 "Ashoo Gupta")
You've got no business paying a pittance for the posh south Mumbai house you've been staying in for decades, just because it is legacy. It is this anomaly that the proposed amendments in the Rent Act apparently seek to address. Indeed, Maximum City is dotted with commercial and residential premises that have been occupied for years by tenants who pay a paltry sum for them. Many of these structures lie in a state of abject neglect, and several have collapsed, since neither the owners nor the occupants are willing to dip their hands into their pockets for their upkeep.
It is to address this issue and to give a fair deal to the landlords that the state administration has proposed landmark amendments to the existing Rent Act. However, while this initiative seems well intentioned, there are key issues that require to be addressed. Before we look at them, let's take a quick look at the proposed changes.
The patchwork
The state government is aware that many tenants occupying rent-controlled units belong to the lower- or middle-income groups. Keeping this in mind, the government intends amending the Rent Act to:
• Exclude commercial establishments occupying more than 46.5 sq m (500 sq ft) and residential tenants occupying more than 80 sq m (862 sq ft) from protection under the Rent Act. Such tenants will continue to occupy the rented premises so long as they pay market rent (as per the ready reckoner rate manual);
• Cap the rent for such properties at 50 per cent of the market rates for the first three years and then raise it to 100 per cent, subject to a ceiling of 30 per cent of the tenant's annual income from the fourth year;Senior citizenswill pay the lower of 15 per cent of annual income or 50 per cent of the market rent;
• Hold landlords solely responsible for maintaining such buildings in good condition,and penalise them for violation thereof, under the Indian Penal Code.
The amendments also seek to enable the state to either adopt the Centre's draft Model Tenancy Act or suitably amend its own Rent Control Act. For the time being, they exclude larger tenants from the protection the existing Rent Act provides.
The amendments also seek to free up a large chunk of rented properties to a fairer market system of rent and/or to redevelopment, while continuing to protect economically weaker tenants. Churn in tenancy following higher rentals will provide an opportunity to boost construction of affordable housing in the city, creating adequate room for redevelopment and cluster development. There will also be a swell in the number of residential and commercial units available for rent, as landlords will no longer have to deal with cumbersome eviction procedures. This surge in itself will serve as an equaliser in the long run, and will rationalise rentals.
Another argument in favour of the amendments is that the cost of registration, stamp duty, ready reckoner rates including other taxes have increased so why can’t landlords charge market rates. It is to be noted that under the Rent Act tenants are paying standard rent -- fixed by the Court or the Controller under the Bombay Restriction Act, 1939 or the Bombay Rents, Hotel Rates and Lodging House Rates (Control) Act, 1944, with a 5 per cent annual escalation provision. Where the rent is not so fixed, the rent at which the premises was let on October 1, 1987 is considered, or where the premises was not let on October 1, 1987, the rent that the premises was last let, plus 5 per cent annual escalation.
None of the above gives landlords any incentive to maintain properties, leading to dilapidation of old buildings. By allowing hassle-free rent hikes, the government seeks to encourage owners to maintain their properties and rent them out, thereby reducing the shortage of dwellings in the city and other parts of the state. An October 2015 report by Praja, a NGO, revealed a sharp decline in rental housing in Mumbai over the years, even as ownership housing thrived.
The holes
Notwithstanding the move to exclude only large tenants from the protection of the existing Act, the amendment will still end up displacing lakhs of tenants who will not be able to afford higher rents. Families living in bigger houses aren't necessarily wealthy and may have inherited tenancy rights. In many cases, a single dwelling houses several families, who will lose the roof over their heads if the landlord evicts them.
The amendments fail to address the concerns of pugree tenants, who paid one-third of the prevailing market price of the premises as a lump sum non-refundable advance to the landlord, prior to renting the premises. Market-based rent would be unfair to such tenants.
The amendment is also unclear on whether the cap on rent at 30 per cent of the tenant's annual income refers to the earnings of an individual or the entire family. In any case, the cap will leave tenants in the highest tax bracket with very little money to meet household, medical, children's education, and further expenses.
Tenanted buildings will fall outside the purview of the Maharashtra Housing and Area Development Act, 1976 (MHADA Act) thereby stripping the tenant the protection under this Act.
One opinion is that the proposed changes in the Rent Act will serve to encourage land grab, as abnormal rent hikes will oust tenants and leave the properties in hands of the landlords, who will then hand it over to builders for redevelopment. This may also lead to an outpour in the number of civil suits in the city's courts once the amendment comes into force.
Bottom line
It is only because of the Rent Act that the poor can afford to live in Mumbai. The state government, which has deferred its decision to implement the amendment for the time being, would do well to push such a proposal after consulting all stakeholders. Also, the gradient of increase shouldn’t be so steep. It would be in the aptness of things if the state administration permitted a longer and more gradual tenure of increase to market value of rent.
Pugree tenants have paid enormous non-refundable sums to their landlords upfront while renting the commercial/residential premises and have been regularly paying rent for generations. They should be kept out of the purview of the amendment, irrespective of the definition of larger tenants, and made owners of the apartments upon their willingness to shell out a lump sum amount that may be reasonably fixed.
The author is a partner at Shardul Amarchand Mangaldas & Co. Views expressed are personal. ashoo.gupta@amsshardul.com
