To understand which transactions are governed by the provisions of the RERA Act, including whether lease transactions are governed by it, the provisions of the legislation need to be analysed. As per the RERA Act, an ‘allottee’ in relation of a real estate project has been defined as “the person to whom a plot, apartment or building, as the case may be, has been allotted, sold (whether as freehold or leasehold) or otherwise transferred by the promoter, and includes the person who subsequently acquires the said allotment through sale, transfer or otherwise but does not include a person to whom such plot, apartment or building, as the case may be, is given on rent;”^[2] (emphasis supplied), whereas the term ‘real estate project’ has been defined as “development of a building or a building consisting of apartments, or converting an existing building or a part thereof into apartments, or the development of land into plots or apartments, as the case may be, for the purpose of selling all or some of the said apartments or plots or building, as the case may be, and includes the common areas, the development works, all improvements and structures thereon, and all easement, rights and appurtenances belonging thereto”^[3] (emphasis supplied). On a conjoint reading of the aforementioned provisions, it may be inferred that the RERA Act should not be applicable to the real estate projects wherein the lease rights in the plot, apartment or building as the case may be, are granted by the developer and consequently, this would mean none of the provisions of the RERA Act, including those on obligations and duties of the promoter(s), rights of an allottee, adjudicating mechanism, amongst others, would be applicable to a lease transaction. However, the usage of the term ‘leasehold’ in the definition of ‘allottee’ and view taken by certain Real Estate Regulatory Authorities (“RERA Authority(ies)”) in certain States (as discussed below) leads to an ambiguity with regard to the applicability of the RERA Act to lease transactions. That said, in case the RERA Act is applicable to all kinds of leasing transactions, it will be extremely cumbersome and counter-intuitive to the progress of the commercial leasing space in Indian real estate sector. Therefore, clarity on the applicability of the RERA Act on leasing transactions is imperative.

This aspect has been discussed on several occasions by various Courts, and tribunals set up under the RERA Act:

Lavasa Corporation v. Jitendra Jagdish Tulsiani,^[4]: The Bombay High Court in this landmark judgement held that cases of long-term lease agreement and compensation complaints can be heard by the Maharashtra RERA Authority. The facts of the case involved booking of three apartments on an agreement of lease for 999 years. The hon’ble court further observed that the “law is well settled that the nomenclature of the document cannot be a true test of its real intent and document has to be read as a whole to ascertain the intention of the parties”. Thus, excluding the long-term leases from the scope of applicability of RERA Act will defeat the fundamental objective of the RERA Act.

Nagpur Integrated Township Pvt. Ltd. v. Sujit Chandankhede & Ors., MREAT: In this recent case before the Maharashtra Real Estate Appellate Tribunal, Mumbai (“MREAT”),^[5] it was observed that a real estate project for residential/ non-residential units may be launched on the land which is freehold or leasehold. Accordingly, MREAT noted that the lessee of the land having leasehold right can also become promoter/ developer, if authorised by the development agreement. It was further observed that “a lease for longer period is as good as lease in perpetuity and it amounts to as much as alienation as sale.” Therefore, a long-term lease or an allotment entered into by way of an ‘agreement to lease’ will fall under the ambit of RERA Act. However, the transactions which involve an agreement to purely rent the apartment/ building will not, in effect be considered as a transaction of sale, and accordingly the provisions of RERA Act will not be applicable.

Marg Properties Limited v. T.M. Arunachalam: Similarly to the view taken by MREAT, the Tamil Nadu Real Estate Appellate Tribunal (“TNREAT”) in the case of Marg Properties Limited v. T.M. Arunachalam,^[6] observed that “though the document is styled as a Lease Deed, the nature of the document when read in full is indicative of that of a Sale Deed”. The brief facts of the case involved a complaint filed by one of the allottees against the promoter of a real estate project, who alleged that the subject apartment was situated at SEZ ‘Marg Swarnabhoomi’ and accordingly, could not be leased to public and persons working in other companies outside the SEZ and that the entire amount paid by him needed to be refunded. Whereas, the promoter/ appellant to the case contented that the subject project was outside the purview of the RERA Act. The order referred to few clauses of the lease deed namely, the lease term, consideration for lease, handing over possession, among others. Accordingly, the TNREAT noted that the clauses indicate that it was not a lease deed as no rental was paid, and only a one-time upfront fee equivalent to a sale deed or purchase price was paid in one lump sum. TNREAT further noted that the definition of ‘allottee’ as provided in the RERA Act will also include the leasehold rights if it is on a long-term basis such as for a term of 99 years with a renewal of another 99 years. Therefore, the promoter was directed to register the project under the RERA Act.

Interestingly, Maharashtra RERA Authority (“MRERA”) vide its ‘Additional FAQs wrt to IT Application’ has clarified that as per the wordings in section 2(d) of the RERA Act, long-term leases fall within the ambit of the RERA Act. However, the premises given on leave and license basis or on short term lease not exceeding five years are not covered under the RERA Act. Similarly, as reported by various news agencies, the Delhi RERA Authority (“Delhi RERA”) has clarified that the commercial projects involving both office and retail fall under the purview of RERA and accordingly are required to be registered under RERA and that the aforesaid registration under RERA is mandatory even in the cases where the intention of the developer is to lease the area and not to sell the same. However, unlike MRERA, the Delhi RERA is yet to make this information available officially by way of a circular, notification or FAQ on its official online portal.

While RERA Authorities in certain States have discussed the aspect of applicability of the RERA Act to leasing transactions, the view of RERA Authorities in various States may vary. Therefore, any transaction styled as a lease (while being in fact in the nature of a sale) should not oust the application of the RERA Act, if the underlying transfer of rights is similar to that of a sale transaction. However, the transactions involving rental payments on a short-term lease may be excluded from the requirement of compliance under the RERA Act. Considering the above, it is imperative to establish a clear direction in relation to the applicability of the RERA Act to long term lease transactions either through an amendment to the RERA Act or RERA rules or specific notifications, directions, circulars, etc. passed by State RERA Authority and it is equally crucial to lay out the grounds to identify whether a lease transaction is long-term or short-term to avoid any ambiguity in relation to the applicability of RERA Act. This will enable all stakeholders to clearly identify the applicability of the RERA Act depending on the nature of the lease granted and remove the opacity on this aspect.

Footnote

[1] Section 105, Chapter V, The Transfer of Property Act, 1882.

[2] Section 2(d), Chapter I, Real Estate (Regulation and Development) Act, 2016.

[3] Section 2(zn), Chapter I, Real Estate (Regulation and Development) Act, 2016.

[4] Lavasa Corporation v. Jitendra Jagadish Tulsiani & Ors., (2018) SCC Online Bom 2O74: (2018) 5 AIR Bom R 553.

[5] Nagpur Integrated Township Pvt. Ltd. v. Sujit Chandankhede & Ors., MREAT – complaint no. CC004000000020110.

[6] Marg Properties Limited v. T.M. Arunachalam, TNREAT – Appeal No. 2 of 2018.

This article was originally published in Mondaq on 7 March 2025 Co-written by: Shrutikirti Kumar, Partner; Aman Gupta, Associate. Click here for original article

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