RENT

Rent Control Act

Rent is a payment, typically made periodically (like monthly), that a tenant
pays to a property owner for the use of a space, such as a house or
apartment. It's the cost of occupying someone else's property.

“money that you pay regularly for the use of land, a house or a building”

Basis for Standard Rent

The Rent Control Act is a piece of social legislation whose principal aim is to
afford protection against eviction and exploitation of the tenants.

Scarcity of any commodity creates serious problems and some elements do

take advantage of it at the cost of others. The same is applicable to the
problem of housing also.

In the absence of adequate protection it is likely that the tenants may be

asked to vacate their premises and also be asked to pay exorbitant rents and
hence the necessity of the Rent Control Act.

In the province of Mumbai from 1939 there was what was known as the
Mumbai Rent Restriction Act, 1939 (Act No. XVI of 1939). This Act applied to
al such premises whose rent as on 1-1-1939 did not exceed Rs.80/- P:M.
thereafter the “Mumbai Rents, Hotel Rates and Lodging House Rates
(Control) Act, 1944, was enacted.

The said Act did not apply to the premises the rents of which between
22.4.1942 10 15.2,1943 did not exceed Rs.250/- P.M. Since 13.2.1948 the
Rent Act which is known as the Mumbai Rents, Hotel and Lodging House
Rates Control Act, 1947, was in force.

The Act of 1947 has been renewed from time-to-time by the legislature and
applies to premises let out for residences, education, business, trade or
storage: The State Government has been empowered to exempt premises
let out for any-other- - purpose.

The Act does not apply to the premises belonging to the Governmerit-to -
Local Authority. Now it is replaced with the Maharashtra Rent Control Act,
1999.
The rent fixed between the landlord and the tenant at the inception of the
tenancy either by negotiations or after bargaining is Known as the
Contractual Rent. Standard Rent is the rent which would be permissible
under the Law to be charged to a tenant. Very often there is a wide gulf
between the contractual rent and the standard rent.

Standard rent, in the context of rent control laws, is the maximum rent a
landlord can legally charge for a property, often set by a competent
authority. It's a fixed amount or a rate calculated based on factors like
property type, location, and the applicable legal provisions. This
mechanism aims to protect tenants from excessive rent increases while
ensuring landlords receive fair compensation.

The Act does not give any definition or the meaning of the standard
rent except that it is the rent which is fixed by the Court after taking
into consideration three basis, namely.
(a) The provisions of the Act.
b Circumstances of the case.
(c) Fair and / or just character of the amount involved.

The circumstances required to be considered must be relevant ones a

few of them are as under:
(i) The tenant may have agreed to himself bear the cost of repairs.
(ii) The tenant may have agreed to bear the Municipal taxes.
(iii) The landlord may have agreed to provide furnished premises or to
provide air — conditioners, etc., whereby the standard rent will have to
include necessary allowances for the same.

If the premises (applicable even to buildings constructed on or before

1.9.1940) are let out for the first time after 1st September 1940 the rent at
which they are so let out is ordinarily the standard rent or call it “Ad-interim
standard rent” or “Presumptive standard rent”.
Architect, Engineer and the Standard Rent

In order to fix the standard rent of the premises constructed after 1.9.1940,
generally the tenants (applicants) have to made an application to the court
for it as the burden of proving the contractual rent in excess of the standard
rent being upon them, The excessiveness is required to be substantiated by
means of architect’s or engineer’s report.

The landlord on the other hand will employ his own expert (architect or
engineer) who will prepare the report justifying the contractual rent to be
fair and reasonable. The case may be tried in the Court by the Judge himself
or may be sent to an architect or an engineer as the commissioner for his
opinion.

.The standard rent cases as such involve three experts who are usually
qualified architects or engineers. Experts on both sides will give evidence
before the third expert that is the commissioner who after hearing the
parties, inspecting the site and considering the evidence on record, will
submit his opinion or findings to the Court.

Methods of Ascertaining the Standard Rent

The two usual methods of ascertaining the standard rent of a premises are:
(a) Theory of Comparables, and
(b) Investment.
Theory of Comparables:

It consists in comparing the premises in application with the letting rates of

more or less similar premises in the locality and thereafter concluding the
rate at which the premises ought to have been let on the relevant date. The
success of this method depends upon a number of factors, viz:
(a) Premises should more or less be similarly situated in the same locality
with the same user.
(b) Location of premises with respect to floor and its position on the floor
specially for road view, sea view, park view, vistas, etc.
(c) The type of construction, finishings and amenities should be more or less
similar.
(d) The extent of area should be comparable.
(e) Planning of premises and extent of accommodation.
(f) Age of the building and extent of repairs necessary.
(g) Relevant period of letting of the comparable premises.
(h) Whether the rents of the comparables premises are fair and reasonable
or on low side due to a number of extraneous circumstances.
(I) Terms of tenancies.

