← Insights and Updates Real Estate

Delhi Rent Act: transfer of tenancy without the landlord's consent

The Supreme Court has ordered eviction where a tenancy passed to a merged bank without written consent. A reminder that corporate reorganisation does not carry tenancy with it.

The decision

The Supreme Court has ordered the eviction of a bank from a prime Delhi property in circumstances where the bank came into possession following the amalgamation of the original tenant bank. The Court held that the transfer of tenancy without the written consent of the landlord attracts eviction under the Delhi Rent Control Act, 1958.

The principle

Section 14(1)(b) of the Act permits eviction where the tenant has, on or after a specified date, sublet, assigned or otherwise parted with possession of the whole or any part of the premises without obtaining the consent in writing of the landlord. The words "or otherwise parted with possession" are wide. They are not confined to a voluntary assignment for consideration. Where an entity ceases to exist and its assets, including its occupation of leased premises, vest in a successor entity, the successor is in possession, and the original tenant is not. That is a parting with possession, whatever the commercial label attached to the transaction.

Why this catches people out

Corporate transactions are structured by transactional lawyers, and leases are frequently treated as a schedule item rather than a live risk. The assumption is that a statutory amalgamation, sanctioned by a court or by the regulator, carries all rights and obligations across automatically. In relation to statutory tenancies under rent control legislation, that assumption is unsafe. A statutory tenancy is a personal right conferred by the statute on the tenant; it is not simply an asset on the balance sheet.

What to do

Before any merger, amalgamation, demerger, slump sale or scheme of arrangement, conduct a specific review of every leased premises. For each, identify whether the tenancy is contractual or statutory, whether the lease contains a change-of-control or assignment clause, and whether landlord consent is required. Where consent is required, obtain it in writing, in advance, and as a condition of closing. A consent obtained after the transfer has taken effect may be too late; the eviction ground crystallises on the parting of possession.

For landlords

The corollary is that a merger among your tenants may hand you an eviction ground you did not have before. Where the premises are valuable and the rent is frozen by rent control, that is not a trivial matter. Watch for changes in the name on the signage, in the correspondence, and in the entity issuing the rent cheques.

Request a Consultation