RENT CONTROL

WHAT IS RENT CONTROL?

Rent control is a government program where they practice the imposition of a legal maximum (rent ceiling) upon the rent in a certain housing market, below the equilibrium level of rent. In a free market, the prices of the rent adjust automatically filling the gap between the demand and the supply. However, the rent control prevents the prices from going up to the equilibrium level and so, the alternative rationing mechanisms like black markets or uncontrolled markets evolve. Over the past years, an ongoing debate regarding the pros and cons of the rent control has been witnessed. The proponents of the rent control argue that it prevents landlords from charging excessive rents and evicting tenants at will, while the opponents suggest that the laws lead to deterioration of current housing stock and increased pullout of apartments from the rental housing market, by distorting incentives, resulting in the decreased overall supply. There are specific rent control provisions for different municipalities, and they all vary widely.

HOW DID IT ORIGINATE?

Rent control provisions were introduced in the United States and some other parts of the world in the mid 1900s, to examine uninhibited rent increment and tenant eviction during wartime housing emergencies. After World War II, there was an instant rise in the demand for rental housing from soldiers coming back home. Due to industrialization and urbanization also, the rural-urban migrations increased. It was then that the Rent Control Acts under different names were introduced in different countries so as to keep rents from rising too much owing to the boost in demand.

In India, the first rent control legislation was introduced right after the First World War, during the Bombay presidency in 1915 and then in 1939. It was in 1947 when this was replaced by the Bombay Rents, Hotel, and Lodging House Rates Control Act,1947. For the wealthy people to earn some rental income, many buildings which are popularly known as chawls, have been built. It was in 1948 again when the State legislature passed the Bombay Rent control Act. This new Act fixed the rent price at a very low level and because of this, the people almost stopped earning from the rental incomes. All the acts were introduced as a temporary measure to provide relief to the tenants against exorbitant rent and indiscriminate eviction due to the scarcity of houses in the urban regions. The Act was amended in 1971 and 1999 to finally be called the Maharashtra Rent Control Act.

LEGAL ASPECTS OF THE ACT

The housing provisions are considered a state subject, under the Indian Constitution. Individual states are thereby responsible for the enactment and enforcement of their respective rent control provisions. The rent control act is adopted to serve mainly two purposes, i.e. to protect the tenant from eviction from his rented house unless there are defined reasons and conditions and also to protect them from paying more than the standard and fair rate of rent. The act also contains the definition of ‘premises”. However, that does not include land, which is why the tenancy or lease of any land cannot be governed by this Act. It includes buildings, structures and also land attached to it with an outhouse or a garage. It does not have separate provisions for hotels and lodging houses. Most importantly, the Act applies to the State of Maharashtra as a whole and also includes the areas of Vidarbha and Marathwada.

This act not only protects the tenants but also the landlords, giving them a right to evict a tenant in certain specified situations and also for his own occupation. Section 16 of the Act allows eviction on certain terms, such as (i) subletting (ii) not paying the rent on time and even after an extension (iii) misuse of a residential occupation as a workspace or vice versa (iv) raising a permanent structure on premises, (v) causing nuisance to the adjoining premises or in any other way (vi) demolition of the premises for erecting a new building etc. The relevant and exact provision under which the landlord seeks eviction, must be specified so that the tenant can take the remedial action provided in the Act. Vinayak Narayan Deshpande and another Vs  Dilip Pralhoad Sirole,  2010(2)AllMR. 747, states “The landlord gets right to institute the suit for recovery of possession from tenant on the ground of non-payment of standard rent or permitted increase after serving of notice upon the tenant in the manner under Section 106 of the Transfer of Property Act.  If the tenant chooses not to pay the arrears as required under Section 15 Clause   (3)   of   the   Maharashtra   Rent   Control   Act.   The   landlord cannot be denied a decree for ejectment on the ground of default in payment of rent, if he proves that tenant in arrears of rent.” 

