The Rent Control Act administers the renting of homes, with every single State having its specific version of the Act. The objective of the Act is to assure that neither the landlord nor the tenant’s rights are exploited by the other. Renting, be it either for residential or commercial purposes must be as per the respective regulations of each state. It would not be wrong to say that the rent acts across different states are pretty much similar, other than some minor variances. This article would stick to the analysis of the new Maharashtra Rent Control Act, 1999 (“MRCA”), which has brought about many modifications in the Bombay Rent Control Act and its related application to the State of Maharashtra (the “State”), its legislative background and loopholes in the Act.
History of evolution of the Maharashtra Rent Act, 1999
The 1st rent law was passed during the Bombay Presidency in 1915, and afterward in 1939. Later on, it was replaced by the Bombay Rents, Hotel, and Lodging House Rates Control Act, 1947. The final Act, the Maharashtra Rent Control Act, 1999 has substituted all the previous Acts in an attempt to standardize the rental housing market in the State.
Sapna, a proprietor from Smilehomes based in Mumbai says that the MRCA aids the tenants as well as the landlords equally. The MRCA targets giving reasonably priced temporary housing to the residents of the State while assuring a clear relationship between both parties.
With the view to unifying the three different rent control laws in the State, both the Legislative Assembly and the Legislative Council passed the MRC Bill, 1999, with amendments and came into effect on 31st March 2000. Although there are exceptions on the application of the MRCA to any premises legally belonging to the Government or a local authority, premises let or sublet to banks, any public sector undertakings, or any Corporation established by the Centre or the State Act, a landlord is only responsible for maintaining the whole residential or commercial structure and look for modifications thereof.
Duties of the landlord and tenant under the MRCA
The MRCA has stipulated the duties of the landlord and the tenant:
- Increase in rent allowed under the MRCA –
As per Section 11 of the MRCA, the landlord retains the right to decide the rent and is also entitled to ask for a raise in the rent at the rate of 4% per annum from the date of the commencing of the MRCA. The landlord can similarly increase the rent at the rate of 15% per annum for developments, modifications, and alterations if 70% of the tenants give written consent. The additional 25% per annum rise in rent is for particular structural maintenance and repairs specifically carried out under the Maharashtra Housing and Area Development Authority (MHADA) Act.
Further, under Section 12 of the MRCA, the landlord is also within his/her right to hike the annual rent if the government-imposed taxes increase in the course of the duration. In that event, the increase in rent cannot exceed the amount of the increase in tax.
The rules of the MRCA are however also applicable in areas where excessive rent is charged by the landlord. Such an offense is punishable with imprisonment not exceeding 3 months, or fine not exceeding Rs.5,000/-, or both.
2. Eviction Conditions –
Section 16 of the MRCA, provides for the landlord to recover possession of the rented premises subject to the requirements under the same section. Section 16 (1) of the MRCA provides that a landlord is authorized to recover possession of any premises by satisfying the court that the cause for initiating recovery of possession is reasonable and genuine. The landlord can likewise recover possession if the tenant, without the prior authorization of the landlord, constructs any permanent structure on the rented premises. Furthermore, if the tenant or his agent or servant or a person claiming under the tenant or someone living with the tenant has been found guilty of behavior that is an aggravation or nuisance to the next-door house or other inhabitants of the premises, the landlord can recover custody of the rented premises. In addition, if the tenant has been found guilty of using the premises or letting the premises be used for unlawful, or any other counterfeit /prohibited purpose then too, the tenant is held responsible.
3. Guidelines for rebuilding –
The landlords have to meet several conditions for rebuilding purposes. They need to carry out certain activities, as stated in Section 16 (6) of the MRCA, which are –
- Acquiring adequate capital to carry out the work.
- Planning for the recommended building should be structured and sanctioned by the concerned municipal authorities.
- The new building should not contain less number of residential units than the units in the original old building.
- The old building’s demolition work requires it to be finished within 3 months/90 days and subsequently, the new building must be completed within 15 months.
- The carpet area of premises in the new building must remain same as was in the old building.
- The landlord can offer an undertaking that if the carpet area of premises permitted in the new building is equal as was in the old one, and then the premises will be offered to old tenants in the new building.
