Supreme Court: Tenant Continuing in Possession After Lease Expiry Must Pay Mesne Profits

In a landmark ruling, the Supreme Court of India has held that tenants who continue to occupy property after the expiry of their lease must compensate landlords by paying “mesne profits.” This decision clarifies the legal responsibilities of tenants who remain in possession of leased property beyond their contractual terms.

Case Details

The ruling came in the context of a dispute between Indian Oil Corporation Ltd. and Sudera Realty Private Limited. Indian Oil Corporation continued to occupy certain floors of a building after their lease expired. The Supreme Court, comprising Justices KM Joseph and PS Narasimha, stated that such tenants are considered “tenants at sufferance,” a status slightly above that of a trespasser, since their initial entry was lawful but their continued possession after lease expiry is not【35†source】【36†source】.

Key Legal Principles

1. Tenant at Sufferance: The court clarified that while tenants at sufferance cannot be forcibly dispossessed without due legal process, their continued possession is unlawful once the lease expires. Therefore, they are liable to pay mesne profits, which are calculated based on the fair rental value of the property during the period of unauthorized occupation【36†source】【37†source】.
2. Calculation of Mesne Profits: Mesne profits are determined by the potential income the landlord could have earned if the property had been rented out to another tenant. This includes not just the rental value but any additional profits the landlord could have made with reasonable diligence【35†source】.
3. Implications for Landlords and Tenants: This ruling underscores the importance of adhering to lease terms and the potential financial consequences of overstaying. Landlords are entitled to compensation for the period during which their property is occupied without authorization, ensuring they are not financially disadvantaged by such situations【36†source】【37†source】.