Certain rental housing markets are exempted under the Rent control Act. These sections include the properties owned by the government and also newly constructed properties. However, the Rental Housing Market sections, exempted under the Maharashtra Rent Control Act are those properties owned by the government, properties used for public purpose, those held by a public trust for religious and charitable purposes and also properties which belong to universities established by the law. This is because the major objective of the Rent Control Act is to protect the tenants against exploitation from the landlord. The reason why the government owned properties are exempt from the Maharashtra Rent Control Act, is because these landlords are less probable to exploit the tenant. Also, since the income generated out of renting charitable properties is used for charitable purposes, they ought to be exempted from the Rent Controls. Except for the properties owned by the government, all such premises are exempt under certain terms and conditions.

Another section of the Rental Housing Market exempted, includes the premises sublet or let to banks, public sector undertaking, foreign missions, international agencies, multinational companies, public and private limited companies with a paid-up capital above Rs.1 crore. The premises let, to the second category i.e., banks, public sector undertaking etc., are exempt from the Rent Control provisions as the provisions do not extend to the richer tenants. However, it must be noted that the protection under this act has been exempted from the rich commercial tenants and continues to protect the rich residential tenants.

A partial exemption under this act has also been granted to newly let premises i.e. those apartments which have not been let for a continuous period of 1 year. Section 6 of the Act exempts such premises from the act. However, all other provisions which relate to the protection against the eviction and the responsibilities of the landlord, continue to apply. These exemptions have been made keeping in mind the objective of increasing the supply of rental spaces. The landlords also have the freedom to charge market rent and also revise it with time.

The right to decide the rent and when to increase it at the specified date, lies with the landlord. It can be increased by 4% per annum from the commencement of the Act or it can also be increased at the rate of 15% per annum for alterations and improvements only if a written consent is given by 70% of the tenants. The rent can also rise with an increase in the taxes during the period. Lastly, a 25% raise in rents can also be made if there are any specific structural repairs, or any of those repairs carried out by the Maharashtra Housing and Area Development Authority (MHADA) Act.

According to the Act, the tenant can serve the landlord with a notice of fifteen days if the latter is not keeping the premises in a good condition or neglecting the repair work. The tenant can get repair work done by himself if the landlord does not comply with the notice. However, the tenant is eligible to deduct the amount spent on repairs from the rent payable or can also recover the amount. The amount to be recovered should not be more than one-fourth of the rent paid by the tenant in a year.

The pagdi system has been legalised according to Section 56 of the Act. The consideration paid to the landlord as a fine or premium is referred to as Pagdi. Tenants under the pagdi system have been assured that even if there are price inflation or fluctuations, their rent to be paid would remain nominal. According to the market rate of some areas of South Mumbai, where the pagdi system is prevalent, the rent can be as high as Rs.60,000-70,000 but the tenant pays a rent of Rs. 500 per month.

Talking about the transfer of tenancy, the Act suggests that a tenant can lawfully receive a consideration for the transfer of the tenancy. The landlord is paid at least 33 percent of consideration in cash, to effect the transfer of tenancy. Coming to the point of succession of tenancy rights, Section 7(15)(d) of the Act states that any member of the family who was residing with the tenant when he was deceased, is the first qualified to be a successor to inherit the tenancy, from the family. This makes it clear that the right of tenancy after the death of the tenant gets extended only to those members of the family who were residing with the deceased at the tenanted premises. Vasant Pratap Pandit v Anant Trimbak Sabnis (1994) the supreme court, held the impossibility of testamentary succession as the tenancy rights are something personal to the tenant and hence cannot be determined by a testamentary document. The family member who was residing with the deceased tenant is always given priority. To claim and enjoy the tenancy rights of the deceased’s premises, the family member must prove that she/he was permanently residing with the tenant at the time of death.

REFERENCES

Wadhva, Kiran. “Maharashtra Rent Control Act 1999: Unfinished Agenda.” Economic and Political Weekly, vol. 37, no. 25, 2002, pp. 2471–2475. JSTOR, www.jstor.org/stable/4412277. Accessed 8 May 2020.

https://accommodationtimes.com/rent-control-legislations-and-its-impact-on-economies-2/

https://www.business-standard.com/article/economy-policy/why-changes-in-the-maharashtra-rent-control-act-could-hurt-tenants-116020900431_1.html

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