This article has been written by Anand Dwivedi, Amity University, Kolkata. The following articles talk about the Delhi Rent Control Act, how the rent should be specified and landlord-tenant relationship.

Introduction

Rent is a Compensation paid by a tenant to the landlord for the use or occupancy of a property. A mutual agreement between the tenant and the landlord with terms and conditions of the property is required. A rent agreement is referred to as the legal binding of the conditions and obligations of both the tenant and the landlord. The rent agreement is an integral part of the rent laws. So, there are various laws enacted to govern the Indian real estate sector and one of such laws are the Rental laws. These laws are made to govern the basic civil rights of both Landlord and tenant on the rental of Commercial and Residential properties.

History of the Rent Control Act

In the early 1900s, the United Nations had introduced the Rent control. According to the United Nations, study India’s first Rent Control Legislation was introduced during the First World War in 1918 in Bombay and in Calcutta in 1920. In major cities and towns in India were covered by Rent Control laws after the Second World War. The rent control act can be differentiated as three distinct generations law as the pre-independence legislation was the First Generation laws, post-Independence was the Second generation laws and the Model Rent Control Legislation in 1992 was the Third Generation laws. 

The Objective of the Rent Control Act

The basic objective of the Rent Control Act is to protect the tenant from exorbitant rent, arbitrary increase in rent and to ensure the security of the tenant. In India, states enacted their own Rent Control Act by 1972. The rent control act is applicable to most of the residential and non-residential premises in all urban areas of the states. In 1992, the Central Government proposed a Rent Control Legislation to all the states. The model act was a proposal for a modification to the earlier laws and which prescribed a level of rent beyond rent control cannot be applied. The New Delhi Rent Control Act in 1997 was passed but later the model act failed. Now each and every state in India provides fixation of standard rent. The main provisions of the Rent Control Act are as follows:

1. Control of Vacant Building i.e. letting and leasing to assist the tenant.
2. Fixation of fair and standardised rent.
3. Protection from indiscriminate eviction to tenants.
4. Obligations and duties of landlords i.e. maintenance of the rented property.
5. Rights of Landlords on default payment or misuse of property or recovery of the property for specific reasons.

Applicability of the Rent Control Act

The rent control act is not applicable on Property has been let out to a Private Limited or Public Limited companies with a capital share of Rs 1 crore or more or to public sector undertakings, banking, or any corporation established under any State or Central Act or a foreign agency.

Delhi Rent Control Act: historical background

After the outbreak of the Second World War in 1939 the First Rent Control measures were taken in Delhi under the Defence of India Rules 1939. But the Act was not applicable to New Delhi and the notified areas and civil stations. So in 1942, the remaining areas of Delhi were made applicable under the provisions of Punjab Urban Rent Restriction Act 1941. But as it was realised that the Punjab Urban Rent Control Act, 1941 was not sufficient for a city like Delhi and thus after the Second World War a Legislation was passed for Delhi named as The Delhi and Ajmer-Marwara Rent Control Act, 1947. Due to certain loopholes in the Delhi and Ajmer-Marwara Rent Control Act 1947 later in 1958 the Delhi Rent Control Act, 1958 was passed on 9th February 1959. It is the current Legislation of Delhi which is extended to New Delhi Municipal Corporation and Delhi Cantonment Board with Urban areas of Delhi.

The Rent Control Act negative impact created various commissions by the Central and the State Government to suggest reforms in the Act. In 1980, the Economic-Administrative Reform was set up and the National Commission on Urbanisation in 1985. The suggestion in 1988, influenced the amendments in the Delhi Rent Control Act, 1958. Many other states also carried out the amendment. The Delhi Rent Control Bill, 1988 which provided various states with a model of amending similar amendments.

Salient features of the Act

• Exemption 

1. Earlier the Rent Control would be applicable to large urban areas with a population of 3lakh or above. But due to the Bill, the population limit is indicative and state governments can cover areas as per the local needs which can have a population even less than 1 lakh.
2. Construction on a vacant plot of land will be considered as construction and 75 per cent of the construction will be considered a renovation. Standard rent would be paid on the fifteenth year for the new construction for the fifteen years by the tenant to the landlord. It would be considered as eviction if the Tenant refuses to pay this rent. 
3. Exemption for premises for a period of 15 years or no tenancy for 7 years or more.
4. All tenancies exempt on lease extend to 20 years.
5. Exemption to both the residential and non-residential premises which are carrying more than the specified rental value ranging between Rs 1500 to Rs 3500.

