GROVER, J. – This is an appeal by special leave from a judgment of the Mysore High Court in
which the question involved is whether an option given to a lessee to get the lease, which is initially
for a period of 10 years, renewed after every 10 years is hit by the rule of perpetuity and is void.
2. The respondent entered into a deed of lease on October 26, 1951 with the appellant in respect
of premises Nos. 8 and 9, Mahatma Gandhi Road (South Parade), Civil Station, Bangalore. It was
stipulated that the lease would be for a period of 10 years in the first instance with effect from
November 1, 1961 “with an option to the lessee to renew the same as long as desired as provided”.
Clauses 9 and 10 which are material may be reproduced:
“9. The lessee shall have the right to renew the lease of the scheduled premises at the end
of the present period of ten years herein secured on the same rental of Rs 450/- per month,
for a similar period and for further similar periods thereafter on the same terms and conditions
as are set forth herein; and the lessee shall be permitted and shall have the right to remain in
occupation of the premises on the same terms and conditions for any further periods of ten
years as long as they desire to do so.
10. The lessor shall not raise any objection whatsoever to the lessee exercising his option
to renew the lease for a further period of ten years on the same terms and conditions as long
as they desire to be in occupation, provided that the lessee shall not have the right to transfer
the lease or alienate any right thereunder.”
3. It appears that before the expiry of the period of ten years from the date of the commencement
of the lease the lessee wrote to the lessor informing him of the intention to exercise the option given to
the lessee under the deed of lease to get the same renewed on the same terms and conditions as before
for a period of ten years from November 1, 1961. The lessor did not comply with the request. After
serving a notice the lessee filed a suit for specific performance of the covenant in the lease for
renewal. It was prayed that the lessor be directed to execute a registered deed of lease in favour of the
lessee and if he failed to do so the court should execute a deed in his favour. The lessor pleaded, inter
alia, that the condition relating to renewal was hit by the rule against perpetuity. Certain other pleas
were taken with which we are not concerned. The trial court decreed the suit. The first appellate court
and the High Court affirmed the decree.
4. The rule against perpetuity is embodied in Section 14 of the Transfer of Property Act,
hereinafter called the Act. According to it no transfer of property can operate to create an interest
which is to take effect after the lifetime of one or more persons living at the date of such transfer and
the minority of some person who shall be in existence at the expiration of that period and to whom, if
he attains full age, the interest created is to belong. It is well known that the rule against perpetuity is
founded on the principle that the liberty of alienation “shall not be exercised to its own destruction
and that all contrivances shall be void which tend to create a perpetuity or place property for ever out
of the reach of the exercise of the power of alienation”. The words “transfer of property” have been
defined by Section 5 of the Act to mean an act by which a living person conveys property in present
or in future to one or more other living persons etc. The words “living persons” include a Company or
association or body of individuals. Section 105 of the Act defines “lease”. A lease of immovable
property is a transfer of a right to enjoy such property made for a certain time express or implied or in
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perpetuity in consideration of a price paid or promised or of money, a share of crops, service or
any other thing of value. A lease is not a mere contract but it is a transfer of an interest in land and
creates a right in rem. Owing to the provisions of Section 105 a lease in perpetuity can be created but
even then an interest still remains in the lessor which is called a reversion.
5. It is not disputed on behalf of the appellant that a lease in perpetuity could have been created
but the lease in the present case was not of that kind and was for a period of ten years only in the first
instance. It is said that the mischief is created by the clauses relating to renewal which are covenants
that run with the land. It is pointed out that on a correct construction of the renewal clauses the rule of
perpetuity contained in Section 14 would be immediately attracted. We are unable to agree. Section
14 is applicable only where there is transfer of property. Even if creation of a lease hold interest is a
transfer of a right in property and would fall within the expression “transfer of property” the transfer
was for a period of ten years only by means of the indenture Exh. P-1. The stipulation relating to
renewal could not be regarded as transferring property or any rights therein.
6. In Ganesh Sonar v. Purnendu Narayan Singha [AIR 1962 Pat 201] in the case of lease of
land an option had been given to the lessor to determine the lease and take possession of the leasehold
land under specified conditions. The question was whether such a covenant would fall within the rule
laid down in the English case Woodall v. Clifton [1905-2 Ch 257] in which it was held that a proviso
in a lease giving an option to the lessor to purchase the fee simple of the land at a certain rate was
invalid as infringing the rule against perpetuity. The Patna High Court distinguished the English
decision quite rightly on the ground that after the coming into force of the Act a contract for the sale
of immovable property did not itself create an interest in such property as was the case under the
English law. According to the Patna decision the option given by the lessee to the lessor to resume the
leasehold land was merely a personal covenant and was not a covenant which created an interest in
land and so the rule against perpetuity contained in Section 14 of the Act was not applicable. The
same principle would govern the present case. The clauses containing the option to get the lease
renewed on the expiry of each term of ten years can by no means be regarded as creating an interest in
property of the nature that would fall within the ambit of Section 14.
7. Even under the English law the court would give effect to a covenant for perpetual renewal so
long as the intention is clear and it will not be open to objection on the ground of perpetuity. In
Mutter v. Trafford [(1901) 1 Ch 54], it was held that the covenant in a lease for renewal was not
strictly a covenant for renewal. But Farwell J. proceeded to observe that a covenant to renew had been
held for at least two centuries to be a covenant running with the land. If so, then no question of
perpetuity would arise. It appears that in England whatever might have been the reason, the objection
of perpetuity had never been taken to cases of covenants for renewal. The following observations of
Farwell, J., which were quoted with approval by Lord Evershed M. R. in Weg Motors Ltd. v. Hales
[1961-3 All ER 181] are noteworthy:
“But now I will assume that this is a covenant for renewal running with the land; it is
then in my opinion free from any taint of perpetuity because it is annexed to the land. See
Rogers v. Hosegood, (1900) 2 Ch. 388.”
8. The equitable rule that the burden of a covenant runs with the land is to be found in Section 40
of the Act. This section reads:
“40. Where for the more beneficial enjoyment of his own immovable property, a third
person, has, independently of any interest in the immovable property of another or of any
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easement thereon, a right to restrain the enjoyment in a particular manner of the latter
property, or
where a third person is entitled to the benefit of an obligation arising out of contract, and
annexed to the ownership of immovable property, but not amounting to an interest therein or
easement thereon,
such right or obligation may be enforced against a transferee with notice thereof or a
gratuitous transferee of the property affected thereby, but not against a transferee for
consideration and without notice of the right or obligation nor against such property in his
hands.”
As pointed out in Mulla’s Transfer of Property Act, 5th Edn. at page 194 Section 40 expressly
says that the right of the covenantee in not an interest in the land bound by the covenant nor an
easement. It is not an interest because the Act does not recognise equitable estates and it cannot be
said as Sir George Jessal said in London and South Western Rly. v. Gomm.[(1882) 20 Ch D 562] that
if a covenant “binds the land it creates an equitable interest in the land”. The expression “covenant
runs with the land” has been taken from the English law of real property. It is an exception to the
general rules that all covenants are personal. Even on the footing that the clauses relating to renewal in
the lease, in the present case, contain covenants running with the land the rule against perpetuity
contained in Section 14 of the Act would not be applicable as no interest in property has been created
of the nature contemplated by that provision.
9. For the above reasons the appeal fails and it is dismissed with costs.
