Introduction:

The Supreme Court of India, in Nazim Shaikh Hasan v. Nasir Mushtaq Shaikh & Others, 2026 LiveLaw (SC) 803, has clarified an important question concerning the relationship between a subsisting tenancy and a subsequent agreement to sell executed between the landlord and tenant. A Bench comprising Justice Prashant Kumar Mishra and Justice N.V. Anjaria held that the mere execution of an agreement to sell does not, by itself, bring an existing tenancy to an end. Whether the tenancy has been determined must be decided from the terms of the agreement and the unequivocal conduct of the parties.

The dispute arose from a landlord-tenant relationship concerning the possession of a property. The petitioner, Nazim Shaikh Hasan, was already occupying the premises as a tenant when an agreement to sell was subsequently executed between him and the landlord, Nasir Mushtaq Shaikh. The agreed sale consideration was ₹1,90,000, out of which ₹40,000 was paid. The remaining amount of ₹1,50,000 was required to be paid within three months for completion of the transaction.

The petitioner failed to pay the balance consideration within the stipulated period. The respondent-landlord consequently sought possession of the premises. The trial court, followed by the First Appellate Court, directed the petitioner to hand over possession. The Bombay High Court affirmed those findings, leading the tenant to approach the Supreme Court.

The central controversy before the Supreme Court was not merely whether an agreement to sell had been executed, but what legal effect that agreement had upon the existing tenancy. The petitioner sought to contend that once the landlord and tenant entered into an agreement for sale, the earlier landlord-tenant relationship ceased to exist. He further relied upon Section 53A of the Transfer of Property Act, 1882, contending that his continued possession after the agreement to sell was protected as possession in part performance of the contract.

The Supreme Court rejected both contentions. It held that an agreement to sell does not automatically transform a tenant into a prospective purchaser or terminate the tenancy. A tenant who was already in possession before entering into the agreement must demonstrate that his possession thereafter became referable to the agreement to sell rather than to the pre-existing tenancy.

The judgment is significant because it clarifies the distinction between two legally different relationships. A tenant holds possession pursuant to a lease, whereas a prospective purchaser claims possession pursuant to a contract for sale. The mere execution of a contract for sale does not automatically substitute one legal character for the other. There must be something in the agreement or in the conduct of the parties which demonstrates that the tenancy was expressly or impliedly surrendered.

The Court examined this issue in the context of Sections 111(e) and 111(f) of the Transfer of Property Act. These provisions deal with determination of a lease, including determination by express surrender and implied surrender. The Court emphasized that unless the agreement or the parties’ conduct establishes such surrender, the existing tenancy continues.

The Court also considered the scope of Section 53A of the Transfer of Property Act. The provision embodies the equitable doctrine of part performance and protects, in specified circumstances, a transferee who has taken possession in part performance of a contract for transfer of immovable property. However, the Court made clear that a person cannot invoke Section 53A merely by pointing to continued possession if that possession existed independently of the agreement.

Thus, the decisive question was the source and character of possession. If possession was obtained pursuant to the agreement to sell, it could potentially support a plea under Section 53A. But where the person was already in possession as a tenant and simply remained in possession after entering into the agreement, continued occupation could not automatically be treated as possession in part performance.

Against this legal background, the Supreme Court considered whether the petitioner had established that his tenancy had ended or that his possession had changed character. Finding no such evidence, the Court dismissed the petition and upheld the direction requiring him to hand over possession.

Arguments of the Parties:

The petitioner-tenant principally argued that the execution of the agreement to sell had altered the legal relationship between the parties. According to him, once the landlord agreed to sell the property to him, the earlier landlord-tenant relationship could no longer be treated as continuing in the same form. His possession after the agreement, therefore, had to be understood in the context of the proposed sale rather than merely as continued possession under the original tenancy.

The petitioner sought to rely upon the fact that ₹40,000 had already been paid towards the total agreed consideration of ₹1,90,000. He contended that this payment, coupled with his continued possession of the premises, demonstrated that the transaction had progressed beyond a mere preliminary arrangement.

The petitioner further invoked Section 53A of the Transfer of Property Act. His argument was that his possession after the agreement to sell constituted part performance of the contract and that the doctrine should operate as a shield against the landlord’s attempt to recover possession. Since he remained in possession after the execution of the agreement and had made part payment towards the sale consideration, he claimed the protection associated with part performance.

The petitioner therefore sought to characterize his post-agreement possession as that of a prospective purchaser rather than a tenant. In substance, he argued that the agreement to sell had changed the nature of his possession and that the respondent could not simultaneously treat him as a purchaser for the purpose of the agreement and as a tenant for the purpose of seeking possession.

