preference to inclusion over exclusion by introducing another uncertain area, namely, lease agreements, which are in the nature of sale transactions.
Accordingly, to avoid the above uncertainty, it is proposed that all lease transactions between the promoter and allottees wherein the consideration is in the form of a 'premium', a combination of 'premium and rent', or any other form of consideration as contemplated under section 105 of the Transfer of Property Act, excluding transactions involving only 'rent', shall fall within the ambit of the Act. This approach harmonizes the wordings of the Act and enables uniformity in RERA's exercise of its jurisdiction over lease transactions.
Frequently Asked Questions
What is the Real Estate (Regulation and Development) Act, 2016 (RERA)?
The Real Estate (Regulation and Development) Act, 2016 (RERA) is a law enacted to protect the interests of homebuyers and regulate the real estate sector in India.
What is the definition of an 'allottee' under RERA?
An 'allottee' under RERA is a person to whom a plot, apartment, or building has been allotted, sold (whether as freehold or leasehold), or otherwise transferred, excluding those to whom the property is given on rent.
What is the distinction between a 'premium' and 'rent' in lease transactions?
A 'premium' is a lump sum amount paid at the time of entering into a lease deed, while 'rent' is an amount paid periodically during the term of the lease.
How do judicial interpretations determine the applicability of RERA to lease transactions?
Judicial interpretations hold that long-term lease agreements, which are in the nature of a sale, fall within the purview of RERA, while short-term lease agreements, which are purely rental, are not covered.
What is the proposed approach to bring uniformity in RERA's jurisdiction over lease transactions?
The proposed approach is to determine the nature of consideration exchanged under the lease deed, including 'premium' or 'rent', to decide whether a lease transaction falls within the ambit of RERA.
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