• Fixation of Standard of Rent 

1. The State Government will decide the standard rate which is to be fixed to 10% or such percentage return on the basis of total components i.e market value in the year, construction cost, renovation, and major repairs. 
2. The standard percentage increase is allowed for a given year which may vary state to state. In Delhi, rates 1970 onwards was 8%.
3. Standard rates add maintenance and amenities charges.
4. The new standard rents are applicable for all the tenancies and the standard rent is revised every 3 years by the criteria given by the state governments.

• Obligations of Landlords and Tenants

1. Compulsory registration of tenancy with the Authority designated by the State Government for Landlords.
2. Compulsory to give rent receipt to tenants by landlords.
3. Landlords are responsible for the day to day repairs.
4. Tenants have to restore the property as good as it was at the time of entry.
5. Heavily Penalise landlords and tenants on violation of the obligations.

• Eviction

1. Tenant’s non-payment of the rent to the landlord for more than 3 months.
2. Unauthorized use or misuse of the premises.
3. After the notice to quit the failure of the tenant to deliver possession.
4. The bonafide requirement of self-use of residential or non-residential by the landlord.
5. The allotted house period for a tenant to be counted from the day it is ready for occupation.
6. Any damage made or any alteration by Tenant without permission of the owner.
7. In case of major repairs, reconstruction or alterations temporary vacation is provided.

• Maintenance Provisions

1. Including maintenance cost payable by Tenant for better maintenance and repair of houses.
2. Revision of Rent can be done by the landlord on the special repair of the property.
3. On the renovation of the property on a special vacation provided the standard rent will also increase depending on the cost of renovation.

• Other Provisions

1. Making of the Rent Control Act as a permanent Act.
2. Limited period of tenancy up to 5years and providing physical eviction of tenant after the expiry of the period without any procedure.
3. An heir living with a tenant and they were dependent on the tenant. As the Tenant’s death, the heir is permitted to vacate the property for 1 year.
4. Contractual Services such as Canteens, sanitation, etc. doesn’t cover under the law. 

• Streamlining Judicial Procedure under Law

1. By a Constitutional Amendment to establish Rent Tribunal and include Tenancy matters under Article 323 B of the Constitution of India.
2. Simplifying the procedure of litigation by providing petition and appeal to the Appellate Tribunal prescribed form.
3. Appellate Tribunal should have all the powers of the High Court and it should be composed of a Chairman and such members of State Government.
4. The State Government has the power to extend the Jurisdiction of the two-tier system to cover disputes and tenancy.

Jurisdiction of the Act

Section 50 bars the Jurisdiction of the Civil Courts of the Delhi Rent Control Act, 1958. Its jurisdiction extends within the limits of New Delhi Municipal Committee, Municipal Corporation of Delhi and Delhi Cantonment Board as specified in the First Schedule and the Central Government holds the power to extend the limits. The proceedings of Delhi Rent Control Act, 1958 take place before the Rent Controller. 

Under Section 3 of the Act, the Act cannot be applied to any belonging of the Government or to any tenancy or other relationship granted by the government. 

Under Section 5 of the Act, the Act cannot claim or receive unlawful charges notwithstanding agreement.

What is the fixation on the rent?

The Fixation of rent or Fair rents are subject to the rent which is fair with both the landlord and the tenant. Different states have different interpretations and there are laws enacted in all states to ensure that the Landlords cannot get any unnecessary increase in rent every year. Fair rent or fixed on the basis of the locality. If the Landlord pays for an alteration of the property and has a written approval by the tenant or if the landlord has to pay for the water or electricity bill which is payable by the tenant. Then the Landlord can lawfully increase the standard rates under section 7 of the Delhi Rent Control Act. Otherwise valuation of the rent is done on the basis of the market value of the property, renovation, major repairs and construction price of the property. It also includes the payable amount by the tenant for maintenance of the property and amenities provided. Before 1983, any portion of land which would be vacant or under construction then the Tenant doesn’t have to pay for such type of properties. But after the case of Kaliamimal & Others V. Athi V/s Ramachandra & Others 1983 (II) MLJ 252, it included the portion of the building under construction or a vacant portion up to 50% will be considered an amenity for which Tenant has to pay.

Fixation Rent provision was included in the Delhi Rent Control Act, under Section 4(2) which allows either Tenant or Landlord to fill an application for fixation of fair rent. According to the principles laid down in Section 4 of the act, the rent controller will make an enquiry and fix the fair rent.

