Ambit of Lease & Critique of Rent Control Acts India

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1 year ago

INTRODUCTION

The paper will explain the relevant sections and the scope of a lease agreements, and the implications of the Rent Control Act (“RCA”) in India. Further, the paper intends to analyse the purpose of rent control act and why were they introduced in the first place. The argument will trace the development of the acts via judgments and critical analysis and the point of view the landlords. Primarily, the paper will present the position on how the courts and the rent control act becomes over protective of the tenants at the cost of the landlord’s rights. Lastly, the paper will articulate the pragmatic effects of the rent control (model) act by discussing disadvantages of these act and how it’s an issue for urban development by examples of Maharashtra and Uttar Pradesh.

AMBIT OF LEASE AGREEMENTS

Lease of an immovable property is defined in Section- 105 of the Transfer of Property Act (“TPA”). Lease is essentially a transaction with respect to an immovable property. It creates a right to enjoyment of a property that includes possession of the property but not the ownership of the same immovable property. There is a certain duration of this enjoyment on the property that is contingent in the lease deed or the agreement between the lessor and the lessee; it may be express of implied or fixed for an indefinite time. This transaction is obviously based on some form consideration on the part of the lessee, this consideration may be price, promise or anything of the value that the lessor may seem fit, offered by the lessee. An interest is created to enjoy the immovable property which can be realised by the conveyance of a lease agreement. Additionally, the transfer for the purposes of enjoyment is a partial transfer of interest, it is not absolute. A lease which exceeds more than a year can be made in a registered instrument only.

The scope of the section in terms of the transfer entails the element of transferability and heritability which is missing in the concept of a licence. Sec- 105 articulates price, which is the premium and is the initial payment meant to obtain the lease, and the rent is the price paid for the subsequent usage of a particular immovable property in instalments. ‘The distinction between premium and rent is that the former is the single payment at the commencement of the lease and rent is the recurring payments made to continue to enjoy the property for the duration mentioned in the terms and conditions’. Rent has to be taken as some kind of expected or regular form of income from a particular source. As a lease is a form of contract and it is governed by Sec-10 and Sec- 11 of the Indian Contract Act. The parties should be competent to contract and should be done of the lawful object. It is important to remember that the main subject matter of a lease agreement is the immovable property, along with the benefits that arise out of that immovable property. Further there are essentially two type of lease that are based on the interest of the lessor. Absolute/ primary lease and Derivative/ sub lease, both of them are based on the lessor’s interest. The absolute lease can be contracted by a lessor who has a complete right over the property and the duration can be in perpetuity. On the other hand the derivative lease is contracted by the lessor who has a limited interest on a particular immovable property and cannot lease out the property exceeding the duration of the absolute lease. Implication of sub lease intimates that a person who himself would have no interest in the property after the expiration of the duration of the absolute lease, cannot transfer it to another. A lessee does not hold the bundle of rights on a property, as a sub-lease is only a transfer of the interest that has been transferred unto him by the lessor. There are three kinds of lease agreements based on duration. Firstly, fixed period, which means that the term of the lease is fixed and articulated in the terms and conditions of the lease. Second is the periodic lease; an agreement whose duration is continuous from period to period, it may be weeks, months and years. A periodic form of lease is contingent on the mode in which the rent is reserved even if it is for an indefinite period, the rent is the determining fact to assess the duration of the lease, the leases of uncertain periods do not extinguish the lease deed the periodic payment of rent is what determines the continuation of the lease. Lastly, comes the lease in perpetuity. This type of lease is long term lease and it may be transferred from generations to generations. Normally in this type of lease, until the tenant pays the rent, cannot be denied to enjoy the immovable property. Additionally, it is essential to assess the duties of lessor and lessee. The liability of the lessor is to disclose any material defect in the immovable property and to deliver the possession of the property after commencement of the lease. Similarly, the duty of the lessee is to pay the rent on terms and time mentioned in the agreement. Further, the lessee is liable to maintain the property and handover the property to the owner in the condition it has given while the agreement commenced.

