The Hindu Business Line : Rental laws and gains

A commercial property in George Town was leased out by the owner. The lessee subleased the property to six different persons for a premium and vanished from the scene. When the owner passed away his widow received a meagre rent from the sub-lessees. After a legal battle for more than five years, she managed to get an order partly in her favour, allowing her to enhance the rent. However, the other parties appealed for reduction of rent.

Frustrated over the developments, she arranged to sell the property to the sub-lessees for a low price.

There are many such cases where the owners is unable to evict tenants easily.

During the Second World War, the country faced spiralling inflation, soaring cost of living, increase in urban population and scarcity of accommodation. In order to impose control over rent and unreasonable eviction of tenants, rent control orders were issued in 1941. The order was renewed periodically and ultimately Act XVII of 1960 came into force.

Rent Control Act is a State subject and the State Government has the exclusive jurisdiction to legislate on the subject.

Reforms in rental legislation to balance the interests of both landlords and tenants were recommended by expert bodies such as the Economic Administrative Reforms Commission and the Industrial Commission Organisation. The National Housing Policy also envisages suitable amendments in the Rent Control laws as one of the measures to stimulate investment in rental housing.

The Urban Development Ministry prepared model rent control legislation in the form of a broad framework.

The Karnataka government has amended the Act. Amendments are long due in Tamil Nadu.

Under Section 6 of the rules under the Karnataka Rent Act, any person holding a degree in engineering or architecture and residing in the jurisdiction of the Controller appointed by the Government under the Karnataka Rent Act, can apply to register as a valuer by submitting attested copies of the degree certificates and Rs 100 fee.

The controller may after verification include his name in the register of valuers and issue a certificate valid for not more than five years initially. The candidate can apply for renewal later. On receiving an application for determining the standard rent or revision or enhancement of rent from the owner or tenant of a property, the controller will refer the application to the valuer, who is required to prepare a plan of the premises.

Standard Rent

Standard rent is calculated on the basis of 10 per cent per annum of the aggregate amount of the cost of construction and the market price of the land on the date of commencement of construction.

The standard rent shall be enhanced according to the provisions of the Third Schedule.

(a) Cost of construction shall include cost of electrical fittings, water pumps, overhead tanks, storage tank and other fixtures;

(b) In case any fixture referred to in clause (a) is used by more than one occupant in a building, the cost included in the cost of construction of the premises shall be in proportion to the plinth area of the premises;

(c) The cost of construction shall be the actual amount spent on construction, and where such amount cannot be ascertained the cost shall be determined according to the scheduled rates of the State Public Works Department.

(d) The market price of the land shall be the price at which the land was bought as determined from the registered deed of sale, if construction commenced in the year of registration.

(e) The land component in the premises shall be the plinth area of the building and the vacant land totalling 50 per cent of the plinth area as apportioned.

(f) Where a building has more than one premises, the market value of the land for one premises depends on the proportion of the plinth area of the premises to the plinth area of the building.

(g) Notwithstanding anything contained in clauses (c) and (d) the cost of construction and the market price of the land comprised in the premises purchased from or allotted by the Government or a local authority shall be the aggregate amount payable to such Government or the local authority, provided the controller may, in order to arrive at the cost of construction and the market price of the land, allow in addition, subject to a maximum of 30 per cent of the amount payable to the Government or local authority, any expenditure incurred for improvement, additions or structural alteration in the premises.

Other charges

(A) A tenant shall be liable to pay to the landlord, besides the rent, the following charges not exceeding 15 per cent of the rent for the amenities (air-conditioner, electrical heater, water cooler, geyser, refrigerator, cooking range, furniture, playground meant for exclusive use by the tenant, sun breakers and usufructs.

(B) Maintenance charges — 10 per cent of the rent.

(C) Without prejudice to the landlord's liability to pay the property tax to the local authority, the pro rata property tax in relation to the premises.

In order to calculate the monthly charges payable by the tenant to the landlord towards the property tax, the amount paid or payable as property tax for the immediate preceding year or the estimated tax payable shall form the basis.

The landlord shall be entitled to receive from the tenant charges for electricity or water consumed or other charges levied by a local or other authority, which is payable by the tenant.

THIRD SCHEDULE

The rent enhancement under clause (a) of sub-section (1) of section 6 or sub-section (1) of section 7 shall be calculated, compounding on a yearly basis, with reference to the date of agreement in the case of rental agreement and the date of commencement of construction in the case of standard rent.

Provided that the enhancement, calculated till the commencement of this Act, shall be on the basis of the size of the premises to specified percentages. Provided further that the enhancement in the case of a tenancy entered into before commencement of this Act shall be effected gradually in five equal yearly instalments.

Explanation

The base calculation of rent enhancement after the commencement of this Act shall be the rent payable in the year as if the total enhancement of rent due at the commencement of this Act came into effect immediately rather than gradually over a five-year period, and such annual enhancement of rent shall be payable in addition to the graduated enhancement.

Provided also that when the landlord is a widow, a disabled person or a person aged 65 or more, the rent enhancement shall not be spread over five years but come into force with immediate effect.

Middlemen or estate agent

* Every middleman or estate agent shall register with the Controller of the area.

* A middleman or estate agent shall be entitled to commission at prescribed rates.

* Every middleman or estate agent shall, within ten days from the last day of each quarter of every calendar year, file returns in the prescribed form to the Controller, giving details of transactions during the quarter and the brokerage or commission received.

* No middleman or estate agent shall be liable to pay to his principal any rental charges exceeding the amount he is entitled to receive under this Act from the tenant.

Restriction on sub-letting

Where, at any time before the date of application of Part V of the Karnataka Rent Control Act, 1961 (Karnataka Act 32 of 1961), a tenant has sub-let the whole or any part of the premises and the sub-tenant is, at the commencement of this Act, in occupation of such premises, then, notwithstanding the fact that the consent of the landlord was not obtained, the premises shall be deemed to have been lawfully sub-let.

After the commencement of the Act no tenant shall without the written consent of the landlord sub-let the whole or part of the premises or transfer or assign his rights in the tenancy or in any part thereof.

The amendment of the Act in Tamil Nadu is overdue and the move will increase the stock of housing for rental use.

(The writer is former National President, Institution of Valuers, Chennai.)

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