Saturday, April 19, 2008

Supreme Court gives relief to commercial landlords

For decades, the Indian Government and the legal system has been lopsided in favour of tenants, with the Rent Control Act being one-sided to protect tenants. The Act has reduced property rights, not letting landlords get their property back when they need the property for their own use, and not letting them raise rents in accordance with annual inflation trends. The Rent Control Act has scared landlords so much that there are many property owners who cannot envisage letting out their currently vacant properties for fear of not getting these properties back, or who let out properties on 11 month leases and get them vacated within 2 years so that properties do not get tenants who refuse to let go.
This situation had prevented the healthy growth of the market for tenancy and led to an artificial scarcity; so there was a great jubilation among property owners when the law was weakened some time back; the change allowed landlords to get their property back when they could demonstrate that they needed the property for their own needs, however, this was only for residential properties. Commercial properties were excluded. So you had the case where prime properties in commercial centers such as Connaught Place were on rent for decades old rentals of Rs. 100 per month; the landlord could only watch as their properties were used by tenants to make big money and they themselves got a pittance as rent. This would lead to a situation where the landlords would not invest anything on maintenance for these buildings. Finally the Supreme Court has corrected this, letting owners of commercial properties evict their tenants when they could prove that they needed the building:

For 50 years, tenants in shops and commercial premises in many prime areas of Delhi have had the upper hand over landlords. They lived without fear of eviction and paid a paltry rent as they were protected by laws that froze the amount negotiated decades ago. This special protection was because the law said that a tenant could be asked to vacate only residential premises, and not commercial property even if the premises were required for personal use. But all this has changed.
The court said the restriction on eviction of tenants from commercial premises was inserted in the law 50 years ago mainly because of the limited commercial space available in the city at that time. But that was a long time back. Now the scenario has undergone a sea change and a fairly large number of buildings and premises were now available on rent for non-residential and commercial purposes. Restricting landlords from seeking eviction of tenants from shops was no longer justified, the Bench said.

This is a judgment that was long awaited by landlords. There is no equitable reason why a landlord cannot get his / her property back when they need it. This judgment does not go all the way, given that it still does not give a way for a landlord to get rents raised to reflect current prices; one byproduct of this judgment however will be that landlords will try whatever tactic that they can to show that they need this property for their personal use and get the tenants evicted.

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posted by Ashish Agarwal @ 9:25 PM