Standard Rent by Investment Theory

The standard rent is made up of two components, namely

(a) Net return to the landlord for his investment in land and construction
work and (b) outgoings
>>SR = Net return + Outgoings.
In order to estimate the standard rent by this method, it will be essential to
study, the following:
(i) Period of first letting.
(i) (a) Value of land. (b) Area of land with apportionment.
(iiiy Cubic contents, carpet are, plinth area, etc,
(iv) Cost of construction
(v) Future life of the building,
(vi) Return on investments.
(vil) Repairs.
(viii) Insurance.
(ix) Sinking fund,
(x) Collection and management.
(xi) Loading and apportionment.
(xii) Municipal taxes.
 Guidelines for ascertaining the standard rent
(specially on net return allowable on investments)

Thc period of first letting plays an important part in fixation of the standard
rent as it sets the basic period for fixing of land value, the cost of
construction, the net return on the same, the amounttof Municipal taxes
and the other outgoings, etc. The relevant period will be the date of first
letting and not necessarily the date on which the construction has been
commenced or completed.
When a new building is let out for the first time just after its completion there
will not be any material difference between the date of valuation and the
date of completion. However, in the case of an old building say constructed
in 1956, owner occupied until 1976 and let out for the first time in 1977 the
relevant. period of valuation and first letting will be 1977.
All the factors required to be considered for fixation of standard rent will be
relevant to the period of 1977 except for the net return, repairs, insurance
and sinking fund on the cost of construction which would be based on the
depreciated cost of construction.
In estimating depreciated cost of the building. It would be erroneous to
work out the cost of the building as if new in 1956 and deduct therefrom the
depreciation for the past age of 21 years. The correct concept of
depreciation will be the difference between the present value of the old.
building and the present value of a hypothetical new building. That means
the cost of construction of new building in 1977 has to be depreciated for the
past age of 21 years.
Market Value of Land
For the determination of the standard rent what is required is the market
value of the land for the relevant year that is the year in which the premises
are l et out for the first time rather than the purchase price of the property of
years ago with interest added to it from the date of purchase till the date of
letting. This will result in leaving out from the consideration two important
aspects, namely, potential value and rise in the value of land during the
intervening period.

Methods of Determining the Market Value of Open Land

The market value can be deLcumned in two ways, namely:
(1) Documentary price
(2) Comparison with the instances of sales in the vicinity, locality or in the
neighbourhood as the case may be accompanied by an expert’s opinion on
the same.

Documentary Price and Expenses of Conveyance

(A) Original purchase price of the land purchased years ago and adding to
the same interest from the date of purchase to the date of first letting, thus
leaving aside two important factors, namely, potential value and rise has
been set to rest as per Rukmanibai’s case.
(B) The documentary price of the land is the best method of ascertaining the
market value provided it is purchased just prior to the commencement of
the construction work, it should be a fair bargain and not purchased in
special circumstances, no rise in the land value during the intervening.
period and further the said purchase price. should. "Co-relate with the value
prevalent in the locality". In addition to the market value, the landlord is
entitled to claim the incidental expenses towards the cost of registration,
stamps, legal charges, brokerage, etc. In B.S.C. Appeal Nos. 299 to 302 of
1953 Kamalaben vs. Babubhai. Barodawala, Ch. J., and Badami J. decided
on 6.4.1955 (SJ XI-1064) it was held that market value is inclusive of all the
incidental charges. It is submitted with respect that the market value of
land ascertained by a majority of valuers is always exclusive of the
incidental charges without which the landlord cannot get property
conveyed in his name. In [Link].93 of 1956 Ebrahim A. Makani
[Link]. F.P. Manekia, as decided by Rajadhyaksha J. on 30.7.1958
the expenses of the conveyance at 10% that is 6% for stamps, 2% for
brokerage and 2% for registration, legal fees and incidental expenses were
added to the value of land.
Direct Sale Comparison Technique

This technique of valuation aims at utilising the information available from

instances of sales of comparable properties in order to estimate the market
value of the property under consideration. It is based on the principle that a
well informed purchaser will pay no more for a property he would like to
purchase than the cost to him of acquiring a substitute property having
practically the same utility and attractiveness.
Though this method is simple and one can easily understand it yet the
analysis of comparables which is the foundation of this technique is a bit
complicated as the property is not a standard commodity like eggs or
apples whose quotations one can easily get from the market. On the other
hand the property market is a heterogeneous one.
No two properties are alike and as such it is not possible to get an exact
comparison of the subject property with the comparables but at the same
time comparison within the reasonable limits is not ruled out.

While comparing the property under consideration with the instances of

sales the following factors need deep consideration:

(1) Physical characteristics

(2) Situation and location
(3) User
(4) Date of transaction
(5) Area of plot
(6) Return frontage and vistas
(7) areas. Extent of road frontage and ratio of frontage to depth per S.M. of
plot
(8) F.S.I. potential
(9) Restrictions on developments
(10) Terms of financing and other conditions of sales
(11) Sale to relatives or "Cooked up sale”
(12) Liability of incidental cost like stamp duty, legal cost, brokerage, etc.
(13) Titles and tenure.