Various steps involved in the verification of leasehold rights are stated below :
- Inspect the lease or assignment thereof to ascertain the amount of premium, if any, for securing the lease, and its terms and conditions; and that the lease has been duly registered. A lease exceeding one year is not valid unless it has been granted a registered instrument (section 107 of the Transfer of Property Act, 1882).
- Ascertain that all the conditions, the failure to comply with which might result in the forfeiture or cancellation of the lease, e.g., payment of ground rent on the due dates, insurance of property, its maintenance in a satisfactory state of repairs, etc. prescribed the lease, are being duly complied with.
- Examine the counterpart of the tenants’ agreements, if part of the leasehold property has been sublet.
- Make certain that due provisions for any claim that might arise under the dilapidation clause on the expiry of the lease has been made, and, if no such provision has been made, draw the client’s attention to the matter.
- Ensure that the outlay as well as any legal expenses incurred to acquire the lease which are shown as an asset in the Balance Sheet are being written off at a rate which could completely wipe off the asset over the unexpired term of the lease.
A leasehold property, even where no premium has been paid for its acquisition, may some time come to have a considerable value. In such a case, it may not be advisable to continue to show the asset as if it has no value. Nevertheless, where the leasehold rights have been revalued that fact should be clearly shown on the Balance Sheet till the account has been completely written off.