4. Responsibility for the repair of premises –
According to Section 14 of the MRCA, every landlord must preserve and keep the premises in a good state. If the landlord is careless in the maintenance of the premises, then the tenant can serve the landlord with a 15 days’ notice. If the landlord fails to abide by the notice, the tenant is authorized to make the repairs and carry out the maintenance themselves and deduct the expenditures paid on the upkeeps from the rental or recover the amount otherwise. The recoverable sum should not surpass 1/4th of the rent to be paid by the tenant for that year.
5. The legalization of the Pagdi system –
In Mumbai, while discussing the redevelopment of old properties, there is a mention of Pagdi properties. Pagdi has been legalized under Section 56 of the MRCA as the consideration paid to the landlord in the form of rent, premium, or consideration. The pagdi system has provided a guarantee to the tenant, that despite price rises or other variations, their rents will be nominal. In some areas of South Mumbai, the pagdi system is prevailing where certain tenants still pay a rent of Rs.500/- per month although the current market values might be as high as Rs.60,000/-.
6. Transfer of tenancy –
As per Section 56(i) of the MRCA, a tenant is legally eligible to take a sum of consideration of waiver or transfer of his/her tenancy. In cities like Mumbai, for the transfer of tenancy, around 33% of the sum in the transaction is paid in cash to the landlord to influence the transfer of tenancy or assignment. Similarly, it is lawful for a landlord to take money for the grant or renewal of a lease of the premises, or to give his/her permission to transfer the lease to any other person, under Section 56(ii).
Another improvement to be noted is the Draft Model Tenancy Act (MTA), which is in the implementation process in various states of the country. It has several clauses that cover the renting of the residential premises that may be considerably different from the MRCA. On the other hand, being a Model Act, MTA may or may not be applied in Maharashtra.
Thus, the MRCA is an all-inclusive Act that clarifies several fundamentals relating to the rental situations in Maharashtra. The MRCA minimizes vagueness in terms of these fundamentals and offers a clear set of rules for both landlords and tenants to refer to in such circumstances.
Registration of the rent agreement
As mandated under the Registration Act, 1908 as well as under Section 55 of the MRCA, the landlord and the tenant should register the rent agreement. After the enforcement of the Registration Act, any agreement or deed for letting or leave and license of the premises, which may be entered between the landlord and the tenant or the licensee, as the case may be, shall be in written form and shall be registered. As per Section 55(2), the accountability of the agreement getting registered is on the landlord. Failing which the landlord will be punishable with imprisonment, which may extend to 3 months, or a fine not exceeding Rs.5,000/-, or both, as prescribed under Section 55(3) of the MRCA.
Conditions on the usage of rental property
Landlords cannot utilize their residential properties for commercial purposes. The Landlord also cannot permit the tenants to do so as per Section 30 of the MRCA. For any such breach the landlord may be punished with imprisonment for a term of up to 6 months, or a fine of up to Rs.10,000/-, or both, under Section 30(2) of the MRCA.
Is it compulsory for the landlord to give a rent receipt?
Under Section 31 of the MRCA, rent receipts to the tenants must be provided mandatorily by the Landlords. Failing to do so, the landlord may be fined which may extend to Rs.100/- for each day of default, as prescribed under Section 31 (3).
Penalties under MRCA
Supply of essential services
Section 29 of the MRCA declares that the landlords cannot cut off or withhold the essential/indispensable supply or services, such as water supply, electricity, lights in passageways as well as on staircases, elevators, conservancy or sanitary services, etc., to the tenants. If the landlord were to do so, the tenant may approach the court under section 29(4) and the court shall make an order directing the landlord to restore such supplies and services. If the landlord fails to comply with the directive of the court’s order the court, the landlord will be fined which may extend to Rs.100/-, for each day till he/she continues to default.
Inspection of premises by the landlord
Section 28 of the MRCA, entitles the landlord to inspect the premises rented or given on license, at a reasonable time and after giving prior notice to the tenant/licensee.
