MEANING OF STANDARD RENT-ALL YOU NEED TO KNOW
Rent in ordinary terms can be understood as the periodical payment made by the tenant for the use, occupancy and possession of any immovable property either land or land and building both. The part of this rent is a return on the investment made in the property by the owner. While the second part forms the outgoings like repairs, taxes, insurance etc.
The contractual rent is agreed by the landlord and tenant at the start of tenancy. But, if a tenant seeks redress at law against contractual rent, the matter is taken up by the Court and the rent which fixed by the Court by taking into consideration the following three basic facts is known as the standard rent.
- Provisions of the Act;
- Circumstances of the case; and
- Fair and/or just character of the amount involved.
There is no precise definition of the term standard rent , But sec. 11 of the Rent Act gives its
meaning as follows:
- The rent at which the premises were let on the first day of September 1940, or
- Where they were not let on the first day of September 1940, the rent at which they were last let before that day, or
- Where they were first let the first day of September 1940, the rent at which they were first let, or
- In any of the cases specified in sec 11, the rent fixed by the court.
It may be noted that the law will reduce the contractual, if it found higher than the standard
rent. But it will not increase the contractual rent, if it is found lower than standard rent. The application for fixation of standard rent can be made any time during the period of tenancy and as such, there is no time limit for the same. It is intended by the legislature that the tenant cannot be compelled to continue to pay more than the standard rent. The right of the tenant to apply for the fixation of standard rent is a continuing or recurring right and the provisions of the Indian Limitation Act do not apply to such application.
The standard rent which is fixed as per the provisions of the Rent Act becomes an attribute to the real property and once it is decided, it is fixed in relation to the premises and not in relation to the persons. In this respect, the Rent Act operates in rem and not in personam . Thus, the benefit of the standard rent ensues for tenant after tenant and is not confined to a sitting tenant only. This is also referred to as the doctrine of res-judication. It applies to the premises only and not with regard to person. Neither the present landlord nor the transferee from landlord is entitled to fres fixation of such standard rent.
In a similar way , neither the present tenant nor his sub-tenant or assignee from such tenant is entitled to fixation of such standard rent. However, if there us material change in situation and circumstances of the premises or when additional amenities or substantial improvement in the premises have been made, it is possible to make fresh suit for re-determination of standard rent and the bar or prohibition of application of doctrine of res-judicatory will not apply.
The standard rent cannot be changed , apart from permitted increase, by a free contract between the landlord and tenant and once the decision as to the standard rent certain premise is given, it cannot be re-opened . it should also be noted that the standard rent is fixed in relation to the premises and not in relation to the parties. If there are several tenancies in the same premises, there may be separate standard rents for each tenancy . It will therefore be wrong to consider fixation of rent premises in relation to particular tenancy.
It should also be remembered that the fixation of a standard rent does not mean the fixation of a low rent which is favourbale , beneficial and to the advantage of the tenant. Such a view would mean that the landlord is getting an unfair rent and it will be against the principle on which Rent Act rests.
Calculate Standard Rent
A number of court cases arose thereafter, where the courts have tried to prescribe the method of calculating the standard rent.
The standard rent consists of the return to the owner for his investment in land and building plus the outgoings on the same as usual.
The principle set out by the Hon’ble Supreme court in Shanti Devi’s case that the net return on the cost of construction should be 2.5% more and on the value of land 1.5% more, as compared to the net yield on the guilt-edged security provided the land is freehold.
However, this decision also needs a review as much water has flown in the river since then and there are more attractive and lucrative forms of investment in the financial market and in which we do not suffer from the following hindrances as suffered by the rent control i.e. controlled property.
- Loss of capital due to inflationary conditions.
- No capital appreciation for a rent-controlled property.
- No easy liquidity of capital.
- Difficulty in raising loanat low expenses.
- The high cost of the transfer.
- No tax benefits.
All such factors have discouraged people for investment in rental stock of housing. However, no court has yet decided a case, where the returns have been decided based on the normal returns available in the investments in the financial market.