Section 65A of Transfer of Property Act, 1882 - Mortgagor's Power to Lease

Section 65A of the Transfer of Property Act, 1882 deals with the power of a mortgagor who remains lawfully in possession to grant leases that bind the mortgagee. The statutory power is subject to safeguards concerning the nature of the lease, rent, commencement, renewal, building leases and the terms of the mortgage deed.

Section 65A - Complete statutory text

65A. Mortgagor's power to lease. (1) Subject to the provisions of sub-section (2), a mortgagor, while lawfully in possession of the mortgaged property, shall have power to make leases thereof which shall be binding on the mortgagee.

(2) (a) Every such lease shall be such as would be made in the ordinary course of management of the property concerned, and in accordance with any local law, custom or usage.

(b) Every such lease shall reserve the best rent that can reasonably be obtained, and no premium shall be paid or promised and no rent shall be payable in advance.

(d) Every such lease shall take effect from a date not later than six months from the date on which it is made.

(e) In the case of a lease of buildings, whether leased with or without the land on which they stand, the duration of the lease shall in no case exceed three years, and the lease shall contain a covenant for payment of the rent and a condition of re-entry on the rent not being paid within a time therein specified.

(3) The provisions of sub-section (1) apply only if and as far as a contrary intention is not expressed in the mortgage-deed; and the provisions of sub-section (2) may be varied or extended by the mortgage-deed and, as so varied and extended, shall, as far as may be, operate in like manner and with all like incidents, effects and consequences, as if such variations or extensions were contained in that sub-section.

Meaning of mortgagor, mortgagee and lease

Under Section 58, a mortgage is a transfer of an interest in specific immovable property to secure payment of a loan or other specified obligation. The transferor is the mortgagor and the transferee is the mortgagee. Under Section 105, a lease is a transfer of a right to enjoy immovable property for a certain time, express or implied, or in perpetuity, in consideration of a price, rent or other consideration as provided by that section.

Conditions for a lease binding on the mortgagee

Lawful possession: The mortgagor must be lawfully in possession when granting the lease.
Ordinary management: The transaction must be consistent with ordinary management and applicable local law, custom or usage.
Reasonable market rent: The best rent reasonably obtainable must be reserved; neither premium nor advance rent is permitted under the default statutory rule.
No renewal covenant: A covenant giving the tenant a right to renewal is excluded under the default rule.
Timely commencement: The lease must begin within six months of execution.
Buildings: A lease of a building, with or without its land, cannot exceed three years under the default rule and must include a rent-payment covenant and a condition for re-entry upon non-payment within the specified time.
Mortgage deed: The deed can exclude the power under sub-section (1) or vary or extend the conditions under sub-section (2), as provided in sub-section (3).

Legal effect and limits

A lease that satisfies Section 65A and the governing mortgage deed is binding on the mortgagee. The provision does not confer an unlimited leasing power or override applicable tenancy, rent-control, registration or other mandatory law. The mortgagor's power must be distinguished from any power of a mortgagee in possession to lease or manage the property.

Practical example

A mortgagor remains lawfully in possession of a mortgaged commercial building. The mortgagor grants a two-year lease at the best reasonably obtainable rent, without premium, advance rent or renewal covenant. It starts within six months and provides for rent payment and re-entry if rent remains unpaid for the specified period. Subject to the mortgage deed and other applicable law, the lease can bind the mortgagee under Section 65A. A five-year building lease would not satisfy the default three-year limit unless a valid variation under sub-section (3) applies.

Section 65 concerns implied contracts by the mortgagor. Section 66 deals with waste by a mortgagor in possession. For leases generally, Sections 105, 107 and 108 of the Act may also be relevant.

Official law

Consult the Transfer of Property Act, 1882 (India Code) and check applicable state amendments and binding judicial decisions.