Determination of fair rent

Section 5. (1) The Rent Control Court shall, on application of the tenant or landlord of a building fix the fair rent for such building after holding such inquiry as it thinks fit.
(2) In fixing the fair rent the Court shall take into consideration the property tax or house tax fixed for the building at the time of letting in the property tax register or house tax register of the local authority with in whose area the building is situated :
Provided that in the case of –
(i) any residential building, or
(ii) any non-residential building, excepting a building to which fittings have been affixed or in which machinery have been installed and such fittings or machinery have been excluded from valuation for the purpose of fixing the property tax or house tax by a local authority.
The fair rent fixed may in proper cases be lower than, but shall in no case exceed by more than fifteen percent, the monthly rent on the basis of which the property tax or house tax for the building, prevailing two years immediately before the date of the application, was fixed, or if the building was not assessed to property tax or house tax before the said period of two years, the monthly rent on the basis of which the property tax or house tax prevailing immediately before the date of the application was fixed.
(3) If there is no property tax or house tax fixed for the building or if it is not based on a rental basis or if the building is situated in an area which is not a City, Municipality, Panchayat or in any other local authority, the fair rent shall be fixed after taking into consideration the prevailing rates of rent in the locality for similar accommodation in similar circumstances during the twelve months preceding the letting.
(4) In case the allotment of the building is made by the Accommodation Controller, he may provisionally fix the fair rent for the building and the Rent Control Court may, on application by an aggrieved party modify the fair rent so fixed.
(5) The Rent Control Court shall intimate the fair rent of the building fixed to the local authority within whose jurisdiction the building, in respect of which the fair rent has been fixed, is situated. The local authority on receipt of such intimation shall make a record of the fair rent fixed in the register kept for the purpose and shall make the register available for inspection in such places and in such manner as may be prescribed. The register so prepared shall be kept up-to-date so as to contain full particulars in regard to the rent fixed in respect of a building by the Rent Control Court and also the subsequent variation thereto made by the said Court.
(Section 5 had been struck down by Isaac Ninan v. State of Kerala. 1995 (2) KLJ 555)
(Edger Ferus v. Abraham Ittycheria (2004 (1) KLT 767) laid down that S.5 (1) is constitutional and continues on the statute book)

1. Scope
This section gives the Rent Control Court to fix fair rent of a building. In Issac Ninan v. State of Kerala (1995 (2) KLT 848: 1995 (2) KLJ 555) this section was declared unconstitutional and hence void. In 2004 in Edgur Ferus v. Abraham Ittycheriah (2004 (1) KLT 767) sub section 1 of this section was held constitutionally valid in view of doctrine of severability. Edgur Ferus went in appeal in the Supreme court (2009 (4) KLT 673 (SC)) and the Apex court found no infirmity in the verdict of the High Court. The Judgment in Edger Ferus has been approved by the Supreme Court. Thus the Rent Control Court has got jurisdiction to fix fair rent of a building, such fair rent can be fixed using the criteria stipulated in Edgur Ferus case. While fixing the fair rent, the Rent Control Court has got power to allow periodical increase also.
Rent Control Act the Authority has power not only to fix fair rent but also to allow reasonable modifications such as allowing a periodic increase of 10% in the fair rent, every year to the rate so fixed at reasonable intervals, in the order fixing fair rent.
It is now laid down beyond doubt that S.5(1) is perfectly constitutional and continues on the statute book and is available for enforcement. Fair rent can now be fixed under S.5(1). In a proceeding for fixation of rent under section 5 (1), the Rent Control Court has no jurisdiction either to order eviction or deposit of rent under S.12 of the Act.

3. Fair Rent
The pegging of the rents at the 1940 rates had discouraged building construction activity which ultimately is likely to affect everybody and therefore in order to encourage new constructions exempted them altogether from the provisions of the Act. It did not proceed on the basis that all tenants belonged to the weaker section of the community and needed protection and that all landlords belonged to the better off classes. It confined the protection of the Act to the weaker section paying rents below Rs. 250. It is clear. therefore. that the Madras Legislature deliberately proceeded on the basis that fair rent was to be fixed which was to be fair both to the landlords as well as to the tenants and that only the poorer classes of tenants needed protection.
A fine-spun line of thought, often forgotten but fundamental to the rent restriction scheme, deserves mention here. Fair rent is not always what is fair between particular landlord and his tenant, considering their relative economic circumstances. Fair rent is not what a tenant has acquiesced in for reasons of prudence but what the law prescribes to be fair in spite of his consent to pay the higher rent. That you cannot acquiesced away your right to fix fair rent is basic to this type of legislation. As per Edger Ferus case the court can fix the fair rent quinquennially.
In Aboobaker v. Vasu it was held that Civil court has got power to fix fair rent, Edger Ferus v. Abraham Ittycheria directed the civil courts to transfer all fair rent applications to rent control court. The Supreme Court did not find any infirmity in the order of the Kerala High Court. Hence the Edger Ferus v. Abraham Ittycheria stands as good law.

