X grants a lease of property he doesn't own to Y. Subsequently, X purchases the property. What is Y's position?

Section 43 Applies to Leases

The first and most important point to settle is whether section 43 of the Transfer of Property Act, 1882 reaches a lease at all. The section applies wherever there is a transfer for consideration, and a lease is unmistakably such a transfer. Section 105 of the Act defines a lease as a transfer of the right to enjoy immovable property for a certain time in consideration of a price paid, promised, money, a share of crops, or service rendered periodically. Rent — the consideration in a lease — is the very life-blood of the transaction. Section 43 itself is explicit on this score: it may be applied to mortgages, sales, exchanges, and leases because they are all transfers supported by consideration, but not to charges or gifts, which are gratuitous. This was settled with clarity and there is no real debate on the point.

The Situation at the Moment of Grant

When X granted the lease to Y, X had no title whatsoever to the property. Under the foundational maxim nemo dat quod non habet, X could transfer nothing that he did not himself possess. The lease, at that moment of execution, was therefore void in the sense that it created no legal interest in favour of Y over the actual owner's property. A lease is void when the purported lessor does not have any interest in the property sought to be leased. Y, in taking the lease, acted on X's erroneous — and possibly fraudulent — representation that X had the authority to create a leasehold interest in the property. That representation, made in the course of a transaction for consideration, is precisely what section 43 is designed to act upon.

The Effect of X's Subsequent Purchase

The moment X acquires title to the property, the doctrine of feeding the grant by estoppel springs into life. Section 43 provides that such a transfer shall, at the option of the transferee, operate on any interest which the transferor may acquire in such property at any time during which the contract of transfer subsists. The word "interest" is critical here. The interest X professed to transfer was a leasehold interest — a right to enjoy and possess the property for the lease term. What X subsequently acquires by purchasing the property is full ownership, which is an interest more than sufficient to satisfy the lease. The law then says that X's subsequent acquisition enures for the benefit of Y — it feeds the defective grant.

It must be understood, however, that this does not happen automatically. The property does not leap out of X's newly acquired ownership into Y's possession the moment X completes the purchase. The transfer takes place not at the moment when the interest is acquired by the transferor, but at the moment the transferee exercises the option to claim it. Y must affirmatively exercise this option — through a notice, a demand, a suit, or any unambiguous act — while the contract of lease is still subsisting and has not been rescinded.

Y's Right as a Lessee

Once Y exercises the option, the legal position is neat and powerful. X, who by then is the owner, becomes bound to honour the original lease in Y's favour. Y is entitled to possession and enjoyment of the property for the full term of the lease, on the terms and conditions originally agreed upon — precisely as if the lease had been valid from the beginning. X cannot now hide behind his earlier absence of title, for equity — speaking through section 43 — estops him from denying the validity of a representation he himself made and upon which Y relied and paid consideration. This is the foundational principle: a person who promises more than he can perform must fulfil that promise when he acquires the power to do so.

The Continuing Condition: Subsistence of the Contract

Y's right is, however, conditioned upon the lease agreement remaining alive and subsisting at the time he seeks to exercise the option. A contract subsists until it is rescinded or extinguished in some other manner. If Y, upon discovering that X had no title, had immediately treated the contract as repudiated and sued X for damages, the lease would no longer be "subsisting" and section 43 could not be invoked. But as long as Y continues to treat the transaction as alive — paying or tendering the agreed rent, remaining in possession, and affirming the relationship — the option is preserved to him.

The Threat from a Bona Fide Purchaser

There is one circumstance in which Y's right can be defeated. The proviso to section 43 protects a subsequent transferee who takes from X in good faith, for consideration, and without notice of Y's prior option. If, after X acquires title, X sells the property outright to Z — who pays a fair price and has no knowledge of Y's lease or Y's option — Z will prevail over Y. This is a powerful practical lesson for Y: the moment X acquires title, Y must move without unnecessary delay to exercise the option and, where possible, ensure that the lease is properly registered and placed on public notice. Every day of delay creates the risk that X might pass a clean title to an innocent third party, leaving Y with nothing more than a personal remedy in damages against X.

The Quantum of Y's Interest

One further limitation deserves mention. Section 43 is confined to the same interest over the same property that was professed to be transferred. Y can claim nothing more than a leasehold interest in the property — the right to possess and enjoy it for the agreed term and on the agreed terms. Y cannot, by virtue of section 43, claim ownership or any interest beyond what was originally granted. The doctrine feeds the grant; it does not enlarge it.

In the result, Y's position is this: upon exercising the option, Y is entitled to hold the property as a valid lessee for the agreed term, on the original terms, enforceable against X. X, having acquired title, is estopped from denying what he once represented — that he was competent to create a leasehold interest in favour of Y. That representation, made for consideration, must now be honoured in full.