RENT CONTROL AND POINT OF VIEW OF THE LANDLORDS

The intent of enacting the RCA essentially means to mark a legal maximum limit on the rent in a particular real-estate market. The celling of the rent is normally placed below the market equilibrium of a particular market, to drive the rent down. For example, every state therefore has a different rent control act to save the tenants from exploitation by the landlords as the landlords, history being the witness, the landlords have always exploited the tenants leading to inflation in the real-estate sector. It is also true that naturally if the rent ceiling is placed below the equilibrium, then the demand for renting or leasing of houses increases with shortage of supply. The cap on rent prevents the rent to go to the equilibrium and creates an alternative illegal method of black markets and other loopholes naturally evolves. The legal provision of housing comes under the list of the state under the constitution and hence is a matter of state laws and a state has power to amend laws of their respective states. The historical context of India gives rise to the need of the rent control in the urban areas, because of partition, urbanisation, industrialisation and migration of people from rural areas to urban areas. This made the urban areas more congested and the demand of rentable houses grew and the supply by default became less. As previously mentioned, the sole purpose of enacting a rent control provision is for the protection of the tenants from paying exorbitant rent and to prevent the landlords to misuse power and evict the tenants on frivolous grounds. However, the point of view of the landlords, the extreme protection had disincentiveised the landlords as judicial precedents reveal that the courts have become extremely averse of landlords who wanted their land back for true purposes. In the case of ‘Nutan Kumar And Others vs Iind Additional District Judge’ the ‘UP Urban Building eviction Act’ had made the private leasing of property next to impossible as they had banned the occupation of certain building mentioned in the act. The aforementioned act as interpreted by the judges seem to corner the landlords and keep them stuck into litigation and devoid them of the possession of their property. Similarly, in the case of ‘Mattulal vs Radhe Lal’ the interpretation of ‘Section 12(1) (f)’; ‘bonafide requirement’ reveals that the landlord wanted to evict the tenant so that the landlord could start a business in his property. The courts had shown their discretion in the uttermost fashion by claiming that desire is not a good enough reason, there should be a true need of the property. These judgments show how the protection of the tenants are being done at the cost of the landlord’s right to property. This by default had a ripple effect and had an impact on the economy as the property owners began curtailing from renting out and investing in property as they were not able to recover the property, and additionally had to bear the expense of litigation. In the current scenario there has been a considerable shift in the reasoning of the court, and they have given the landlords the freedom to decide for themselves what the best reason for terminating the lease is. In the case of ‘T.V. Krishnan vs Prativa Devi’ the court held that, “landlord is the best judge of his residential requirement. He has complete freedom in the matter. It is no concern of the courts to dictate to the landlord how and in what manner he should live or to prescribe for him a residential standard of their own. Further, the law ought not to be unjust to one and give a disproportionate benefit or protection to another section of the society”. The recent trend is that the court has tried to create a balance between the protection of the tenant and the right of the landlord. This a step towards acknowledge the gaps between legation and the adverse effects of their practice.

PRACTICALITY OF UP AND MAHARSHTRA RENT CONTROL ACT; DISADVANTAGES

The legislative history of India on lease agreements had noticed an increased number of litigations and which had a depreciating consequence on the housing market. So in 1992, the government passed a Model rent control law to strike balance among the rent control acts among various states. As mentioned earlier, enforcement of laws in subjects like housing is a matter of state discretion but India being a quasi-federal state it is true that the central government may issue guidelines and prescribe a model to follow for the states. The model rent control is not a law, but rather, a guideline/ policy outline; a broad blueprint from which state laws can be formed. The rent control act of UP and Maharashtra have embodied some aspects from the eviction recommendations. In the context of bonafide requirements of the landlords the statue articulates that the property owners be heavily penalised for failing to occupy or re-let the premises within three years of taking possession on the basis of genuine need. As a result, the Maharashtra Rent Control Act has declared this action a cognizable offence punishable by imprisonment, fine, or both. The practicality of the requirement of the landlord which was has been through a paradigm shift now has been articulated in the state laws. Further, the model suggests the efficient judicial proceedings by the virtue of ‘Article 323B of the Constitution permitted the states to create tribunals for effective and speedy disposal of case. This can be said is one of the most effective measures taken by the state governments to reduce the cost of the litigation as it also had given the landlord and tenant for conciliation between them at any stage during the trial. However, according to ‘Chapter IV of the UP rent control act’ if the defaulter pays standard rent+ inflation+ cost of the suit+ paying the standard rent till the suit is decided is defacto a good deterrence to prevent default on rent payment. Regardless, from the point of view of the landlords it would be much easier to resort to the anti-social elements such as hiring goons because it would save time and would be lighter on the pocket, in lieu of considering legal recourse for eviction. Further an apparent loophole may be that, there is no limit on the premium demand by the landlord. The TPA allows to take premium as consideration for the lease but there is no maxim limit like there is on rent. Hence, the paper suggests that there should be a maximum limit on the premium for streamlining the court proceedings.

