Negative impacts of Delhi Rent Control Bill

Many landlords of Delhi having properties in prime commercial areas like Karol Bagh, Connaught Place, Paharganj, etc have been disappointed following the Centre’s move to cancel the amended Delhi Rent Act of 1995.

A fresh law is likely to be formed as told by the urban development (UD) ministry but however, enough information is not revealed about its focus, intent and timeframe for introduction of the law. Last week, the proposal to repeal the 1995 act was on the cabinet agenda, but was withdrawn. According to sources, soon it will be tabled again in the cabinet.

In India, scarcity of rental housing during world wars paved way to the formation of rent control acts. Owing to wartime conditions, the supply of materials for housing construction used to become less which was driving demand for rental housing. The rent control laws contributed to such situations by discouraging investment in housing in general and in rental housing in particular.

The Delhi Rent Control Bill was passed on 31st December 1958 and it came into force on 9th February, 1959 as The Delhi Rent Control Act, 1958, although some amendments were made later in 1960, 1963,1976, 1984 and 1988.

Though the law proved beneficial to tenants as it controlled arbitrary hike in rentals by wealthy landlords, in around four decades, the same law became the major issue for landlords. Even as property rates kept soaring, these owners bound by the Rent Control Act still continue getting minimal rents.

Although the 1995 act got approval by both houses parliament, the move failed to be executed because of the protests carried on by tenants. As per sources, the 1995 law was proposed to be cancelled around six months ago. The officials alleged that without withdrawing the existing act, they cannot start working on a fresh law. While the landlords/owners blame the government saying that it is not progressing in this regard because the government is looking for electoral benefits from the tenants. The owners claim the 1958 act as unconstitutional and have been fighting a case in the high court since 2010.

Sobha Agarwal, president, Committee for the Repeal of Delhi Rent Control Act, alleged that instead of notifying the Delhi Rent Act (DRC), 1995, that has been approved by the government, the government is looking to repeal it. The UD ministry which should push states to undertake rent control law reform, is itself moving in the opposite direction, she added. The large number of votes from tenant constituency has been luring the government and is forcing it to repeal the policy and overthrow the reform process.

However, at a time when legislation is not supporting the landlords, the Supreme Court led courts have provided some relief to them. They have directed the owners to seek legal help to get even commercial properties vacated. The DRC act currently remains as the last defence available to tenants.

According to landlords, the 1958 act has no mechanism to bring the historical rent to the present market rate. It provides tenants a lifetime opportunity of paying rents below Rs 3,500 per month forever. The law protects tenants paying less than this amount. However, owners are allowed to increase rent by 10 percent every three years once, according to the Delhi Rent Control (Amendment) Act, 1988. But still, when compared to the skyrocketing rentals in major cities like Delhi, Mumbai, etc, the 10 percent hike in every three years is not a viable solution as the cities generally see a hike of 30 to 40 percent in rental rates every year. Going by the proposed rate in 1988 amendment, a tenant paying a monthly rent of Rs 10 in the year 1988, would reach the ceiling of Rs 3,500 only after 184 years i.e in the year 2172.

Few states have come up with reformed rent acts which have been observed to be leading to fast growth in the rental housing market. West Bengal introduced new rent act in 1997, Maharashtra and Karnataka in 1999, and Rajasthan in 2001. In all the four states, the formula for fixation of standard rent under the rent control act has been revised and periodical increases are allowed. Few states like Rajasthan allow owners to rent properties on an agreed rent basis. The acts also provide for payment of pro-rata property taxes by the tenant. The Maharashtra rent act provides for Leave-and-License, which enables the landlord quick recovery of possession while the Rajasthan rent act permits Limited Period Tenancy. All new acts have given importance to fast judicial process or summary disposals of cases.

For instance, Connaught Place, which stands fifth among the most expensive office markets in the world, has been witnessing fast-track appreciation in terms of rental and property values. But unfortunately, there are some properties in CP, that have been rented out long back at lesser rates, and are still earning a rental which is even lower than the present per sq ft rental rate of the same. A 2500 sq ft property in a project housing Embassy restaurant, is fetching a rent of Rs 312 per month while the market rate is Rs 1000 per sq ft. Ironically, the owner of this property is shelling out crores as property tax on this property. This absurdity in rental values is a result of the Delhi Rent Control Act, 1958. Many landlords in the city have become victims of this Act and are desperately waiting for a silver lining in terms of rental act.