Sections 65A-66 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A borrower who keeps possession of a mortgaged property often wants to let it out. Section 65A says when such a lease will bind the lender, and section 66 says what the borrower must not do to the property while he holds it. This article explains both as per the text of the Act consulted.
A mortgagor lawfully in possession can make leases that bind the mortgagee, if each lease meets five conditions: ordinary course of management, the highest reasonable rent, no renewal covenant, start within six months, and, for buildings, a term of not more than three years. The mortgage-deed can vary these rules. Under section 66, a mortgagor in possession is not liable for mere deterioration but must not do destructive acts if the security is insufficient, which means value not exceeding the dues by one-third, or one-half for buildings.
Source note
The text consulted is a publisher's print of the Act showing amendments up to the Transfer of Property (Amendment) Act, 2002 (3 of 2003); later amendments should be checked. Section 65A is printed inside square brackets, which marks inserted or substituted wording without naming the amending Act. A lease on its own terms is explained in our article on section 105. For a lender or a buyer checking a property that has a tenant, a legal due diligence review should look at who granted the lease and when.
Section 65A(1): the basic power
Subject to sub-section (2), a mortgagor, while lawfully in possession of the mortgaged property, has power to make leases of it which are binding on the mortgagee. Two things matter here: he must be in possession, and the possession must be lawful. If the lender is in possession, this power is not the mortgagor's.
Section 65A(2): the five conditions
| Clause | Condition for the lease to bind the mortgagee |
|---|---|
| (a) | It must be of a kind made in the ordinary course of management of the property, and in accordance with any local law, custom or usage |
| (b) | It must reserve the highest rent that can reasonably be obtained; no premium may be paid or promised, and no rent may be payable in advance |
| (c) | It must not contain a covenant for renewal |
| (d) | It must take effect from a date not later than six months from the date on which it is made |
| (e) | For buildings (with or without the land they stand on), the duration must not exceed three years, and the lease must contain a covenant for payment of rent and a condition of re-entry on the rent not being paid within the time specified |
Printing slip: clause (e) is printed "on the rent not being paid with a time therein specified". It reads as though "within" was meant. It is flagged, not corrected.
The text speaks of a "covenant for renewal" and an "advance" of rent; it does not say what happens to a lease that fails one of the conditions, so the section's wording should be read with the deed and advice in hand.
Section 65A(3): the deed can change the rules
Sub-section (1) applies only if and as far as a contrary intention is not expressed in the mortgage-deed. Sub-section (2) may be varied or extended by the mortgage-deed, and as varied or extended it operates as though the variations were written into the sub-section. So a lender can, for example, forbid the borrower from leasing at all, and a deed can also widen what the borrower may do.
Section 66: waste by a mortgagor in possession
A mortgagor in possession of the mortgaged property is not liable to the mortgagee for allowing the property to deteriorate. But he must not commit any act which is destructive or permanently injurious to it, if the security is insufficient or will be rendered insufficient by that act.
The Explanation defines insufficiency: a security is insufficient unless the value of the mortgaged property exceeds by one-third, or, if consisting of buildings, exceeds by one-half, the amount for the time being due on the mortgage.
| Property | Value must exceed dues by | Otherwise the security is |
|---|---|---|
| Land or other property (not buildings) | One-third | Insufficient |
| Buildings | One-half | Insufficient |
Worked figures. If Rs. 9,00,000 is due, an open plot must be worth more than Rs. 12,00,000 (the dues plus one-third), and a building more than Rs. 13,50,000 (the dues plus one-half), to be treated as sufficient. If the value is lower, the owner in possession must not do anything destructive or permanently injurious. These amounts are our own illustration of the arithmetic; the Act prints only the fractions.
A practical example
Farhan has mortgaged his two-storey shop to a lender and continues to run it. He wants to let the first floor to a bakery for two years, at a rent in line with what similar space fetches, without taking any premium, with a covenant to pay rent and a re-entry condition for non-payment within a stated time, starting within a month. Each of the conditions in clause (2) is met, so the lease can bind the lender. If instead the lease had promised the tenant a renewal, or had been for five years, it would fall outside the conditions as set out in clauses (c) and (e).
Points to check
- Possession: the borrower must be in lawful possession, not the lender.
- Deed terms: look for a clause that excludes or changes the power to lease.
- Rent level: the Act speaks of the highest rent that can reasonably be obtained, so a rent that is far below the market is a red flag.
- Rent control and tenancy laws: these are separate laws that may also apply to the tenant; they are not in the text consulted.
- Registration of the lease: see our article on section 107.
Need help with a lease on mortgaged property?
When a lender is financing a property that is already let, or a borrower wants to lease out what is mortgaged, the details decide whether the lease will hold. Our legal due diligence team can go through the mortgage-deed and the lease together.
Key takeaways
- A mortgagor lawfully in possession may make leases binding on the mortgagee, within five conditions.
- The lease must reserve the highest rent reasonably obtainable, have no premium or advance rent, and no renewal covenant.
- It must start within six months, and a building lease must not run beyond three years.
- The mortgage-deed can vary these rules.
- Under section 66, the borrower is not liable for deterioration but must not do destructive acts when security is insufficient.
- Security is insufficient unless value exceeds dues by one-third, or one-half for buildings.
Read next
- Section 65: implied covenants by the mortgagor
- Sections 67 and 67A: foreclosure or sale
- Section 107: how a lease is made
- Specimen lease deed for residential property
Disclaimer: Based on a publisher's print of the Transfer of Property Act, 1882 showing amendments up to the Transfer of Property (Amendment) Act, 2002 (3 of 2003), as consulted on 2 October 2026. State amendments, later amendments, stamp duty and registration charges are not covered and should be checked. This article is general information, not legal advice; check the official text before acting.