Sunday, July 11, 2010

A blow for the rent mafia - The Sunday Indian - The Nation's Greatest News Weekly

The Sunday Indian - The Nation's Greatest News Weekly
A blow for the rent mafia
Renting out commercial premises will no more be fraught with risk. Last week’s Supreme Court ruling has provided succour to landlords who have for decades been deprived of their dues from prime properties worth millions of rupees. Sharad Gupta and Vikash Kumar report

Delhi’s Imperial Hotel reminds people of the Raj era. So does the main shopping area Connaught Place, built in Victorian style. Imperial Hotel was built by Sardar Ranjit Singh, only 100 metres from Connaught Place (CP to locals), who also bought some two dozen shops here. Not needing them for personal use, he put them on rent. Now, his grandson Jasdev Singh Akoi, is the owner of all these properties. Given the going rental rate in this area, Rs 800 per sq feet, Jasdev should be earning millions every month. He gets only Rs 4400 from the 20-odd shops. The municipal tax for these shops is more than the rent.

The reason for this is that the original tenants kept on passing the shops to their next generations without hiking the rent. Though his tenants have sublet the shops to outlets like McDonalds, Zen, Embassy restaurant and Mohanlal & Sons. Jasdev was helpless as the Delhi Rent Control Act specifies that a landlord of a residential premises can get his tenant evicted if the former needed it for personal use, but the Act doesn’t cover commercial properties.

But last week, the Supreme Court extended the jurisdiction of the Act to commercial properties like Jasdev’s shops. “I will be moving the court to get back my properties”, he told TSI. The court ruled tenants could be evicted if the landlord required his commercial establishment for bonafide purposes.

Though the verdict was delivered on a petition filed by a Delhi trader, it has pleased landlords across the country. Ahmedabad’s Mahesh Patel owns more than 50 residential and commercial buildings but more than half of them have been lying vacant because he is afraid of losing his property to tenants. Mahesh says, “The apex court judgment has dispelled the notion that the law favours only tenants”.

It’s the same story in other cities - Kolkata, Bengaluru, Mumbai, Lucknow, Amritsar or Guwahati. One used to virtually lose ownership of a shop the moment it was let out on rent. The SC verdict has given solace to such people. “I can now let out my commercial buildings without any fear. At the most, I may have to slug it out in the courts for a few years, but I am sure to get it back,” says Patel.

The rent being paid for a 40 or 50-year old rented commercial building, was not even peanuts. The Rent Control Act had created a rent mafia, that would take the commercial establishments on lease and become virtual owners of the leased premises, says K.C. Pande, Akoi’s manager. A leading chain of schools in Lucknow always opens its new branches in leased premises on high rents, sometimes paying double the market rate and then stopping paying the rent after a few months. Says a school owner: “Who can shut down a school?”

Tenants are rushing to the lawyers. Says Chander Oberoi, former president of the Kashmiri Gate Traders Association, “I paid a deposit of Rs 6000 to take this shop on rent 40 years ago. It was such a big amount those days that he not only built his house with it but also married off his two daughters. Now my landlord wants me to vacate the premises. I can vacate it but only if he returns the current value of my deposit. After the court verdict, he is acting tough.”

After a long time, the hounded is on the prowl. In a large number of cases handled by Chennai-based real-estate lawyer P.B. Ramanujam, tenants of a residential building start using a part of the premises commercially. Landlords were unable to evict the occupants. The SC ruling is a boon for such landlords.

Yet, there are many unanswered questions. Can a landlord having several shops evict all his tenants or only one or two (how will the court gauge the extent of his need)? What if, after a tenant is evicted, the landlord opens a bogus business only to close it down and rents out the property again to get the market rate? Will the court reverse the eviction in such cases?

With a spate of lawsuits expected from landlords in the next few weeks, some clarity is likely to emerge. Won’t it be difficult to implement the decision in cities like Delhi where almost 45% shops have been on rent for decades? Says Shanti Bhushan, a prominent lawyer, “It will have to be implemented. There is no way out for the government."

With Delhi elections scheduled for later this year, the SC ruling is a ticking time bomb for the Sheila Dixit government. As if the sealing of unauthorised buildings, inflation, congested roads and Congress dissidents were not enough!

What will be the impact of the Supreme Court judgement?

The character of trade in Delhi is wholesale. Chandni Chowk, Nai Sadak, Chawdi Bazar, Balli Maran, Pahadganj, Karol Bagh and Cannaught Place are major trading centres. There is 50% tenancy in these localities. This is the situation in almost all of the mentioned localities. Even on rough estimates, more than two lakh traders will be affected.

What are the options before you?

Practically, we do not have any option. Complete facts were not presented before the apex court. However, it is certain that we are not going to vacate the properties and if we are forced then there will be bloodbath on the streets.

But aren't the rents actually very low?

You are not seeing the other side of the coin. In the era of our forefathers and grandfathers, there was system of pagdi. Our grandfathers paid according to the market value of that time. If you calculate that amount according to today’s value, it will be a huge sum. In addition, on changing the pagdi we had to pay 25 to 40% of value addition. Why don't you pay heed to this fact? Everyone is blaming traders. The grandsons of landlords have become greedy and are ready to exploit the situation.

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