4. Issac Ninan v. State of Kerala
Constructing buildings and letting then out for rent to tenants would also fall within the ambit of “business” in Art.19(1)(g) of the Constitution. The phrase reasonable restriction connotes that the limitation imposed on a person in enjoyment of the right should not be arbitrary or of an excessive nature, beyond what is required in the interest of general public. Legislation while arbitrarily invades the right cannot be said to contain the quality of reasonableness unless it strikes a proper balance between the freedom guaranteed in Art.19(1)(g) and the social control permitted under clause (6) of Art.19, it must be held to be warranting in that qualities. If so, the combined operation of S.5, 6 and 8 of the Act is a gross invasion on the right of a landlord to carry on business. Section 5 (1) is reinstated and the Landlord or the tenant can approach the Rent Control Court to fix fair rent.

5. Matters to be considered while fixing fair rent
The Rent Control Court can fix rent on application by the landlord or the tenant. The Rent Control Court shall consider the property tax or house tax fixed by the local authority. If no tax is fixed for the building the fair rent shall be fixed on the basis of rent for a similar accommodation in the similar circumstances.
The Rent Control Court can fix rent on application by the landlord or the tenant. The Rent Control Court shall consider the property tax or house tax fixed by the local authority. If no tax is fixed for the building the fair rent shall be fixed on the basis of rent for a similar accommodation in the similar circumstances.
Proceedings under S. 5 for fixation of fair rent pending before Civil Court should be transmitted suo-motu by the Civil Court to concerned Rent Control Court.
Even if S.5 is taken to be not available, that does not in any manner deprive the Rent Controller of his jurisdiction to fix the fair rent.
The jurisdiction of the civil court under section 9 of the CPC should still be available for determination of fair rent of a building of which the provisions of the Rent control Act apply.
In Aboobacker v. Vasu it is decided that the civil court has got jurisdiction to fix fair rent on criteria decided in the judgment. Section 116 of Transfer of Property Act is void to the extent of restriction in revision of rent as it would amount to unreasonable restriction affecting the fundamental rights guaranteed under Article 19 (1) (g).
Justice K.S. Radhakrishnan and Pius C. Kuriakose has reinstated S. 5(1) of the Act and conferred jurisdiction to the Rent Control Court the power to fix fair rent on criteria given in the judgment. Even if there is no provision for periodical revision of the rent in the rent deed the landlord can approach the Rent Control Court for revision of rent. Rent Control Court while fixing fair rent could take note of (i) the inflation and resultant reduction in the purchasing power of money, (ii) variation in the cost of living index in the area since commencement of the lease, (iii) demand for accommodation and availability of the building in the locality, (iv) prevailing rent in the locality for the similar accommodation, (v) the type of construction, (vi) the general or special amenities provided in the building, (vii) whether residential or non residential, (viii) Annual rental value of the building at the time of filing application for fair rent, (ix) revision or fresh imposition of municipal taxes, cess rate in respect of other increase in the charge of electricity or water consumption by the tenant and also by the landlord, (x) Increase in account of repairs are to be taken into account. This decision was approved by the Supreme Court. Having heard learned appearing counsel for the parties and having perused the record, we do not find any infirmity in the impugned order of the Kerala High Court.
Unregistered lease deed cannot be pressed into service to create any right for revision of rent. Unregistered lease deed could at best be looked into for ascertaining the commencement of possession, rate of rent or similar other provisions which are collateral to the principal transaction. Since the document is unregistered the remedy available is to approach the Rent Control Court for fixation of fair rent.
The Rent Control Court has got jurisdiction to fix fair rent. The only thing is that the Rent Controller could not rely on Ss. 5, 6, or 8 or any of the restrictions contained therein for fixing fair rent. Fair rent has to be understood as a rent a willing tenant would pay to a willing landlord, for a building commensurate with the rent prevalent in the locality and the nature and location of the building.
The rent originally fixed/or arranged between the parties in 1962 was Rs. 3 per month. This is unfair now. Hence we direct that the rent of Rs 75 per month should be paid.
Enhanced rate of rent fixed by the Supreme Court of India having regard to location, prevailing rental rate and the fact that premises had been taken for residential use but put to non residential use. In an eviction petition The Supreme Court set aside the eviction decree and considering the insignificant rent paid by the tenant ordered the amount of rent to be increased. Supreme Court in exercise of jurisdiction under ‘Article 136’ (Special Leave) enhanced rent from Rs. 75/- to Rs. 300/- having regard to enormous increase in rent in the areas concerned.
Basis of assessment made by the local body could normally be accepted as correct, because assessment is expected to be made on the basis of the prevailing rates of rent for similar accommodation in similar circumstances.
Apex court of India gives some guidelines to fix fair rent so as to reduce unnecessary rent control litigation and to mitigate the injustice caused to the landlord. Majority of the rent control cases are filed because landlords do not get reasonable rent akin to market rent, then on one ground or the other litigation is initiated. So before saying omega, we deem it our duty and obligation to fix some guidelines and norms for such type of litigation, so as to minimise landlord – tenant litigation at all levels. These are as follows: –

