Lease Contract

If a contract is concluded under which a person gives any goods in which he or shehas right and possession to another person for use and possessionand enjoy the benefits accrued therefrom in consideration for a rentpayable regularly for a certain period.In Nepal, the legal framework governing lease contracts is referred to as the “Muluki Civil Code 2074,” which provides the guidelines for lease contracts in the country.

The lessor must guarantee the lessee regarding the following concerns:

To transfer certain goods for use and possession according to the contract,
To maintain the goods transferred pursuant to clause (a) in a running condition so that they may be possessed or used at the time of the transfer,
To make arrangements so that the goods transferred pursuant to clause (a) or (b) can be possessed or used peacefully and without any hindrance.

Despite what is mentioned elsewhere in the section, it is not allowed to lease goods that can be destroyed in use or goods that are consumable.

Form of the leased goods not to be changed: The lessee shall not change the original form of the leased goods without the consent of the owner during the period of the contract of lease.However, it’s important to note that the section does not prohibit the repair, maintenance, improvement, or renovation of the leased goods.

To use the leased goods in good faith:

The lessee shall have the right to possess and use the leased goods in good faith and in a prudential manner as if the goods were owned by himself or herself.
While possessing and using the leased goods pursuant to (1), the lessee shall possess and use them inconsonance with the object of the contract of lease.
If the lessee is proved to have possessed and used theleased goods contrary to (1) or (2), the lessor may terminate such a contract at any time.

To repair and maintain leased goods: Except as otherwise provided for in the contract of lease, the lessor shall repair and maintain the leased goods. If the possession or use of the leased goods cannot be made without their immediate repair, maintenance or renovation, the lessee himself or herself may repair, maintain or renovate such goods by giving information thereof to the lessor.The lessor shall reimburse or adjust in lease rent the expenses incurred in the repair, maintenance or renovation made.

Lessor to be informed if goods are not usable: If the leased goods or any part thereof are lost, damaged or destroyed in any manner, are not capable of being possessed or used for any reason,any person makes a claim or dispute of any kind in relation to suchgoods or any part thereof or any person creates hindrance ordisturbance in any manner while possessing or using the goods, thelessee shall give information thereof to the lessor immediately.

The lessor shall carry out such repair, maintenance or renovation or obtain such legal remedies as may be necessary to restore thegoods into their original condition according to the nature of thegoods within fifteen days.

In the case of failure to restore the leased goods into their original condition within the period, the lease rent shall be subject to reduction in proportion to the extent to which such goods have been lost, damaged or destroyed or become incapable of being used or possessed or such claim,hindrance or dispute has been made.

Lessee to be liable: The lessee shall possess or use the leased goods by taking adequate safety measures having regard to the nature of the goods in order to save the leased goods from loss or damage.

If the leased goods are lost or destroyed for any reason or the price of the goods decreases due to loss or destruction thereof in any manner or due to loss because of negligence on the part of the lessee, any member of his or her family, his or her agent or the third party, during the validity of the contract of lease, the lessee shall be liable therefor, and the lessee shall restore such goods into their original condition, and if the lessee fails to do so, he or she shall be liable to pay compensation therefor.

The lessee shall not be liable for the loss or damage, if any, caused to the leased goods due to any force majeure event.If partial loss or damage is caused to the leased goodsdue to a force majeure event and thelessor does not restore such goods into their original condition orsuch restoration is not possible, the lessor shall reduce the lease rentin proportion to the loss or damage.

Note: The term”force majeure event” means any of the following events:

A storm, earthquake, eruption of volcano,
Excessive rain, flood, landslide, soil erosion,thunder-storm,
Fire caused in any manner other than that causedby dishonesty, negligence or recklessness on thepart of the lessee or his or her family member,employee, worker or third party,
Act of terrorism, civil riot, civil war,
Other natural calamity of similar nature beyondhuman control.

To Pay lease rent:The lessee shall pay to the lessor the leaserent according to the terms and conditions of the contract of lease.

If the terms and conditions of payment of the lease rentare not specified in the contract, the lessee shall pay the lease rent on the next day of the end of eachmonth, in the case of a movable property, within fifteen days of theend of every fiscal year, in the case of farmland, servitude, land leased for industrial or infrastructure building or housing, and within a week of the end of every month, in the case of other goods.

If any person does not let the lessee fully possess and use such goods or any part thereof by showing any defect in theownership and possession of the leased goods or any part there of creating any type of hindrance or obstruction or making a claim in relation thereto, the lessee may reduce the lease rent in proportionthereto.

Validity period of contract of lease: No contract of lease concluded in relation to the following goods shall remain valid formore than the following period:

Thirty-five years in the case of housing landleased for the construction of a building or housing land in use after construction of a building therein,
Thirty-five years in the case of the land leased forthe purpose of servitude,
Forty years in the case of the land leased for thepurpose of construction, development andoperation of the infrastructures such as industrial
structure, roads, canals, electricity generation,
Twenty years in the case of land for farming;
Nineteen years in the case of house and land
leased for the purposes other than that referred toin clause (a), (b), (c) or (d),
Fifteen years in the case of a motor vehicle,
Fifteen years in the case of machinery equipmentother than a motor vehicle,
Fifteen years in the case of machinery equipment other than that referred to in clause (f) or (g),
Ten years in the case of a domestic animal,
Ten years in the case of goods other than that setforth in this Section having regard to their life andnature.

