Long Leases and RERA: When a Lease Is a Sale in Disguise

As the Indian real estate market is evolving, legal structures with long-term leases that require occupiers to pay large upfront premiums in exchange for extensive rights over units for long periods are becoming prevalent. These structures raise the question: when does a transaction labelled as a lease begin to resemble a sale in substance? The Real Estate (Regulation and Development) Act, 2016 (“RERA” or “Act”) was enacted to protect homebuyers and regulate the sale of real estate projects. RERA, however, does not regulate landlord-tenant relations, and contracts of genuine lease are outside its ambit. However, in circumstances where extensive rights of a lessee are equivalent to rights of an owner, the line between leasing and sale is blurred.

This article analyses two decisions, suggesting that the important consideration is not whether a transaction is called a ‘lease’ or a ‘sale’, but whether ownership-like rights are effectively transferred for consideration or not.

Lease under RERA

RERA’s protections, including registration before marketing, escrow of buyer funds and developer liability for delays, exist because a homebuyer pays large sums for an asset that does not exist yet. A tenant paying periodic rent for built, usable space does not face that risk, and the Act reflects this. Section 2(d) defines an ‘allottee’ to include a person to whom a unit is sold (whether as freehold or leasehold) but excludes a person to whom such plot is given on rent.^[1]

Section 2(d) does not, however, exempt ‘leases’ as a category altogether. It only carves out renting. The bright line lies not in the label, nor merely in the payment structure, but in the nature of the interest conveyed. Renting gives temporary use of built space for periodic rent, the property soon reverting to the owner. A leasehold transfer conveys an enduring, ownership-like interest in the unit itself, usually for a premium and for a long term. It is this transfer of the asset, not the form of the instrument, that makes the lessee an allottee.

The disguised sale: Lavasa

In Lavasa Corporation Ltd. v. Jitendra Jagdish Tulsiani, the developer provided units on a 999-year lease and collected roughly 80% of the price upfront with a nominal rent of Rs.1/- per annum.^[2] When buyers complained of delays, the developer contended that the respondents are ‘lessees’, as the agreements entered into between the parties are ‘Agreements of Lease’ and not an ‘Agreement of Sale’, therefore, being excluded from the ambit of the RERA.

The Bombay High Court while ruling in favour of the respondents stated that roughly 80% of the entire consideration amount is already paid by the respondents and the lease premium agreed is only of Rs.1/- per annum, and period of lease of 999 years, are self-speaking to prove that, in reality, the transaction entered into by the parties is an ‘Agreement of Sale’ and not an ‘Agreement of Lease’, though it is titled as such.^[3]

The relevance does not lie in any rule that long leases attract RERA, but in the court’s emphasis on substance over form. Where a lease (i) is long in duration, (ii) is accompanied by a large upfront payment, and (iii) gives the lessee an ownership-like control, it amounts to a sale.

The genuine leaseholder: Maa Bhagwati

The opposite situation arose in U.P. RERA v. Maa Bhagwati Commercial Reality N Resorts LLP, where the developer did not own the land, but held it on a lease of twenty-nine years and eleven months from a charitable trust, with a right to build and create sub-leases but no right to sell.^[4] The Allahabad High Court returned to the definitions, observing that a ‘promoter’ under Section 2(zk) and a ‘real estate project’ under Section 2(zn) are both built around development for sale.^[5] Where a developer cannot sell and can pass on only sub-leasehold interests, the sale element that invokes RERA is absent and, with it, any promoter, real estate project, or requirement to register the project.

Two cases, one test

At first glance, the decisions seem to conflict, one bringing a lease within RERA and the other keeping it outside. In fact, each applies one substance-based inquiry with two limbs: whether the grant transfers ownership-like rights for consideration, and whether the grantor could sell at all. In Lavasa, the first limb was satisfied despite the lease label; in Maa Bhagwati, the second failed, because no saleable interest existed to transfer. The word ‘lease’ carried no decisive weight. What mattered was the economic reality.

This is also where RERA begins to show its limits. The Act never contemplated renting or leasing as a distinct category, addressing leasehold only as a form of sale. The courts have had to derive the boundary from definitions written for another purpose, and a developer’s exposure now turns on a fact-based enquiry rather than a clear rule. A statutory clarification deeming a long lease a sale, by reference to the length of the term and the proportion of consideration paid upfront, would give developers firmer footing. Maharashtra RERA has done exactly this, clarifying that under Section 2(d) long-term leases exceeding five years, and perpetual leases, fall within the Act, while leave-and-licence and shorter leases remain outside.^[6] Until other state RERA authorities issue a similar clarification, the uncertainty itself adds to a compliance / structuring risk.

Conclusion

RERA’s applicability to a leasing project does not depend on the label. A genuine, rent-based lease falls outside the Act, while a long lease that transfers ownership-like rights for a price paid upfront falls within it, whatever the instrument is called. Read together, Lavasa and Maa Bhagwati demonstrate that the answer turns not on the parties’ terminology but on the economic substance of the transaction. Developers should therefore carefully assess the substance of the underlying transaction with the occupier over the label of such transaction to avoid falling foul of RERA.

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^{[1]Section 2(d) of the Real Estate (Regulation and Development) Act, 2016.}

^{[2]Lavasa Corporation Ltd. v. Jitendra Jagdish Tulsiani, 2018 SCC OnLine Bom 2074 (Bombay High Court, 07 August 2018).}

^[3]Ibid.

^{[4]U.P. Real Estate Regulatory Authority v. Maa Bhagwati Commercial Reality N Resorts LLP, RERA Appeal No. 169 of 2025 (Allahabad High Court, Lucknow Bench, 2026).}

^{[5]Sections 2(zk) and 2(zn) of the Real Estate (Regulation and Development) Act, 2016.}

^{[6]Additional FAQs wrt to IT Application, Maharashtra Real Estate Regulatory Authority,}

^{https://maharera.maharashtra.gov.in/sites/default/files/faqs/Additional_FAQ.pdf}

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