Pro-Tenant RENT LAW

In Depth

Madabhushi Sridhar | February 2010

Rent control enactments remain major restrictions leading at times to denial of the right to enjoy one’s own property.

The rent control laws in India, except for recent reforms in Delhi, Maharashtra and Karnataka, are a triple contradiction, neither rent, nor control, nor law. The ‘rent’ that is given and protected by law is unreasonable, the ‘controls’ sometime give total control to the tenant over the landlord, ridiculing the existence of the right to property and the ‘law’ is totally absent, as the adjudication is delayed by decades.

The situation in Indian cities is gruesome, as the tenants do not move out of the leased premises and continue for generations, paying meagre rents and harassing the owners Though there are provisions of right to fair rent, scope for enhancement of rent and a right to evict tenants to keep the house for their bona fide needs, yet the landlords suffer.

ISSUES EMANATING FROM THE TROUBLED SCENARIO

First of all, the applicability of rent control law depends on the quantum of rent, which the executive does not revise. Secondly, the rent can be revised as per law, which may not happen. Thirdly, fixation of standard rent is an important provision of law, but highly complex. By the time the issue of reasonable rent travels from lower court to the Supreme Court and gets decided, the inflation increases requiring the rent to be revised again.

ACTION AND INACTION BY EXECUTIVE

The executive ignored to come up with right solutions to secure the small landlords and ensure the proper enforcement of rent control legislation for effectively regulating the housing market. It was a blessing in disguise that executive governments failed to raise the ‘rent’ limits for bringing more houses under the net of rent control law. The legislature did not care to pass any Act reforming this piece of law. Later, various organisations and the union government took initiatives to reform the law. Consequently, the model law was prepared at the Centre and the ministers of State governments agreed to make laws for their respective States. Some States reformed their rent control regulatory regimes and some are yet to follow the suit.

The reports of several committees and resolutions adopted at the All India Housing Ministers’ Conference in 1987 and the Chief Ministers’ Conference in 1992 clearly demonstrates that the pegging down of rents to the pre-war stage and even thereafter is no longer reasonable. Advocating reforms, the Supreme Court in many occasions has referred to these and other reports like the Rent Act Inquiry Committee (1977), the Maharashtra State Law Commission (1979) and the Economic Administrative Reforms (L K Jha) Committee (1982). Essence of these reports can be inferred as follows: The rent control law had led to the neglect of repairs and maintenance and had virtually frozen the municipal bodies’ income from property taxes, which are based on rateable values, which in turn are a function of the prevailing rents. The freezing of rents has led to the emergence of practices such as ‘key money’ (payment of large deposits) that make rented housing less accessible to those, who are less privileged.

THE PROBLEM AREA AND SOLUTIONS

Interpretation of rent control regulations and their limitations is a painful process, which denies the rights of the owner to their own property. This is absolutely against their constitutional rights. The argument is in favour of lifting the controls and removes the scope of frequent State interference with the lives of owners and their tenants.

The whole idea of a Rent Control Act (the Act) is to control and regulate eviction of tenants and not to stop it altogether. The recently developed model law suggested the limited period tenancies for five years, with immediate eviction possibility, temporary vacation for repairs, and to prescribe new grounds of eviction of tenant.

SUGGESTIONS FOR IMPROVEMENT

Some useful new rights that can be suggested are: right to recover immediate possession, to get allocated residence to members of armed forces, to the Central government or the State government employees, to widows, handicapped and old (to recover premises leased by them), and to let out the accommodation during the pendency of proceedings of eviction. Some rights of the landlord should also be heeded such as ban on sub-letting, to provide sufficient and necessary notice of creation and termination of sub-tenancy, to recover the possession for occupation and re-entry, recovery of possession for repairs and re-building and re-entry, recovery of possession in case of limited period tenancies, special provision for recovery of possession in certain cases, permission to construct additional structures, and vacant possession to name a few.

A S Chandhiok Senior Advocate and Additional Solicitor General of India

The Act aimed at ensuring protection of tenants from frivolous evictions. The courts followed a pro-tenant approach but later, the court felt that the Act was being misused or abused, as the landlords had to drag their feet for years together to recover possession of the tenanted premises. The legislature came to the rescue of landlords (with proper amendments), so that they could recover possession faster and on additional grounds. For example, a government servant, who owned a property but was living in government accommodation, can seek eviction of the tenant on his retirement from service through a special procedure. This procedure was also made available for widows as well as for army officers. Thus, the Act benefited the tenant as well as the landlord.