Eviction of the tenant under the MRCA
A landlord is not allowed to take back possession of any premises, as long as the tenant pays or is willing to pay rent. Besides, the landlord cannot file a suit for recovery for the rented premises on the grounds of non-payment of rent, until the expiry of 90 days. This 90 days period starts after 15 days of service of the landlord’s notice to the tenant in this regard, as provided u/s 106 of the Transfer of Property Act, 1882 (“TOPA”).
Let us discuss the provision under which a landlord may take back the possession of the rented premises:
The landlord will be authorized to take back possession of the premises if the court is satisfied that:
- The tenant has committed any act that is contrary to the provisions of Section 108 of the TOPA.
- The tenant has constructed any permanent structure on the rented premises, without the landlord’s prior written permission.
- The tenant has given his/her notice to vacate the premises and subsequently, the landlord has agreed to sell the premises or rent it out to another party.
- The tenant is guilty of nuisance or aggravation to the adjacent or neighboring occupants or is found guilty of using the premises for unlawful or prohibited, or immoral activities.
- The tenant is guilty of illegal/unauthorized subletting of the premises.
- The tenant has ceased to be the employee of the landlord, based on which the rented lodging was provided.
- The tenant has been found guilty of an offense in respect of the premises, by disregarding the provisions under:
- Section 394 and Section 394A of the Mumbai Municipal Corporation Act.
- Section 376 and Section 376A of the Bombay Provincial Municipal Corporations Act, 1949.
- Section 229 of the City of Nagpur Municipal Corporation Act, 1948.
- Section 280 and Section 281 of the Maharashtra Municipal Councils, Nagar Panchayats and Industrial Townships Act, 1965.
- The premises are reasonably and bona fide required by the landlord for his/her habitation. Likewise, to carry out the necessary repairs, that may not be possible without vacating the premises and demolition. In case a tenant fails to comply with the order of eviction within 30 days of the date on which it has become final, a competent authority may remove them, by using such force as may be required.
Section 33 of the MRCA illuminates the jurisdiction of the courts. The court of Small Causes, Mumbai, and the court of the Civil Judge – Senior Division have jurisdiction over any disputes caused in rent-related cases.
Even though the MRCA in its Section 38(a) states that the cases shall be heard and disposed of as quickly as possible by the courts, adding that an attempt shall be made to dispose of the case within a period of 12 months from the date of service of summons. Similarly, in case of an appeal, an attempt shall be made to dispose of the case within a period of 6 months from the date of service of notice of appeal on the respondent under Section 38(b).
Loopholes in the MRCA
The Loopholes in the MRCA and arguments for rent deregulation and the reasons for its repeal or non-existence are divided into 2 main parts: Socio-economical and Legal.
- Socio-economical :
- Fixing the standard rent (calculated based on the value of land and cost of construction, under the provisions of the MRCA) as a percentage of the cost of construction is a key deterrent for those desirous to invest in rental housing as it offers a very low rate of returns, unlike other assets. This presents a gloomy picture of the future supply in the rental housing markets. The authorization to raise some percent of rents every 3 or 4 years, approved by the MRCA is also useless as the market rate of rent’s increase is much higher.
- The low return rate further leads to a swift decline of prevailing housing stock, as landlords have no enticement to invest any money in the maintenance of their premises.
- Furthermore, it is problematic to evict a tenant once the house has been rented, owing to the provisions of the MRCA. Consequently, the anxiety of losing permanent control of their premises may lead them to pull out their vacant premises from the rental market, causing reduced supply.
- It’s challenging to resell tenanted premises where it’s difficult to force out the tenants. Thus decreasing liquidity in the market for ownership accommodation.
- Rent controls moreover interfere with incentives and price signals, leading to the disorganized allocation of resources (like land and building). As a result, premises do not get allotted to the ones who are ready to pay the higher rents.
- The social effects of MRCA are more noticeable and often peculiar. Due to the lack of any new stock of rental premises, the existing tenants won’t leave the premises and the new ones are the worst affected. The lone imaginable way for them to acquire a premise is if the existing tenant dies (supposing there are no inheritance rights). Such a situation can lead to wretched circumstances.
