ECONOMIC ARGUMENTS AGAINST THE ACT
Rent controls are not considered desirable for the overall development of the economy of a country due to the following reasons: –
1. As rents have been constrained below the market price, rent control lessens the amount of profitability of rental housing. According to the landlords, low rents under rent control act lead to wasteful use of land. Investment capital is hence diverted from the rental market into other progressively beneficial markets. As a result, rental housing is converted for other purposes leading to the decrease in construction activity. Therefore, rent control essentially decreases the supply of housing as opposed to expanding it. Without the increased rent required to draw in the new investment, new housing construction is constrained, and no drawn-out solution would be provided to the shortage of housing. Conversely, a fall in the rent passes the message to the market that there is no space for new investment.
2. Due to the provisions of Rent Control Act, it is difficult to evict a tenant once the house has been rented and it is further difficult to resell a tenanted house from which it’s difficult to evict the tenants. Consequently, this reduces liquidity in the market for ownership housing.
3. Mobility of the consumer is substantially decreased by the reluctance of various consumers to part with the rent control subsidy. Consumers who might otherwise wish to move to smaller or larger homes or the ones that are close to their job are particularly disinterested to do so because they do not want to lose the subsidy. This loss of mobility can be particularly exorbitant to families whose job opportunities are geographically or otherwise constrained. This, in turn, has an adverse impact on the economy as now the demand for public transport is increased leading to increased traffic congestion etc.
4. Rent control can also result in a drop in the quality and quantity of the existing rental stock because of the low return on investments in rental housing. This may be in the form of cooperative conversions or, in certain cases, abandonment of unprofitable property. “It can also lead to a deterioration of the quality of the housing stock as providers, faced with declining revenues, may be forced to substantially reduce maintenance and repair of existing houses”.
5. Rent control decreases the market value of controlled rental property in absolute terms as well as the relative increase in property values in unregulated markets. As the taxable assessed rental property values reduce relative to unregulated property, the tax implications of this declination can be significant.
6. Due to rent controls, the administrative expenses are also increased as it demands the creation of elaborate bureaucratic systems. “Rental property must be registered; detailed information on the rental property must be collected and elaborate systems for determining rents and hearing complaints and appeals must be established”.
7. Though rent control was envisaged as an anti-poverty strategy, that is to provide affordable housing to the poor, on the hand other, it is actually benefiting the higher income sections of the society. For example- In Mumbai, prosperous businessmen occupy the entire apartment blocks in posh areas but pay rents that have hardly changed over the past six decades.
8. Rent control legislation often lie at the roots of the animosity between the landlords and their tenants as it involves considerable loss to one party in the transaction. When looking at the landlord side, rental units fare poorly under rent control and so, the landlord in certain cases cannot afford to pay his escalating fuel, labor, material bills or even refinancing the mortgage out of the rent he can legally charge.
In contrast, the tenant is somewhere protected by the rent control act but, in numerous cases, the tenant does not receive the proper rental bargain due to the improper maintenance, poor repairs and grudging provision of services.
SOLUTIONS TO OVERCOME THE DISCREPANCIES
Keeping in mind the all the repercussions of the Maharashtra Rent Control Act, the idea of opting for the dual path where they adopt both the Model Tenancy Act, 2019 and the Maharashtra Rent control Act, 1999, is feasible. The Model Tenancy Act, 2019 has been made to codify the already existing archaic tenancy laws. The Act has a market-oriented approach to regulate rental housing and also to try balancing the interests of the landowners and tenants. It provides for the establishment of adjudicatory bodies, for speedy dispute redressal. It also promotes a sustainable ecosystem to multiple sections of the society which include the urban poor, migrants, students and workers. It creates a transparent environment for renting different premises.
MTA suggests eradicating the current housing problem by incorporating needful provisions. MTA has successfully been able to identify the problems of existing rent control laws in its preamble as the absence of growth of rental housing segment and lack of will of the landlords renting out their empty premises. MTA attempts to rectify the problems by making provisions that keep in view the interests of landlords as well as tenants.