For disputes regarding tenanted commercial premises, there is no pari materia ground to seek eviction on the ground of bona fide necessity. The Supreme Court interpreted the law and gave benefit qua commercial premises also.

The rent control legislation has served its purpose, both legislation-wise and judicially, by bringing in timely amendments. The number of rent controllers and tribunals has increased. The most important amendment was to take a premises out of the Act, if the monthly rent exceeded Rs. 3,500. Though the rent laws today safeguard the interest of both the landlord and tenant, I feel that still there is some impediment in recovering possession of commercial premises.

Dr. Arun Mohan Senior Advocate, Delhi and author of ‘Justice, Courts and Delays’

In actual working, the benefits of rent control are wrongly targeted. The bulk of the poor, who deserve shelter are unfortunately excluded both from: (a) the benefits of rent control; and (b) a lower costs offering of rental (or even ownership) accommodation, as could and would be available, if there were no rent control.

In operative terms, rent control laws cause: (a) inefficient use of built space; (b) arbitrary allocation of space; and (c) retardation of new construction initiatives. Although those paying lower than market rent are ‘protected,’ new tenants actually pay a higher rent due to reduced supply. In relation to rent control, this law of economics is like the law of gravity in physics, and cannot be defied.

In one of the older and fashionable market-cum-shopping centres of Delhi, many shops measuring 200 sq mtr, which are protected by the Act pay Rs. 300 per month while an adjoining shop recently leased out may be paying Rs. 9,00,000 per month, a differential ratio of 1:3,000. If both are selling the same merchandise, is the former selling cheaper than the latter? And if not, where does the profitability (the difference) go and, in all fairness, to whom should it go?

Yet another shop (tenancy of which is again protected under the Act at Rs. 300 per month) will find that the tenant has given it out on a licence (or agency) agreement and the premises are actually being used entirely by a third person (but not so on record) for a consideration of about Rs. 5,00,000 a month being paid to the tenant as service charges or commission. Is this difference of Rs. 4,99,700 the fair entitlement of the tenant, or is it an unfair ‘deprivation’ of the property owner?

The contest before the rent controller is generally a fight for money and it often ends with an ‘under-the-table’ payment, the resultant effect whereof is recorded as a ‘compromise’.

Sub-letting apart, tenants hand over the possession for a ‘price’ in cash to the property mafia along with a power of attorney and other documents, which then work towards wresting the property from the owner. The amount of crime generated in society as a result of rent control protection is by no means small. Rent control does little more than fuelling social conflict.

Taxes, central and municipal, are also evaded. The society suffers. There are many muscle wielding landlords who, in practical terms, are beyond the reach of law and by reason of rent control in other places, are able to charge extortionate rent. There is wastage of usage, deterioration of properties and other inefficiencies.

Rent control has consistently failed to serve those very individuals it was designed to help and it has a number of perverse effects, namely, of actually creating a scarcity of affordable housing; creating strong disincentives for new development; depriving owners of constitutionally protected property rights; and skewing the marketplace with artificially high and low rent levels, where the average across both is more than what it should be.

A complete re-look is called for where a more positive and practical approach will, in the long term, ensure availability of housing, ownership and also rental – at reasonable cost to the majority of the citizens.

THE ULTIMATE SOLUTION

These reforms are beneficial but through this law, it is not possible to address the issue of inordinate delay in rent dispute resolution. The government is not ready to set up new separate rent control courts and appellate authority because of financial crunch. One option is to designate revenue officers as rent controllers, which may not be a good proposition looking at the penetration of corruption in government offices. Without creating special rent control courts, where the controls are made applicable, application of these new provisions related with rights, standardised rent fixation, or its increase on application, eviction of erring tenant, making landlord to perform his duties is not possible. Neither a pro-landlord, nor a pro-tenant law can be recommended. The need of the hour is an all round reform regime to ensure speedy justice to rent disputes comprising provisions for alternative resolution methods with a conciliation board.

About Author

Madabhushi Sridhar

Madabhushi Sridhar is Professor and Coordinator, Center for Media Law & Public Policy, NALSAR University of Law, Hyderabad.