The Model Rent Agreement aims at reducing landlord-tenant disputes. The majority of tenants - landlord disputes pertain to landlords not able to get market rent. On one ground or the other, litigation is initiated pertaining to eviction by the landlord, increase in rent by the landlord and so on. This is no-win situation for landlord, tenants and, of course, judiciary.
In a recently decided judgment SLP(C) No. 6319 of 2007, Mohammad Ahmad versus Atmaram Chauhan, the Supreme Court observed that majority of the disputes between landlord and tenant would not reach courts, if the tenant agrees to pay the present prevalent market rate of rent of the tenanted premises to the landlord. In that case the landlord would also be satisfied that he is getting adequate, just and proper return on the property. But the trend in the litigation between landlord and tenant shows otherwise. The tenant is happy in paying the meager amount of rent fixed years ago and landlord continues to find various grounds under the Rent Act, to evict him somehow or the other. In most landlord-tenant disputes, there is no written contract and the tenants take advantage of the situation.
In an effort to bring down tenancy disputes, the Supreme Court under its duty and obligation to fix some guidelines and norms for such type of litigation, so as to minimize the landlord-tenant litigation at all levels, laid down the following guidelines for rent agreement: The tenant must enhance the rent according to the terms of the agreement or at least by ten percent, after every three years and enhanced rent should then be made payable to the landlord. If the rent is too low (in comparison to market rent), having been fixed almost 20 to 25 years back then the present market rate should be worked out either on basis of valuation report or reliable estimates of building rentals in the surrounding areas, let out on rent recently.
Apart from the rental, property tax, water tax, maintenance charges, electricity charges for the actual consumption of the tenanted premises and for common area should be paid by the tenant only so that the landlord gets the actual rent out of which nothing would be deductible. In case there is enhancement in property tax, water tax or maintenance charges, electricity charges then the same should also be borne by the tenant only.
Usual maintenance of the premises, except major repairs, would be carried out by the tenant only and the same would not be reimbursable by the landlord. If major repairs are required to be carried out then in that case only after obtaining permission from the landlord in writing, the same should be carried out and modalities with regard to adjustment of the amount spent there on would have to be worked out between the parties.
If present and prevalent market rent assessed and fixed between the parties is paid by the tenant then landlord would not be entitled to bring any action for his eviction against such a tenant at least for five years. Thus for five years the tenant would enjoy immunity from being evicted from the premises. The parties will be at liberty to get the rental fixed by the official valuer or other agency, having expertise in the matter.
The rent so fixed should be just, proper and adequate, keeping in mind, location, type of construction, accessibility with the main road, parking space facilities available therein and so on. Care ought to be taken that it does not end up being a bonanza for the landlord.
The Supreme Court laid down that these are some of the illustrative guidelines and norms but not exhaustive, which can be worked out between landlord and tenant so as to avoid unnecessary litigation in Court. An Analysis of the guidelines laid down by the Hon’ble Supreme Court.
The Model Rent Agreement would be applicable only in case of oral contracts. This judgment would not affect the tenancy governed by existing lease deeds or specific contracts between the landlord and tenant. The courts would not intervene when there is a specific contract, and the specific contract would bind both parties.
The guidelines guarantees peaceful stay to the tenant for five years provided the tenant pays rent at a market rate with 10% escalation every three years and property tax. Ten per cent rise in rent every three years appears to be as per the prevalent market practices. It will bring consistency in escalation of rent. However, the tenant may set to lose in the downturn market.
The guidelines provides that if the present and prevalent market rent assessed and fixed between the parties is paid by the tenant, the landlord would not be entitled to bring action for his eviction against such a tenant at least for five years. It is not clear whether landlord will have a right to evict the tenant if tenant uses the rented premises for illegal activities.
The Model Rent Agreement puts onus on the landlord that no action for eviction can be brought against a tenant. It is silent whether tenant can terminate the lease deed before five years and what will be the remedy for the landlord. Whether there is a need to provide lock-in for the tenant also?
Further, a five-year period appears to be long. Being bound by a five-year period and on 10% increment in rent every three years, owners would be denied the prevalent market rate. Similarly would be case for the tenant who may be at loss in downturn market. It would be advisable to enter into such agreement for one year at a time to provide flexibility to both the parties to continue or look for other options if not suitable.
The condition of tenant bearing the property tax, water tax, maintenance charges of the tenanted premises and also for common area may be harsh on the tenant and far away from practical reality. The actual outflow for the tenant will increase under the model agreement. In most of the lease agreements entered into, property tax and maintenance charges are borne by landlord only.
The guidelines also provide that if any major repairs are required to be carried out, it should be done only after obtaining permission from the landlord in writing. The guidelines are silent on the recourse available to the tenant if the landlord fails or delays in providing his permission.
No doubt, it is a welcome move for Supreme Court to come out with the model guidelines for the rent agreement. The jury is still out on the implementation and effectiveness of these guidelines. We all should hope that Supreme Court reviews the guidelines from practical implementation. In the free market, all should win, and that is the test of a good policy.