Protection of landlords – The prime objective of the MTA is to eliminate the fear among landlords involving repossession of their premises and increasing the growth of investment in the rental sector. MTA does the same in the following manner: –
- Landlord has the authority to make deductions from the security deposit in case of any liability of the tenant. The landlord can also ask for the amount payable in a situation where the tenant refuses to carry out scheduled repairs in the premises.
- Landlord is allowed to evict the tenant by sending an application to the Rent Court on any of the grounds stated under Section 21 that covers within its ambit all the provisions of rent control act plus the failure of tenant to pay the arrears of rent in full and other charges payable unless the payment of the same within 1 month of notice being served on the tenant. Landlords can also evict the tenant when the premises or any other part thereof is required by the landlord for carrying out any repairs, additions, alterations etc., for change of its use as a consequence of change of land use by the competent authority.
- In case of overstay by the tenant beyond the tenancy period, the landlord is entitled to receive compensation of double of the monthly rent for 2 months and 4 times of the monthly rent.
- Landlords can also revise or fix the rent payable by tenants, provided that the same is also agreed by the tenant in the tenancy agreement.
Protection of tenant- MTA tries to balance the interests of tenants in the following ways: –
- In the case of the death of the tenant, the successors of the tenant will have the same rights and obligations as agreed in the tenancy agreement for the remaining period of the tenancy.
- During the tenancy period, the rent cannot be increased unless explicitly mentioned in the tenancy agreement.
- In case, where the landlord has refused to accept the rent, tenants can directly deposit it with the rent authority.
- Where the landlord has refused to carry out certain agreed or scheduled repairs in the premises, the tenant can deduct the amount from the periodic rent or vacate the premises after giving a notice of 15 days in writing to the landlord or with the consent of the Rent Authority.
Besides, the government can play a proactive role as a solution to all the negative impacts of Rent Control. There could be a broad framework for enforcing the contracts. To ensure that no party commits a breach of trust, the government could lay down grounds for the permitted contracts. Since there is a shortage of living space in cities, constructing more housing in an eco-friendly manner would be a viable remedy. Needy renters can be given direct financial assistance, as this will increase the purchasing power and it will lead to an expansion in the quality and quantity of housing in the market. New constructions can be done, keeping in mind that the new tenants do not have to pay high rents.
Instead of taking a blanket ban resolution, it would be more sensible to undertake step-by-step deregulation. The only flaw with this solution is that it entails a huge amount of co-operation and trust between the government, landlords and tenants. Private investment could also boost the construction of new housing. This can only be done with the allowance of the government to let those wishing to make a business in the housing sector, do so by doing away with the restrictive provisions of the rent control act. No real estate owner would want to spend an enormous sum of money for constructing housing only to lease them out at a lower rate.
CURRENT SITUATION OF RENTS IN LIGHT OF COVID-19
With the social and economic impact of current situation of coronavirus pandemic and the subsequent lockdown, there is a clarion call made to the landlords by tenants to forgive rent for a month or two, particularly for the poor migrant families who do not have other housing options or savings. Government and the civil society too are urging the landlords against eviction as it would exacerbate the pandemic. Government is requesting it on the basis of the Disaster Management Act, 2005.
Landlords however are under no legal obligation to excuse rent or not evict tenants in the current pandemic, and this is a situation that they themselves cannot afford.
Therefore, two things could be done. First, to make the Rent Act applicable to a greater number of tenancies, which means that all the tenancies including informal must be registered under the Act. The proposed MTA in situation like this plays a key role in emphasizing the registration of rent agreements through to-be established rent authorities in every State. Secondly, the rent act as well as the MTA need a force majeure clause for emergencies such as the current pandemic. In these difficult times of dire stress, there is a strong case for passing an order to stop evictions. For registered tenancies, when passed under a rent law, it’ll carry a way stronger legal sanction than under the disaster law.
For landlords who cannot afford a rent-free month and need rent for their survival, a mobilization of housing, welfare and disaster funds is needed to make up for the loss of rent. Funds could also be crowd sourced, received from corporate social interests and grants from national and international donor organizations. Therefore, the benefit of registered tenancies is that the government would be able to channel funds directly into the accounts of tenants and landlords.
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