- The defective nature of MRCA: The Structure of MRCA clashes with other laws of the land in some situations:
- The law concerning the landlord’s rights to remove/evict the tenant is found in the Transfer of Property Act, 1882 (“TOPA”). Even though a landlord can instantly start an action for eviction of a tenant on expiry of the notice of eviction under Section 106 of the TOPA, the landlord cannot start such an action where the MRCA applies, only if he/she can demonstrate the existence of at least one of the grounds of eviction under the MRCA.
- The MRCA relating to the control of accommodation in urban areas, as well as the Rent Control Acts, are examples of legislation interfering with the right to hold and dispose of property under Article 19(1)(f) of the Constitution of India. But such acts exist because they are considered to be necessary in public interest in times of shortage of houses.
Model Tenancy Act, 2020
The Union Cabinet approved the Draft Model Tenancy Act, 2020 (“MTA”) on 2nd June 2021. The MTA is the government’s efforts to enable the institutionalization of rental housing by steadily shifting it in the direction of becoming a formal market. The government said that it is expected to give a boost to private participation in rental housing as a business model for addressing the massive housing scarcity. According to the press release, the Centre would circulate the MTA to all the States and Union Territories to be adopted by them, by enacting fresh legislation, or by amending/modifying their prevailing statute.
The MTA’s objective is to tackle the loopholes that presently exist in the rental housing sector and to make renting more beneficial by increasing transparency and accountability and balancing the welfare of the landlord as well as the tenant in a prudent way.
The following are the significant features of the MTA:
- The MTA will apply prospectively. Existing tenancies shall continue as per existing laws.
- It shall apply to the entire State and shall apply to both residential and non-residential properties.
- Execution of a Written Tenancy Agreement (WTA) shall be mandatory and shall apply to residential as well as non-residential properties.
- Subletting or transfer or assignment of rights under WTA must be through a supplementary agreement and a notice of the same shall be given to the Rent Authorities.
- Rent and revision of the rent thereof shall be governed by the terms of WTA.
- Higher rent shall be payable upon failure to free the property on expiry or termination of the tenancy.
- Security deposit taken by the landlord shall not exceed the rent of 2 months for residential property and shall not exceed 6 months’ rent, in case of non-residential property.
- The security deposit shall be refunded to the tenant upon vacation of the premises, after making due deduction of any liabilities.
- A tenant cannot be evicted for the duration of the WTA except otherwise agreed upon in writing by the landlord and tenant.
- In the event of the demise of the landlord or tenant, the WTA shall be binding on their descendants/heirs, on the same terms, for the remaining term of the tenancy.
- The landlord and tenant both shall be responsible for maintenance and upkeep of the property as contracted in the WTA or as stated in the form provided in the Second Schedule.
- In event of a force majeure on expiry of the term, the tenant shall be permitted to reside in the property for 1 month after cessation of such event.
- The MTA will appoint a fast-track quasi-judicial mechanism for the resolution of disputes by providing for Rent Authorities, Rent Courts, and Rent Tribunals.
- The Rent Court may, on submission by the landlord, pass an order for eviction and recovery of possession on any of the prescribed grounds.
- The jurisdiction of the Rent Court shall not extend to the questions of title or ownership.
- Save as provided in the MTA, the Code of Civil Procedure, 1908 shall not apply to the Rent Courts and Rent Tribunals, which shall be directed by the principles of natural justice and shall have the power to regulate their procedure.
- The jurisdictions of civil courts are barred by the MTA in respect of any suit or proceeding that relates to the provision of the MTA.
There has been a constant tug of war between the tenants and the landlords of old buildings over rents. Landlords lament about the low rent. It was impossible for them to maintain the premises on such low rents and that they are required to shell out from their own savings. On the other hand, the tenants claim that since landlords were collecting rents, it was vital for them to maintain and repair the premises. Consequently, most of these buildings decayed due to the failure to act from both parties.
Maharashtra government will be adopting the Central government’s MTA partially. The tenancy act has constantly been a hugely controversial subject matter in Mumbai as numerous tenants living in old decrepit buildings and shawls have been resisting any modifications in the prevailing Rent Control Act. The MTA will hopefully boost the rental market. The Landlords are afraid to give their flats and houses on rent, and such an authority will give them assurance.
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