The method of the valuation of the building or property depends on the sort of the building, structure, durability, location, size, shape, the frontage width of the road and types and quality of building materials used and also the cost of the materials.

Landmark cases

In the landmark case of Mohammad Ahmad and Anr. Vs. Atma Ram Chauhan and Ors. Civil Appeal No. 4422 of 2011 (Arising out of S.L.P. (C) No. 6319 of 2007) the Supreme court said that:

1. Tenants must pay 10% rent at least for 3 years and then the payable amount will be enhanced and if the rent amount is too low as the rent was fixed 20–25 years then present market price should be worked out.
2. Tenants should be paying the rental, property tax, water tax, maintenance charges, electricity charges for the actual consumption so that the landlord gets the actual rent.
3. The Tenant would carry out the maintenance of premises except for the major repairs.
4. For major repairs, the tenant needs written permission from the landlord and also the adjustment of the amount between the parties.
5.  Landlords cannot take any action of eviction for the next 5 years against the tenant if the tenant is paying the fixed rate.
6. Parties have the liberty to get the rental charges fixed by the official valuer or any other agency.
7. Rent should be fixed and should be proper and adequate depending on location, type of construction, accessibility of the main road, parking space etc.

What is the method of valuation of fixed rent/ standard rent?

The valuation of a building is found out by the present-day and suitable depreciation. It can be calculated with the help of the following:

1. The cost of the construction can be found out by estimating the bills of quantities and using the present-day rate of the building. This present-day cost can be manipulated by an increase or decrease in rates of labours and materials.
2. But if the old records are not available then it can be calculated by detailed measurements of the property and then can be calculated with the present rates of labours and materials.
3. To simplify the method, the Plinth area method can be used which is calculated on the basis of the area rate of the same building in the locality.
4. Determining the depreciation on the basis of the use of the building, age of the building and type of maintenance of the building. Generally, there is very much less depreciation during the first 5 to 10 years. 

• Method of property valuation for Rent

Fair rent for a residential building is 9 percent of the total cost of the building and market value and for a non-residential building, it is 12 percent of the total cost of the building and market value. 

Market Value = (plot extent/build up area) *Guideline value

• Method of property depreciation every year

Depreciation is the Schedule II Class type of the building. The Valuation calculated depends on land, amenities, water supply, electrical and sanitary fittings etc. If it is not maintained, then the valuation deducts. The depreciation can be calculated with help of Depreciation rate per annum, age of the building, and total cost of construction i.e. Depreciation = total cost ((100 – depreciation rate)/100) *Age of the Building.

Rate of Depreciation depends as stated in Schedule II are: 

1. In Class I the building built in lime mortar and teak has been used throughout it has a depreciation rate of 1 per cent.
2. In Class II the building built partly of brick in lime mortar and partly in mud in which teak is used will have a depreciation rate of 1.5 per cent.
3. In Class III built-in mud and country would have been used as a depreciation rate of 2 per cent. 
4. In the Class IV building built are inferior from the built-in Class III has a depreciation rate of 4 per cent.

What are the benefits of fixation of rent for landlords and tenants?

• Benefits for tenants are as below: 

1. It prevents Landlords from charging exorbitant rent.
2. Landlords cannot make high profits by increasing the rent amount more than the prescribed percentage.
3. Landlords have to give the receipt of rent payment which is even away from stopping them from taking more than fair rent.
4. To make it helpful for a moderate-income job tenant to live decently without fear of rent hikes.
5. It dictates certain duties to landlords as maintenance and facilities of the building.
6. Fair rent helps tenants to get Property at a good locality and location at a reasonable amount.

• Benefits for Landlords are as below:

1. Tenants have to pay for the maintenance and amenity of the building.
2. The fair rent is fixed on the basis of market value, construction cost, renovation and major repairs which don’t put the Landlord in the loss.
3. The fair rent safeguards the landlord from damages of the property and for which the landlord can lawfully increase the rent with the help of the prescribed procedure.
4. It even safeguards the rights of landlords in case of needs of recovery of premises.
5. It allows an increase in the standard rates after a period of every three years.

Conclusion 

Tenants should pay the rent as per their rental agreement for the extended term. If the landlord is fixing rent desirous or evicting premises he has to follow the procedure in the Rent Control Act. Tenants can even file an application for Fair rent with the help of the prescribed procedure given by the State Government of that state. But the Rental laws should be revised to protect the property of the owner from the tenant. It can be done by giving special powers to the landlord to be able to reclaim property without court proceedings.

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