Rent Control Act

The government is in the process of drafting a new rent control Bill. The Bill is a model law, which will be circulated to all state governments. Since housing is a state subject under the Constitution, it is individual state assemblies that must adopt it, with or without changes. The model Bill comes 18 years after the last one was drafted and circulated among the states. The 1992 model recognised, and attempted to deal with, the basic problem that rent control laws had caused: freezing of rents paid by tenants at absurdly-low levels. Such rents gave little incentive to landlords to invest in new property or maintain existing ones. Those who built new houses preferred to keep them locked rather than let them out, and risk long and costly court proceedings to get rid of tenants after the lease ended. The 1992 model Bill had decidedly mixed results. The authors of a 2006 study for the National Institute of Urban Affairs pointed out that ‘nothing of note’ has been done to reform existing state laws. For instance, despite the model Bill allowing for periodic increases in the rent, many state Acts effectively froze the rent at a given level for years. Many states didn’t exempt newly-constructed properties from rent control, a move the Bill had intended as an incentive for landlords to invest in housing. Basic rights, such as the tenant’s right to a rent receipt, were not universally recognised. Even incentives such as large transfers from central funds were not enough to get states to reform their rent laws. To be eligible for central funds under the Jawaharlal Nehru National Urban Renewal Mission, states must institute rent control reform. Yet, of 20 states that had committed to doing so by 2010, only nine have. In states such as Delhi, attempts at reforms in mid-1990s along the lines suggested by the model Bill, were effectively torpedoed by politically-powerful traders who, as tenants, reaped benefits of rent control. In such circumstances, can a new law really make all that much of a difference, especially if it is effectively optional for states? The new model Bill being proposed by the government is, in one significant respect, a major departure from the old one. While the 1992 Bill capped rents and regulated changes in rents, the new one may leave the level of rent entirely out of its purview and leave it to be negotiated between the landlord and tenant. One of the state-level laws being seen as a possible model for the new Bill is the Maharashtra Rent Control Act. The Act, passed in 1999, has some features of the old-school rent Acts, but by making a space for ‘licencees’ — rather than ‘tenants’ — it also effectively opened the door to a relationship between the landlord and the tenant where the contract reigned supreme, and the rent was set by the market. In a scenario where there is such a huge shortfall in supply, this effectively means that the tenant has few rights and landlords can dictate terms. “The problem with the Maharashtra law is that it makes no room for tenant rights,” says Kiran Wadhva, a former chief economist of Hudco who helped draft the model Bill of 1992. Perhaps recognising this, another principle underlying the new Bill, according to the government, is that a tenant cannot be evicted before the lease ends. However, a tenant will also not be allowed to stay once the lease expires. A minimum standard for the rights of both the landlord and the tenant in the Bill would be meaningless without some sort of fast-track, and easily-accessible, judicial process where such rights could be enforced. The new Bill could also provide for a separate tribunal to adjudicate disputes between landlord and tenant, like the previous model Bill did. But the real problem with the Bill lies in its relevance. Urban India faces a huge housing shortage — 24.7 million units in 2007 — according to a study undertaken for the 11th Five-Year Plan. The presence, or absence, of the kind of rent control legislation being planned by the government would almost certainly have no effect on the biggest problem of all: the disparity between supply and demand and the lack of affordable housing.

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