The parties may extend the validity period of the contract of lease,subject to the validity period of the contract, before expiry of theperiod. The parties to a contract of lease may decide whether to extend theperiod of the contract of lease having regard to the place where the leased house and land are situated and the nature of the goods.

Leased goods may be sub-leased:

The lessee may, with theprior consent of the lessor, sub-lease to any person the goods or anypart thereof leased under the contract of lease, by concluding another contract of lease to that effect.
The lessee shall not be free from his or her obligationtowards the lessor for the reason that he or she has made a sub-lease.
The terms and conditions of such a sub-lease contractconcluded in relation to the goods onsub-lease shall not be different than the terms and conditions of thefirst contract of lease.
While determining the terms and conditions of thecontract of lease, provision may be somade that the sub-lessee shall be directly liable to the lessor inrespect of the leased goods, and if such provision is made, the sublessee shall be liable to the lessor to the extent of the sub-leasecontract.
The validity period of the contract of lease shall not exceed the validity period ofthe contract of lease concluded between the lessor and the lessee.
If the lessor makes recourse to any legal remedy or aclaim against the lessee, the sub-lessee shall notbe liable therefor except in the case referred to in sub-section (4).
Notwithstanding anything contained elsewhere in thisSection, nothing shall be deemed to have been prejudiced in anymanner the right which the lessor may exercise under the contractof lease.

To return leased goods:

Except as otherwise provided for inthe contract of lease, if the contract of lease is terminated for anyreason, the lessee shall return the goods leased under this Chapter tothe lessor within thirty-five days of the termination of the contractof lease.

Provided that, in the case of an immovable property, thelessor shall be deemed to be entitled, ipso facto, to possess thatgoods after thirty-five days of the termination of the contract oflease.

The lessee shall return the goods leased pursuant tosub-section (1) to the lessor on the same condition as they werereceived at the time of lease.

Provided that the lessee shall not be liable for any naturaldecay or depreciation caused from the possession and use of thegoods.

If a record of the goods or accessories and spare partsthereof has been maintained at the time of leasing the goods, thegoods and accessories and spare parts thereof according to suchrecord shall also be returned, while returning the leased goodspursuant to sub-section (1) or (2).

Provided that the accessories or spare parts that get lost ordestroyed in the course of possession and use according to thenature of the goods need not be returned.

Special provision relating to the contract of lease of immovable

property:

A contract of lease of any immovable property shall beconcluded in writing.
While leasing any immovable property for a period ofmore than ten years, the contract of lease, setting out such matter,shall be registered in a body legally authorized for that purpose.
Notwithstanding anything contained elsewhere in thisChapter, no immovable property can, without consent of theGovernment of Nepal, be leased to a person who cannot acquireownership in any immovable property in Nepal according to law,for the purpose of farming, constructing a building or housing andland development.
In returning any building, shed or other structure build by the lessee, or the garden, forest or trees located, in the landleased under the contract of lease to the lessor upon the expiry ofthe validity period of the contract of lease, except as otherwiseprovided for in the contract, the lessee shall be deemed to have right and ownership in such building, shed or other structure or garden,forest or trees located therein, and the lessee shall accordingly remove such building, shed, structure, garden, forest or trees fromsuch land.
If the lessor desires to take such building, shed or other structure orgarden, forest or trees located in such land on the as is where isbasis, the lessor shall pay the mutually agreed price for the same.

Contract of lease may be terminated: (1) The lessor mayterminate the contract of lease in any of the followingcircumstances:

Except as otherwise permitted by the lessor, if thelessee fails to pay the lease amount until ninety daysafter the due date for the payment of the lease rent has expired,
If the lessee possesses or uses the leased goods takencontrary to Section 612,
If the lessee fails to give information to the lessor orkeep him or her informed about the matters referredto in sub-section (1) of Section 614,
If the lessee fails to restore the leased goods into theiroriginal condition having regard to the nature of thegoods pursuant to sub-section (2) of Section 615,
If the goods leased are sub-leased without the priorconsent of the lessor.

(2) The lessee may terminate the contract of lease in anyof following circumstances:

If the leased goods cannot be possessed or used for thepurpose or object for which the goods have beenleased,
If the lessor fails to reimburse the repair andmaintenance costs or make its adjustment to the leaserent pursuant to sub-section (3) of Section 613,
If the lessor does not reduce or agree to reduce thelease rent amount pursuant to sub-section (3) of Sectionor sub-section (4) of Section 615.

Provisions relating to house rent to apply: Notwithstandinganything contained elsewhere in this Chapter, in matters concerninghouse rent the provisions of Chapter-9 of Part 4 shall apply.

Statute of limitation: A person who is aggrieved from any actdone or action taken under this Chapter may make a lawsuit withintwo years after the date of the accrual of the cause of action.

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Lease Contract law in Nepal