In this blogpost, Saurodeep Dutta, Student of University of Calcutta and the Diploma in Entrepreneurship Administration and Business Laws by NUJS, writes about the legal requirements of opening a hostel in India.

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Introduction

 A hostel has always been regarded as smaller, slightly cheaper alternative to a hotel, and as such, in many places, a hostel is used by students and professionals when based in a place that is not their home, a second home. This is referred to as loosely, a ‘student hostel’ which contrasts with a backpacker hostel, aimed primarily at backpackers and other tourists, referred to as the ”backpacker hostels” At the same time, the business of a hostel is also a profitable one for the discerning entrepreneur, providing multiple kinds of clientele, with a running overhead cost that is significantly lesser than the overhead cost of simple hotels, while also being a social service; providing a cheaper alternative for hospitality seeker during this time of economic turmoil. Hostels have also been known to help the local economy. Despite being easier to set up and run than an average hotel, a hostel still requires a significant amount of work, time and investment before it is ready to be open for business.

Preliminary

The first thing that a person interested in opening a hostel must engage himself in is planning. Planning is crucial to setting up a good, working hostel, which not only is comfortable and provides satiety to the people living in the hostel, but also provide a good amount of profit to the owner of the hostel.

The prospective hostel owner must attempt to plan where the location of his hostel must be, the investment that is required in order to set it up, the permissions that must be taken to set up the hostel, and the other relevant logistics that are required before setting up the hostel itself.

Location

The location of a hostel is of prime importance for any prospective hostel-owner. A hostel must ideally be located near a system of mass transit, such as an airport or a train station. It may also be located near any place where a high footfall of traveller traffic may be reasonably expected, such as some historical site or temple. The location and positioning may not be the be all and end all of a particular hostel, but it may reasonably be expected to be a huge parameter determining the success of a particular hostel. No traveller will choose to walk an extra mile from a place where they alight, or where their destination is. The prospective entrepreneur must absolutely ensure that the location must be suitable enough to guarantee traveller traffic, and according to OrangeMango.com “choice of location is the biggest factor that could make or break your business.” A location that is centrally close to the both mass transits points, as well as close to potential places of tourist interest will be the best suited.

Investment

Investment in the areas of infrastructure is of paramount importance for any discerning entrepreneur in this field, and a significant amount of capital is required to be raised for the property (either bought or rented), the living quarters of the guests, including beds, bathrooms, the kitchen, amenities, a front office for handling the arrival/departure of guests, a lounge for the guests to enjoy their time in, manpower, and other requirements. Although a hostel for backpackers doesn’t quite require the amount of capital, manpower and other infrastructure that a hotel requires, a hostel in a competitive environment must have elements which would make the hostel stand out amongst peers. A good example of this is The Smyle Inn, located in Delhi, which offers the following services to make itself stand out amongst peers[1] :-

  • Complimentary Breakfast
  • Free Wi-Fi and free use of computers for the guests.
  • Maps and information of Delhi
  • Booking services for systems of mass transit
  • Airport/Railway station drop off and pick-up facilities
  • Mobile SIM cards at reasonable prices.

Arranging for these services provides an extra impetus for the business itself, making it distinguishable from other hostels which are starting to become an area of competition in the Indian market.

All of these require investment, and it may be a good idea to have a significant amount of starting capital raised through various means to fulfil the requirement for a hostel to not only be a temporary home for travellers as well as being a comfortable one.

Legal

One of the most important parts of setting up, however, is the legal permits that are required before the hostel may be set up. Hostels require various types of permits as may be prescribed by the local law, and require registration. These include a number of permits, including

  1. a trade license for carrying on the business of the hostel,
  2. a No-objection certificate from the local municipal corporation, the municipality, or the local panchayat, as the appropriate body may be.
  3. The local police station must also be informed of the hostel being brought up, and its location as well.

A trade license has become important in various parts of the country for the reason that in many places, they are thought to be a commercial establishment. The Bruhat Bangalore Mahanagara Palike (BBMP), through a resolution in 2013, made registration, and a trade license compulsory in order to operate a hostel.[2] Similar rules apply to most other areas.

Further, in order for the hostel to come up, the nearest self-governing body such as the municipal corporation, municipality or panchayat must be informed. Interested applicant may apply to the relevant corporation, and after due examination of all papers and the premises, a No-objection certificate may be provided.

The police station also requires a formal notice to be sent to it, detailing the location, name and other details of the proposed hostel, before it may legally be open. These are required as in many places; the police station is required to provide a station-specific list of hostels, prompted by a huge increase in the number of hostels that have recently opened in places of tourist interest.

Further, another requirement is that hostels be registered under the Sarai Act,1867. Any hostel not registered under the Sarai Act are liable to be closed down upon opening for business. All hostel owners are required to file the trade licenses that they have received from the concerned public body as proof of their work, along with some other permits and requirements registered below, and they will be registered accordingly.

Further, there are a number of miscellaneous permits that must be obtained. All hostels must have obtained a fire safety clearance, that may be obtained from the local fire department, clearance for the emergency services department, and a No-Objection certificate from the Pollution Control Board  and for the electricity supply, they must also have received clearance from the electricity board. These may be obtained via application to either the fire department, emergency services department, the or the electricity board or corporation that is nearest to the hostel in question. In many cases, an affidavit requiring the hostel owner to state that they have taken adequate measure for water, sanitation, lighting and security are also required. Upon production of these details, a hostel owner will be registered under the Sarai Act,1867, thereby making the hostel’s establishment a legal establishment under the Act.

[1] http://www.hostelsclub.com/en/magazine/change-life-opening-a-hostel-in-india

[2] http://www.thehindu.com/news/cities/bangalore/trade-licence-a-must-for-pg-hostels/article5405758.ece

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