Section 115 of the Transfer of Property Act, 1882: Effect of Surrender and Forfeiture on Under-Leases

Section 115 explains when an under-lease (sublease) survives the surrender of a head lease and when forfeiture of the head lease brings the under-lease to an end. It protects qualifying under-lessees against surrender, while laying down a different general rule for forfeiture.

Section 115 - Statutory provision

115. Effect of surrender and forfeiture on under-leases. The surrender, express or implied, of a lease of immoveable property does not prejudice an under-lease of the property or any part thereof previously granted by the lessee, on terms and conditions substantially the same (except as regards the amount of rent) as those of the original lease; but, unless the surrender is made for the purpose of obtaining a new lease, the rent payable by, and the contracts binding on, the under-lessee shall be respectively payable to and enforceable by the lessor.

The forfeiture of such a lease annuls all such under-leases, except where such forfeiture has been procured by the lessor in fraud of the under-lessees, or relief against the forfeiture is granted under section 114.

Source: India Code - Transfer of Property Act, 1882 (official text).

Meaning of important terms

Head lease and under-lease

Under Section 105, a lease transfers a right to enjoy immovable property for a specified or implied period in consideration of a price, rent or other stipulated consideration. The original lease is often called the head lease. An under-lease arises when the lessee grants a subordinate leasehold interest to another person, subject to the rights and restrictions governing the original lease.

Surrender

Under Section 111(e) and (f), a lease may determine by express surrender (the lessee yields the leasehold interest to the lessor by mutual agreement) or by implied surrender (conduct legally inconsistent with continuing the existing lease, such as accepting a new lease to operate during its term).

Forfeiture

Section 111(g) deals with forfeiture, including breach of an express condition allowing re-entry, repudiation of the landlord's title, and specified insolvency cases, together with the statutory requirement of written notice of intention to determine the lease.

Effect of surrender on an under-lease

A surrender of the head lease, whether express or implied, does not prejudice a previously granted under-lease if its terms and conditions are substantially the same as the original lease, apart from the amount of rent. The principal tenant and landlord cannot ordinarily defeat that qualifying subtenant's interest merely by agreeing to surrender their lease.

Unless the surrender is made for the purpose of obtaining a new lease, the under-lessee's rent becomes payable to the original lessor, and the contracts binding the under-lessee become enforceable by that lessor. The exception concerning surrender to obtain a new lease must be considered on its facts and does not mean that every renewal extinguishes an under-lease.

Effect of forfeiture on an under-lease

Unlike surrender, forfeiture of the head lease generally annuls the under-leases covered by Section 115. The provision expressly recognises two exceptions:

Fraud against under-lessees: the lessor procures forfeiture in fraud of the under-lessees.
Relief against forfeiture: relief is granted under Section 114, which addresses forfeiture for non-payment of rent and empowers the court, on statutory conditions, to relieve against forfeiture.

Forfeiture should not be confused with expiry of a lease by efflux of time or termination by notice. The legal ground for determination matters.

Practical illustration

A leases a building to B for ten years. B grants C an under-lease of part of the building on substantially the same terms. If B voluntarily surrenders the head lease to A, C's qualifying under-lease is not prejudiced merely because of that surrender. Ordinarily, C thereafter pays rent directly to A, unless the surrender was for the purpose of obtaining a new lease.

By contrast, if B's lease is validly forfeited, C's under-lease is ordinarily annulled, subject to the statutory exceptions for fraud against C or relief granted under Section 114.

Section 108 - Rights and liabilities of lessor and lessee, including rules relating to transfer of a lessee's interest, subject to applicable terms and law.
Section 111 - Modes of determination of leases.
Section 112 - Waiver of forfeiture.
Section 114 - Relief against forfeiture for non-payment of rent.
Section 114A - Notice and opportunity to remedy certain other breaches, subject to express exclusions.
Section 116 - Effect of holding over after determination of a lease.

Points to examine in a dispute

The lease deed, permission to sublet, timing and terms of the under-lease, nature of the surrender or forfeiture, written notices, and any alleged fraudulent arrangement should be examined. State rent-control laws and other special enactments may impose additional requirements or govern the parties' rights; Section 115 should be read alongside those applicable provisions.

This article explains the general statutory position and is not a substitute for examining the lease documents and the law applicable to the particular property.