The petitioner also challenged the conclusions reached by the courts below. According to him, the courts had failed to give proper legal effect to the agreement to sell and the consequences flowing from his continued possession. His case was that the agreement and payment of consideration were sufficient circumstances to show that the tenancy had effectively ceased.

The respondent-landlord, on the other hand, maintained that the execution of the agreement to sell had not terminated the existing tenancy. The landlord’s position was that the petitioner entered the premises as a tenant and continued to remain there in that capacity. Nothing in the agreement demonstrated that the tenancy had been surrendered or that rent ceased to be payable.

The respondent’s case was consistent with the findings of the courts below, which had directed the petitioner to hand over possession after he failed to pay the balance consideration within the agreed three-month period. The absence of any express provision altering the tenancy relationship was relied upon to show that the agreement to sell and the tenancy operated as legally distinct arrangements.

The respondent’s position also undermined the petitioner’s reliance on Section 53A. Since the petitioner had already been in possession as a tenant before the agreement to sell was executed, his continued possession could not automatically be regarded as possession obtained in part performance of the agreement. There had to be evidence showing that his possession changed character and thereafter flowed from the contract of sale.

The Supreme Court was therefore called upon to determine whether the execution of the agreement, part payment of consideration and continued possession were sufficient to terminate the tenancy or attract Section 53A. The Court ultimately answered both questions against the petitioner.

Court’s Judgment:

The Supreme Court dismissed the petition and affirmed the order directing the petitioner to hand over possession of the premises. The Court’s reasoning rested upon a careful distinction between the existence of an agreement to sell and the legal determination of an existing lease.

The Court first made it clear that the execution of an agreement to sell between a landlord and tenant does not automatically terminate the tenancy. An agreement to sell is fundamentally a contract contemplating a future transfer of ownership. It is not itself a conveyance of title. Consequently, the tenant’s existing legal relationship with the landlord does not disappear merely because the parties have entered into a contract for sale.

The Court explained that the tenancy would cease only where the terms of the agreement or the unequivocal conduct of the parties demonstrated an express or implied surrender of the lease within the meaning of Section 111(e) or Section 111(f) of the Transfer of Property Act.

Section 111(e) recognizes determination of a lease by express surrender, while Section 111(f) concerns implied surrender. Therefore, an agreement to sell may have the consequence of ending a tenancy if its terms clearly indicate that the parties intended to surrender the existing lease. Similarly, the conduct of the parties may establish implied surrender where it is inconsistent with the continued existence of the tenancy.

However, the Court found no such circumstance in the present case. The agreement to sell did not contain any clause indicating that the petitioner’s possession would thereafter be referable to the proposed sale. It also did not state that the obligation to pay rent had ceased. Nor did it contain any other stipulation demonstrating that the parties intended to alter the landlord-tenant relationship.

This absence was decisive. The Court observed that the agreement neither provided that the tenancy would terminate nor showed that the petitioner’s possession would thereafter be held in a different legal capacity. The tenant therefore continued to occupy the premises as a tenant unless and until the tenancy was otherwise determined in accordance with law.

The Court also considered the petitioner’s reliance on Section 53A of the Transfer of Property Act. Section 53A embodies the doctrine of part performance. In broad terms, it protects a transferee who has entered into possession, or continues in possession, pursuant to a contract for transfer and has performed or is willing to perform the contract in the manner contemplated by law.

The Supreme Court, however, emphasized that the source of possession is critical to the application of Section 53A. Mere physical possession is not sufficient. The possession must be shown to have a direct connection with and to flow from the agreement relied upon.

This distinction becomes particularly important where the person claiming protection under Section 53A was already in possession before the agreement was executed. A tenant cannot simply remain in the property and then contend that such continued possession automatically became possession under the agreement to sell.

The Court relied upon its earlier decision in D.S. Parvathamma v. A. Srinivasan, (2003) 4 SCC 705. That decision recognized that where a person already possesses property in one legal capacity and subsequently enters into an agreement to purchase it, the conduct relied upon for claiming part-performance must be consistent with the new contractual relationship. The possession must cease to be attributable to the earlier capacity and become referable to the agreement.

Applying that principle, the Supreme Court held that the petitioner could not successfully claim the benefit of Section 53A merely because he continued to occupy the premises after the agreement to sell. His possession had begun as a tenant and there was no evidence that it subsequently changed character.

The Court attached particular significance to the petitioner’s conduct. He neither alleged nor established that his possession as lessee had come to an end. There was also no unequivocal conduct demonstrating that he had thereafter occupied the property exclusively as a prospective purchaser. On the contrary, his continued occupation without any clear disavowal of his status as tenant was inconsistent with his later attempt to invoke part performance.

