AAP Tax Law legal information
Transfer of Property Act, 1882 | Chapter IV

Section 71: Renewal of Mortgaged Lease

Section 71 of the Transfer of Property Act, 1882 governs a renewed lease when the mortgaged property is itself a leasehold interest. If the mortgagor obtains renewal, the mortgagee is, unless the parties have agreed otherwise, entitled to treat the renewed lease as part of the mortgage security. The provision protects the value and continuity of the security without making the mortgagee the absolute owner of the renewed lease.

Full statutory text of Section 71 - Renewal of mortgaged lease

71. Renewal of mortgaged lease. When the mortgaged property is a lease, and the mortgagor obtains a renewal of the lease, the mortgagee, in the absence of a contract to the contrary, shall, for the purposes of the security, be entitled to the new lease.

Definitions and legal meaning

A mortgage under Section 58(a) is a transfer of an interest in specified immovable property to secure repayment of a debt or another specified pecuniary obligation. The mortgagor is the person creating that security and the mortgagee is the person in whose favour it is created. A lease under Section 105 is a transfer of a right to enjoy immovable property for a specified or ascertainable period, or in perpetuity, in consideration of the legally recognized payment or other value. A leasehold mortgage uses the mortgagor's transferable leasehold interest, rather than the landlord's ownership, as security.

Renewal means the continuation or grant of a new lease in place of an existing lease according to the relevant lease terms and law. Under Section 71, the benefit of that new lease attaches to the mortgage security where the mortgagor secures the renewal.

Conditions for Section 71 to apply

  1. Leasehold property was mortgaged: the mortgage security comprises a lease or a transferable interest under it.
  2. Renewal occurred after the mortgage: the mortgagor obtains a new or renewed lease in relation to the mortgaged leasehold.
  3. No contrary contract: the mortgage deed or a binding arrangement does not exclude or alter the statutory treatment of renewal.
  4. Security purpose: the mortgagee's entitlement to the renewed lease operates only to preserve or enforce the mortgage security, subject to applicable rights of redemption.

Effect of renewal on the mortgage security

If a lease would otherwise expire during the life of a mortgage, the mortgagor cannot ordinarily remove the renewed lease from the mortgagee's security simply by obtaining renewal in the mortgagor's own name. The mortgagee may rely on the renewed lease as security for the mortgage debt. This does not independently confer ownership of the property, override restrictions on transfer or renewal in the head lease, or eliminate the mortgagor's right to redeem under Section 60.

Contract to the contrary

The words "in the absence of a contract to the contrary" make the statutory rule a default. An effective contrary term may change the parties' respective rights to the renewal. The specific wording of the mortgage deed, lease covenants, permissions and applicable law must therefore be considered.

Practical illustration

A holds a transferable lease of commercial premises and mortgages that leasehold interest to B to secure a loan. Before the original lease expires, A obtains a renewed lease from the landlord. Unless the mortgage agreement provides otherwise, B's mortgage security extends to A's renewed lease under Section 71. After valid redemption and satisfaction of the mortgage, B cannot continue asserting a security interest solely on the basis of Section 71.

Difference between Sections 64 and 71

Section 64 addresses the opposite situation: where the mortgagee obtains renewal of a mortgaged lease, the mortgagor ordinarily receives the benefit of the new lease upon redemption. Under Section 71, when the mortgagor obtains renewal, the mortgagee ordinarily receives its benefit for the purpose of security. Both provisions contain a qualification for a contrary contract, but they protect different interests.

Section 70 extends mortgage security to subsequent accessions to the mortgaged property, subject to a contrary contract. Section 67 deals with judicial foreclosure or sale, subject to statutory limits. Sections 105 to 108 concern leases and the rights and obligations of lessors and lessees. The validity of the underlying lease, renewal, any restrictions on assignment, and relevant local laws may affect a particular transaction.

Frequently asked questions

Does a renewed lease automatically become the mortgagee's property?

No. Section 71 entitles the mortgagee to the renewed lease for the purposes of security; it does not by itself transfer absolute ownership.

Does Section 71 apply when the mortgagee, rather than the mortgagor, renews the lease?

No. The corresponding situation is dealt with in Section 64.

Can the mortgage deed exclude Section 71?

Section 71 expressly recognizes a contract to the contrary, subject to applicable law and the terms of the lease.

Official legal resources

Consult the Transfer of Property Act, 1882 on India Code and the Legislative Department, Government of India. For a particular property, verify relevant state amendments and the actual lease and mortgage instruments.