Obsolete rent control laws are holding back real estate markets in urban India

Harsh Aggarwal reports

Real estate has been sought after and fought over through the ages. But in recent decades the tussles between landlords and tenants in India have taken a new twist on account of rent control laws.

SHIELDING TENANTS

These laws are a legacy of the partition of India – a period when cities across India faced a great influx of refugees and soaring cost of living. With demand for property far outweighing its supply, landlords became all powerful and the need of the hour at the time was to protect the tenant.

India’s constitution places the landlord-tenant relationship and the collection of rent on the state list, i.e. subjects that are within state control for making law. In the context of protection afforded to tenants against eviction, rent control laws enacted by different states went beyond the Transfer of Property Act, 1882, which is the general law governing the lease of immovable property including rights and duties of landlords and tenants.

Rent control laws had two primary objectives: (a) to prevent landlords from increasing rents above a specified maximum; and (b) to give tenants security of tenure. Orders need to made by rent controllers to evict a tenant but such orders are made only on limited grounds, such as a second default in payment of rent, unauthorized subletting, misuse or substantial damage of the property, etc.

SHIFT IN POWER

But as rent control laws began to make an impact and tenants gained power, instances of the abuse of rent control laws by tenants rose. Establishing the limited grounds for eviction (e.g. in section 14 of the Delhi Rent Control Act, 1958) was seen to be extremely onerous and time consuming. Poor and middle class landlords with spare accommodation stopped letting it out for fear of losing it to unscrupulous tenants. There was even a halt in construction of new buildings for rental purposes. The result was an acute shortage of rental accommodation that caused hardships for rich and poor alike.

The general view is that the rent control laws have outlived their purpose.

Ruling in Patel Roadways Private Limited, Madras v State of Tamil Nadu and Ors (1984), Madras High Court said it was for the legislature and the executive to consider whether affluent tenants who have large volumes of business should be covered under the Tamil Nadu Buildings (Lease and Rent Control) Act, 1960, which has its origin in rent control orders passed during World War II. The court also made an important observation that the act, which was a temporary measure originally, had been made a permanent statute when Act 18 of 1960 was passed. This being the case, the argument that a temporary measure is kept in force by the state oblivious of the changes that have taken place in the past three decades, is an incorrect proposition.

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HARSH AGGARWAL is deputy general manager, legal, at Havells India.