The Court consequently held that the petitioner’s possession could not be treated as having originated from the agreement to sell. His continued presence in the premises was simply a continuation of the possession he had already enjoyed as a tenant.

The Court further observed that payment of ₹40,000 towards the agreed consideration did not alter this conclusion. Part payment of the sale consideration may establish the existence or progress of a contractual transaction, but it does not, by itself, determine a subsisting tenancy. There must be an express or implied intention to surrender the lease.

This distinction is crucial in landlord-tenant disputes. A tenant and landlord may enter into a separate agreement for the future sale of the tenanted premises without automatically extinguishing their existing lease. Until the tenancy is lawfully determined, the rights and obligations flowing from that tenancy continue to operate.

The Court therefore formulated guiding principles to govern similar disputes. First, the mere execution of an agreement to sell between a landlord and tenant does not, by itself, determine the subsisting tenancy. Second, the tenancy comes to an end only when the terms of the agreement or the unequivocal conduct of the parties establish an express or implied surrender under Section 111(e) or Section 111(f) of the Transfer of Property Act.

Third, continued possession after the execution of an agreement to sell does not automatically constitute part performance under Section 53A. Such possession must be shown to be directly relatable to and flowing from the agreement to sell. Fourth, an agreement to sell, because it is not a registered deed of conveyance, does not by itself transfer title or create an interest in the property.

These principles provide an important framework for courts dealing with cases in which a tenant subsequently enters into an agreement to purchase the property from the landlord. They prevent the legal character of possession from being changed merely through inference based on the existence of a sale agreement.

The Court’s approach also reflects the distinction between a contract for sale and a completed transfer of ownership. An agreement to sell creates contractual rights and obligations, but it does not itself operate as a conveyance of the property. Therefore, a purchaser under an agreement to sell cannot automatically claim the same legal status as an owner.

In the present case, the petitioner’s reliance on the agreement to sell was particularly difficult to sustain because the agreement did not contain any provision terminating the tenancy. There was no indication that rent would no longer be payable or that possession was being delivered afresh pursuant to the sale contract. The petitioner’s possession therefore remained rooted in the tenancy.

The Court’s reference to D.S. Parvathamma further reinforces that a change in the legal character of possession cannot be presumed simply because the parties have entered into a subsequent contract. Where possession initially arose from a tenancy, the person claiming a new basis for possession must establish that the original relationship ended and that possession thereafter flowed from the new transaction.

The judgment also demonstrates why courts must examine the actual terms of the agreement and the conduct of the parties rather than rely upon labels. Merely describing a tenant as a purchaser or referring to an agreement as a sale transaction cannot determine the legal nature of possession. What matters is whether the tenancy was actually surrendered and whether possession thereafter became referable to the contract for sale.

The Court ultimately found that neither requirement was satisfied. There was no express surrender. There was no implied surrender. The agreement did not terminate the obligation to pay rent or otherwise alter the landlord-tenant relationship. The petitioner’s continued possession was not shown to flow from the agreement to sell. Consequently, Section 53A could not be invoked merely on the basis of continued occupation.

The Supreme Court accordingly upheld the orders of the courts below directing the petitioner to hand over possession. The petition was dismissed, and the impugned order of the Bombay High Court was left undisturbed.

The ruling provides valuable clarity for both landlords and tenants. For landlords, it confirms that entering into an agreement to sell with a tenant does not necessarily mean that the tenancy has ended. For tenants, it makes clear that possession cannot automatically be converted from tenancy-based possession into possession as a prospective purchaser. If a tenant seeks to rely on an agreement to sell to claim a change in the legal character of possession, the agreement or subsequent conduct must clearly establish that transformation.

At the same time, the judgment does not suggest that an agreement to sell can never result in the termination of a tenancy. The Court expressly recognized that the terms of the agreement or unequivocal conduct of the parties may establish express or implied surrender. The decisive factor is therefore the intention manifested through the transaction and the conduct of the parties.

The judgment thus strikes a careful balance between contractual autonomy and established principles governing leases. It prevents a tenant from using the mere execution of a sale agreement as a means of escaping tenancy obligations, while preserving the possibility of a genuine surrender where the parties have clearly intended to replace the tenancy with a different legal relationship.

Ultimately, the Supreme Court has reaffirmed that possession has a legal character, and that character does not change merely because the person in possession enters into a new contract concerning the property. A tenant remains a tenant unless the tenancy is lawfully determined. Likewise, a prospective purchaser can claim protection under Section 53A only where the requirements of part performance are genuinely satisfied and possession is shown to flow from the agreement. The decision therefore provides a clear and practical framework for resolving disputes arising when landlord-tenant relationships intersect with agreements for sale of immovable property.