PROFESSIONAL PRACTICE

LESSON PLAN

1. RENT CONTROL ACT

2. STANDARD RENT
3. ARCHITECT AND THE STANDARD RENT
4. METHODS OF ASCERTAINING
5. DETERMINENTS FOR CALCULATION BY NET RETURN ALLOWABLE ON INVESTMENT
6. GENERAL

AR. KANAK KASHYAP LECTURE 03

RENT CONTROL ACT
• The Government of India passed the Rent Control Act with the motive of
controlling rent charges as well as to safeguard the tenants' rights in terms of
unauthorised eviction.
• The Act clearly specifies the period, inheritance, rents payable as well as the obligations of
landlord and tenants.
• Several states like Delhi, Maharashtra and Karnataka have undertaken modifications to the
same.
• The act, however, seen as pro-tenant, also, talks about the protection of rights of landlords.

Mumbai Rent Restriction Act,1939:

Came to force for the province of Mumbai in 1939
Applicable to all those premises- Rent (as on 1-1-1939) not exceeding Rs.80/-
Mumbai Rents, Hotel Rates and Lodging House Rent (Control) Act, 1944:
Came to force in 1944
NOT Applicable to all those premises- Rent (bet 22/4/1942-15/2/1943) not exceeding Rs.250/-
Maharashtra Rent Control Act,1999:
Since 13/2/1948 the Rent Act was in force
Known as Mumbai Rents, Hotel Rates and Lodging House Rent (Control) Act, 1947
Was renewed occasionally by legislature
Applicable to premises- Let out for residences, education, business, trade or storage.
Now replaced with- Maharashtra Rent Control Act,1999

AR. KANAK KASHYAP LECTURE 03

STANDARD RENT

RENT:
Defined as- periodic payment made by TENANT to LANDLORD for use and occupation of the said
premises (along with its appurtenances, furnishings, any other amenities, etc.)
Includes- all outgoings like Municipal Taxes, Property Taxes, Govt. Taxes, Permitted increases
recoverable from Tenants, necessary allowances for Repair and Maintenance.

CONTRACTUAL RENT:
Defined as- Rent fixed between Landlord and Tenant at the inception of the tenancy either by
negotiations or bargaining

STANDARD RENT:
Defined as- Rent permissible under the law to charged to a tenant.
Rent fixed by Court after following considerations-
1. The provisions of the Act
2. Circumstances of the case
3. Fair and/or just amount of value involved

AR. KANAK KASHYAP LECTURE 03

ARCHITECT AND THE STANDARD RENT
Consider a case- standard rent needs to be fixed for a premises constructed after 1/9/1940

Tenant’s Case:
He will make an application to the court- Why?- because He is burdened with the proving that-
Contractual rent is greater than Standard rent- so the claim.

Landlord’s Case:
He will appoint- expert Architect/Engineer- prepare a report- justifying to the court that-
Contractual rent is fair and reasonable – so the defence.

Court’s Move:
1. Case will be tried in Court by Judge himself- OR
2. Case will be sent to an Architect/ Engineer as the commissioner- for expert opinion.
Architect’s Role:
1. He acts as the subject expert
2. Responsibly prepares the report for the respective party
3. If assigned as the commissioner- will be responsible for submitting an opinion to the court
which will influence and impact the verdict.

AR. KANAK KASHYAP LECTURE 03

METHODS OF ASCERTAINING STANDARD RENT

The two usual methods of ascertaining the standard rent of a premises are:
1. Theory of Comparables
2. Net Return allowable on Investment

Theory of Comparables:
Comparing the premises-in application- with the letting rates- of more or less similar premises-
within locality- thereafter concluding- rate per sq.m. - @ which premises should be let out- on
the relevant date.

Net Return allowable on Investment :

Standard rent- has two components- net return to the landlord for his investment- outgoings-
thus SR= Net return+ outgoings

AR. KANAK KASHYAP LECTURE 03

DETERMINENTS FOR CALCULATION BY NET RETURN ALLOWABLE ON INVESTMENT

Period of First Letting:

• This sets the basic period for fixing of land value, cost of construction, the Net Return on the
same, amount of Municipal taxes, other outgoings, etc.
• The relevant period of valuation will be the period of first Letting and not when the building
construction was completed.
• While fixation of Standard rent all factors required for consideration will be in relevance with
this said period of valuation except for Net Return, repairs, insurance and sinking fund which
will based on the depreciated cost of construction.

Market Value of Land:

• Market Value of land for the relevant year is that year when the premises is first Let Out
rather than purchase price of the property years ago.
• This results in leaving out from consideration potential value of the Land and rise in the value
during the intervening period.

Apportioned Area of Land:

• Municipal rules which direct that only a portion of Land (in the premises under
consideration) can be developed and remaining be left open; only the minimum land
required for such building to be taken into account for calculations.

AR. KANAK KASHYAP LECTURE 03

DETERMINENTS FOR CALCULATION BY NET RETURN ALLOWABLE ON INVESTMENT

Cost of Construction:
• Cost of construction can be ascertained by any one of these 5 methods; Account method,
Detailed/ Item wise method, Estimate on plinth/carpet/built up area basis, Estimate on Unit
basis and Estimate on cubic contents basis.
• Cost of construction is important while calculating the Net Return on Investment by the
Landlord and is a key factor in SR computation.

Future Life of Building:

• It is the period till which the Building will ensure some amount of economic gain in the form
of Rent received.
• This depends on the quality of materials used for construction, users, repairs and
maintenance, climatic and other environmental conditions, etc.

Return on Investment:
• ROI means the ratio between Net Profit and the Cost of Investment.
• A high ROI means the investment’s gains compare favourably to its cost.
• As the ROI fetched on the Let Out Property is not very lucrative, because of the allowable
returns, this determinant can become a make or break factor while calculating SR.

AR. KANAK KASHYAP LECTURE 03

DETERMINENTS FOR CALCULATION BY NET RETURN ALLOWABLE ON INVESTMENT

Outgoings- Repairs, Insurance, Sinking Fund Management Charges:

• Outgoings are the regular expenses of a person.
• Property related outgoings such as structural repairs to the building, or repairs to the lift
and/or pumps, etc. contribute to about 1%- 4% of the cost of construction.
• Insurance is mandatory for any building or structure and it safeguards the owner from any
future damage caused.
• The premium of Insurance is considered an outgoing expense for the owner.
• Sinking fund is the amount set aside every year and invested at compound interest so that
after a specified period, one gets predetermined value of asset less salvage.
• The owner needs to invest in some other form of securities, so that at least a part of his
capital invested returns to him on expiry of the useful life of the building.
• Since the annual sinking fund is required for the payment of this part capital it is allowed as
an outgoing expense.
• Lastly items of collection and management charges which fall under special outgoings should
also be accounted for while SR computations.
• These include Salaries of sweepers+ lift/ pump operators+ watchman, Electricity
consumption of machines ( lift, pumps, common lights), service or maintenance charges, etc.

AR. KANAK KASHYAP LECTURE 03

GENERAL

• If SR works out less by 7.7% than Contract Rent, Contract rent will be confirmed as standard.

• If SR works out more than Contract Rent, Contract rent will not be allowed to be increased.

• During fixation of Standard rent, a tenant can claim his excess rent paid for up to six months
from the date of application, if the Fair rent fixed is lower than contractual rent.

• In case of very large plot, where number of buildings to be constructed, but at present there
is only one building, then for fixation of Standard rent area of the complete plot should not
be considered. Only that much area of the plot required by that one building will be taken
into consideration as per municipal rules and regulations

AR. KANAK KASHYAP LECTURE 03