(i) 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 the basis of valuation report or reliable estimates of building rentals in the surrounding areas, let out on rent recently.
(ii) Apart from the rental, property tax, water tax, maintenance charges, electricity charges for the actual consumption of the tenanted premises and for common area shall be payable 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 shall also be borne by the tenant only.
(iii) The 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.
(iv)But if any major repairs are required to be carried out then in that case only after obtaining permission from the landlord in writing, the same shall be carried out and modalities with regard to adjustment of the amount spent thereon, would have to be worked out between the parties.
(v) If present and prevalent market rent assessed and fixed between the parties is paid by the tenant then landlord shall not be entitled to bring any action for his eviction against such a tenant at least for a period of 5 years. Thus for a period of 5 years the tenant shall enjoy immunity from being evicted from the premises.
(vi) The parties shall be at liberty to get the rental fixed by the official valuer or by any other agency, having expertise in the matter.
(vii) 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 etc. Care ought to be taken that it does not end up being a bonanza for the landlord.
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. This case is based on UP Urban Buildings (Regulation of Letting, Rent and Eviction) Act 1972, which had freezed the rent to the 1972 level and caused injustice. The UP Legislature has already passed UP Regulation of Rent and Eviction Act 2010.

6. Periodical fixation
Though there is no specific provision for periodical fixation of fair rent, the general provisions of fixation of fair rent alone are to be considered. The change of circumstances including the increase of population, scarcity of buildings, increase in living cost index etc. would compel for fixation of fair rent periodically. In order to avoid annual applications from the landlord or tenant the Hon’ble High Court, opined that ‘Landlord or the tenant as the case may be, can approach the Rent Control Court for revision of rent quinquennially. Rent Control Act the Authority has power not only to fix fair rent but also to allow reasonable modifications such as allowing a periodic increase of 10% in the fair rent, every year to the rate so fixed at reasonable intervals, in the order fixing fair rent.

7. Enhancement of Rent during eviction petition

The relief of enhancement of rent during rent control proceedings until eviction takes effect is not inconsistent with the other relief for eviction. Both the relief can be simultaneously given.

The Application for enhancement of rent during the eviction proceedings at the appellate stage is justifiable. The Appellate authority enhanced the rent from Rs. 500 per month to Rs. 9600 per month, Order of the Appellate Authority modified by directing the appellant to pay Rs. 5,000/- per month provisionally till the disposal of the appeal pending before the Appellate Authority.

8. Interim fixation of fair rent
In Aboobacker v. Vasu it is decided that the Rent Control Court or the Appellate Authority may fix fair rent in cases before them. The latter case by the same bench that is Edger Ferus v. Abraham Ittycheria the position is not altered. Hence the Rent Control Court and the Appellate Authority has got jurisdiction to fix interim rent, even if the petition is for eviction on any other ground.
The monthly rent of Rs.700/-, for building having an area of 600 sq. ft. is very low. We are therefore inclined to re-fix the rent tentatively at Rs.4,500/- per month prospectively with effect from 01/10/2010. We make it clear that the above re – fixation is tentative and it is open for either party to apply for regular fixation of fair rent, if they are aggrieved. Till such time as fair rent is fixed, the respondent shall pay rent at Rs.4,500/- per month.
During the pendency of appeal, the appellants had filed an application seeking a direction against the respondent for payment of rent @ Rs.50,000/- per month. The application supported by an affidavit, alleges that the market rent of the premises in question was not less than Rs.50,000/- per month when the application was filed. A Valuation Certificate issued by Chartered Engineer & Approved Valuer, is also enclosed with the application, according to which the market value of the plot in question was not less than Rs. 7,00,000/- per cent and the current market rent for the building not less than Rs. 8/- per square feet. As per the lease deed entered between the deceased owners and the respondents, the premises in question is constructed over an area measuring about 20 cents. The covered area is said to be 5000 sq. ft. or so. In the circumstances while the High Court was justified in tentatively revising the rent for the premises, the revision was not, in our opinion, adequate. Instead of Rs. 10,000/- determined by the High Court, the respondents shall pay Rs. 15,000/- per month towards rent. The same shall stand revised to Rs. 25,000/- per month w.e.f. 1.1.2009. The revision ordered by us is also tentative and shall not prevent the parties from seeking determination of the fair rent for the premises by instituting proceedings before the competent Court / authority in accordance with law.

9. Fixation of rent during the contractual Period
Declaration as to the binding nature of an agreement which is in force for 51 years. Rates were fixed in the contract but nothing therein to indicate that there is no power to revise rates. Successor was competent to revise rates, even during the contractual period. Because of lapse of many years old rates became unconscionable. Revision of rates held valid.

DB of High Court in Edger Ferus was justified in reviewing judgement in Issac Ninan and restoring S.5(1) of BRC Act 2021 (3) KHC 292

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