Let’s now look at the exemptions that have been suggested by the model tenancy acts and how it had been articulated in the Maharashtra Rent control act, under Section 3 (b) where it provides exemption to the applicability of the rent control act to “multinational companies, and private limited companies and public limited companies having a paid up share capital of rupees one crore or more”. Now the issue which rises is that the classification based on the paid-up capital is ultra vires of the act and violates ‘Article-14’ of the Constitution. Further the appellant argued that, ‘it would be discriminative to separate out only corporate tenants while other tenants in similar situations, such as partnership firms, HUFs, and proprietary concerns, continue to benefit from the Act’s protection’. There have been discrepancies regarding the distinction of exceptions, and those who are left out of the protection of the rent control act. It has to be seen via the lens of the landlords and that of the tenant. The rent control act in its application created ambiguity regarding the rights u/s 106 and & 107 of TPA as the act empowers the landlord to evict the tenant after the expiry of the notice period, however the arears that comes under the rent act cancels the power vested by the TPA upon the landlords. In the matters relating to the fixation of rent the Apex Court held ‘the existing provisions of the Bombay Rent Control Act relating to the determination and fixation of the standard rent can no longer be considered reasonable’. This creates a disadvantage for landlords as they are unable to get their property back which is their right and are stuck in litigation, whilst losing out on rent and other opportunities if the tenant would have been evicted.

CONCLUSION

To an extent the rent control had been introduced after the World War II and it stayed for the betterment of the tenants, which I believe is a rhetorical reason, motivated by political agendas. The paper has shown what the scope of a lease is and explained the in detail all characteristics of a lease agreement. Further the main argument in the paper has tried to show that, how the rent control act has affected the housing market in particular. Along with the critical analysis of the negative impact it had on the landowners pertaining to eviction and bonafide requirement. Further the paper has constantly tried to show the inconstancies between the intent of the act and the application, and the interpretation of the courts in a strict sense. Additionally, the provisions of the rent control act of UP, and Maharashtra are explained are disputable, along with trends judges seem to follow via cases. I suggest that there needs to be a major scaling up of rent control acts and it should be done at a slow and study pace. There are major inconsistencies across all the state legislations despite the model rent control act. In several states, rent increases are not permitted unless the landlord makes significant improvement or alterations to the premises with the tenant’s consent. There needs to be a balance that is established between the lessor and the lessee. To conclude, rent control act comes under the framework of the legislative powers of the state government and they must be comprehensively evaluated and adapted to current circumstances. I hope the law makers will recognize the importance of these laws and give them enough attention to make the rent control system a successful tool.

Reference:-

¹. Section- 107, Transfer of Property Act 1882.

².It is subject to various terms and condition mentioned in a particular agreement of a lease.

³ CIT Bihar & Orissa v. Visweshwar Singh 1939 7 ITR 536 Patna.

⁴ State Of West Bengal vs M/S. B. K. Mondal And Sons 1962 AIR 779.

⁵ Lov Raj Kumar V. Daya Shankar AIR 1986 Del 364 (368).

⁶ S.Rajeev Singh V. Punching Associates AIR 2008 Del 56

⁷ In India it is normally seen in agricultural property.

⁸ Sec-108, Transfer of Property Act, 1882.

⁹ List 2 of VII Schedule, Constitution of India.

¹⁰ Section 22-23 of the UP Urban Building eviction Act, 1972.

¹¹ 1974 AIR 1596. MP accommodation control rent control act, 1961.