Can one trust lease property to Another?

Whether a trust can lease property to another trust?

I’m making following presumptions:

1. Both the trusts are private trusts and thus Indian Trust Act, 1882 is applicable.
2. None of the trusts is a public trust. (Every state has its own law for public trust)
3. Both trusts have been validly created as per the s. 4, 5 and 6 of Indian Trust Act, 1882.
4. It was a lease agreement under the transfer of property act particularly chapter V.
5. All the other requirements and safeguards under the Indian Trust Act have been fulfilled.

There are 3 basic requirements to be fulfilled under the Indian trust Act, 1882 (hereinafter ITA) for a trust to be able to give property on lease. These are:

1. Must fulfill requirements under section 36 ITA.[1] This section is also applicable to charitable trusts as per court’s ruling in Mohan Lall Seal & Ors. v Kanak Lall Seal & Ors. G.A. No. 3095 of 2008 C.S. No. 116 of 2008.[2]
2. Must fulfill requirements under s. 17 ITA.[3]
3. Trust deed must empower trustees to do so.

In order for a trust to take a property on lease, following requirements have to be fulfilled:

1. Trust deed must empower trustees to take a land on lease.
2. In case trust deed does not empower them to do so, s. 20 requirements of ITA have to be fulfilled.
3. Section 20 of the Indian Trusts Act lays down the guidelines, which states that where the trust property consists of money and cannot be applied immediately or at an early date for the purposes of the trust (if provided), the trustee is bound (subject to any direction contained in the trust document) to invest the money in the following assets:

• Securities such as promissory notes, debentures, stock, or other securities of the central
• Government by notification in the Official Gazette; units issued by the Unit Trust of India under any unit scheme made under section 21 of the Unit Trust of India Act, 1963.
• Immovable property situated in India provided that the property is not a leasehold and that the value of the property exceeds by one-third, or, if consisting of buildings, exceeds by one-half any of the mortgage secured over the property.

Requirements to be fulfilled to get into a lease agreement are as follows:

1. Lease agreement is a contract. Hence, both trustees must be competent to contract with respect to a lease agreement. (Trustee can enter into a lease agreement on behalf of the trust)
2. All other requirements under the rent control act of the state have to be fulfilled. (Perhaps useful for determining lease rate)

Thus, if the above given requirements are fulfilled, one trust may be lease property under it to another trust.[4]

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[1] Court’s permission required if lease agreement longer than 21 years. Further, best practice to be undertaken while determining the rent; In obiter of Sailesh Developers, A Registered … vs The Joint Charity Commissioner Supreme Court talks about best practice while giving trust’s property on lease. In Committee of Management of Pachaiyappa’s Trust vs. Official Trustee of Madras & Anr. 1994 (1) SCC 475, SC was of the opinion that lease of trust property should be granted by public auction.

[2] Abdul Kayum vs. Alibhai AIR 1963 SC 309, SC held the same opinion i.e. the principles embodied in the provisions of the Indian Trusts Act, 1882 would apply to public and private religious/charitable trusts.

[3] Trustee has to be impartial with respect to the rights of beneficiaries, if there are more than one benifeciary.

[4] Maruti Nivrutti Navale State of Maharashtra & Anr., in this case in 2011 a trust’s property was leased to a society.