This article has been written by Saheed Shaikh, pursuing a Certificate Course in Real Estate Laws and has been edited by Oishika Banerji (Team Lawsikho).
It has been published by Rachit Garg.
Introduction
Commercial development is the most emerging field in the area of real estate development and in order to bring clarity to the stakeholders the government has brought this development work under the purview of RERA (Real Estate Regulatory Authority). RERA came into operation as per the Real Estate (Regulation and Development) Act 2016, the intention of which was to safeguard the interest of home purchasers and to some extent the developers/builder and in addition to boosting investment in the real estate sector thereby helping in the development of the nation. Alongside the general idea of commercial development, it is ideal to note the duties that are vested on commercial landlords which is why this article has been written and is advisable to be read.
All you need to know about commercial landlords
The definition of ‘promoter’ as been provided under Section 2 (zk) of the Real Estate (Regulation and Development) Act, 2016 (RERA), is wide and covers all types of promoters including, developer, builders, PA holders, colonisers, contractors, land owner, said to be involved in a real estate project. It is necessary to note that the term landlord signifies any individual who being under a contractual relationship is receiving or is eligible to receive, a rental fee in respect of any of his properties that has been let by him for either residential or commercial use, either for himself or on behalf of someone else, who would thereafter be receiving the rent if the premise was to be leased. Some of the common questions that arise in relation to commercial landlords therefore are explained hereunder.
Is a landowner considered to be a promoter
The answer is in affirmative since the word “causes to be constructed “in the definition of the ‘promoter’ considers the landowner within its definition. The landowner is the person involved in project construction, who may give his rights to a developer through granting development rights, GPA etc. Hence land owners and builders are jointly accountable to the allottees in the overall project development.
Does RERA compel landowners to disclose their information in their application for issuance of a RERA registration
The answer is affirmative. In the application for registration, applicants must provide information about the landowners of the real estate project and their respective interests in the project, and the landowners must submit an affidavit (Joint Affidavit – JD).) for joint development of project work. For example, the RERA of the state of Karnataka has approved the inclusion and acceptance of all landowners in the registration application through circulars and other notifications (RERA of the State of Karnataka – Cr.No/KT RERA/3/2019 on 31 October 2019).
Important criteria under the RERA for landowners and developers in joint development agreements
The RERA Act, 2016 does not differentiate between lessors and developers and therefore, the following must be taken note of:
- Landlords and developers have the same responsibilities and obligations with respect to the appropriation of design work.
- The roles and responsibilities between landlord and developer are defined in the contract they enter in. Therefore, when drafting a project, be sure to include all relevant items, namely, RERA registration, updated status quarterly audit, annual audit compliance status, responsible for advertising and other compliance.
- Drawing of funds from the RERA-approved bank account (scheduled Bank) and proportionate allocation of funds so withdrawn in between developer and landowner based on percentage completion of the project, is a requirement.
General duties of landlords that must be abided by
It is a general saying that the landlord must grant the tenant possession of the property following the execution of the agreement they had entered into. This vested duty of the landlord is said to be violated when a third party has principal title to the property at the time the tenant is seeking entitlement of his possession in the landowner’s property and if the title is asserted, the tenant will be deprived of his right to possessing the said property. The general duties of the landlords have been stated hereunder:
- It is the duty of the landlord to make the required repairs to the leased property such as maintenance of hot water systems, sinks, baths and other sanitary ware so as to avoid the tenant from facing additional issues in relation to the same.
- It is the necessary duty of the landlord to periodically keep in check the safe application of gas and electrical appliances which otherwise has a risk of failure and causing danger.
- The duty of the landlord towards the fire safety of furniture that is provided under the tenancy agreement is inevitable.
- It is the duty of the landlord to make sure that the leased property is fit for habitation.
- It is also the duty of the landlord to carry out repairs in the rented premise whenever required.
It is necessary to note that owners of commercial property who lease their premises or spaces to tenants are often made to undergo anxieties about circumstances in which the renters can claim ownership of the concerned property. Before we delve more into the same, it is noteworthy to mention that legally and on paper, whenever a commercial property is leased, a tenant is always viewed as a tenant without any legal provisions that make room for him to claim property ownership. To ensure the application of the same it is the duty of the commercial landlords to follow the following:
- Commercial landlords’ must mandatorily ensure that the lease agreements entered into must be registered and stamped along with proper durations inclusive in it.
- Every lease agreement entered by commercial landlords must have clauses for renewal along with the entire chain of renewals, and
- Commercial lease agreements must have a clause for vacating the premises upon expiry as well.
If the documents appear to be legally sound, there lies no fear for commercial landlords in terms of leasing.
Laws governing tenants in commercial properties
Back in 2008, a bench of Justices B N Agrawal and G S Singhvi of the Supreme Court of India, while deciding on the case of Satyawati Sharma (Dead) By Lrs vs Union Of India & Another had ruled that tenants in commercial properties have legal obligation to vacate the same if and when directed by landowners. While deciding on Section 14 (1) (e) of the Delhi Rent Control Act of 1958, the bench had opined that the same stands in violation of Article 14 of the Indian Constitution, thereby mentioning that there shall be no discrimination between commercial and residential properties. Therefore, landlords can easily evict tenants if they require the premises for their self-occupation. As per the decision, there existed no distinction between commercial and residential properties in New Delhi till 1947, therefore the 1995 Act also did not differentiate between these two categories in case of eviction of tenants.
It is clear from this decision that there lies no legal provisions where tenants can become legal owners of commercial properties. What the landlord in return should ensure in commercial cases is a written and registered agreement, paying stamp duty and renewing the same upon expiry, for the purpose of commercial leasing. A commercial landlord must never let a tenant occupy commercial space without a legal contract. Further, it is the duty of commercial landlords to keep records of payment of rent, utility bills and maintenance charges in order to prove that the tenant is not the owner of the leased space, in cases of contingent dispute.
Conclusion
As we come to the end of this article, it is ideal to state that the worries surrounding commercial landlords can be erased if due care on the part of the landlord is taken. In order to avoid hefty amounts to be paid as fine in the future, spending of a few thousand rupees on the maintenance of records of the premise is a necessity and therefore should be done by all commercial landowners.
References
- https://www.99acres.com/articles/can-a-tenant-claim-ownership-of-a-commercial-property.html.
- https://www.mondaq.com/india/landlord–tenant—leases/1027196/leases-for-commercial-spaces.
- https://ksandk.com/real-estate/commercial-real-estate-leasing-in-india/.
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