Karnataka HC prevents landlords from rent hikes for unregistered properties

The court overturned a judgment passed by a lower court and said the rental arrears of Rs 9.3 lakh claimed by the landlord can only be collected within three years after becoming due.

The Karnataka High Court has ruled that landlords cannot hike rent on unregistered rental properties leased for more than 11 months.

Overturning the judgment of a lower court, the High Court said the rental arrears of Rs 9.3 lakh claimed by the landlord can only be collected within three years after becoming due.

"The landlord has failed to demonstrate that it is entitled to enhanced rent. Also, the finding of the trial court is erroneous and liable to be set aside," the HC order dated March 31, 2023, added.

The case

In this case, the landlord, Srinivasa Enterprises, had leased property to Nedungadi Bank, south India's first private sector bank, on an initial rent of Rs 13,574 and a refundable deposit of Rs 81,444. Nedungadi Bank merged with PNB in 2003.

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The tenancy was renewed in 2002, and further in 2022, for a period of five years on a monthly rent of Rs 23,144, with effect from the initial date of the agreement in 1998 and an additional advance of Rs 1.3 lakh.

The lease agreement gave the landlord the option of enhancing the rent by 20 percent after every three years.

In 2006, after PNB failed to pay the rental arrears as per the renewed rental agreement, Srinivasa Enterprises filed a civil suit at the trial court claiming Rs 9.3 lakhs in rental arrears since 1998.

In the 2018 judgment, the trial court passed an order for Srinivasa Enterprises to recover Rs 5.8 lakh from the tenant.

PNB admitted that its precursor (Nedungadi Bank) had occupied the premises. It, however, denied the renewal of the rental agreement.

"The lease period beyond one year is also an unregistered document. Another renewal made in 2002 is insufficiently stamped and not recognized in law. Thus the subsequent renewal made in 2022 is a fraudulent document," the firm said in its defence.

PNB appealed to the Karnataka High Court for further relief.

High Court finding

The high court bench noted that Srinivasa Enterprises has claimed arrears in rentals from 1998 until 2006.

"Article 52 of Limitation Act, 1963, specifies the period of limitation for arrears of rent as three years when the arrears become due," the order said.

The bench said Srinivasa Enterprises' claim was not maintainable under the Limitation Act and it cannot be considered.

The high court also referred to the Registration Act of 1998 and said lease agreements exceeding 11 months’ rental period have to be compulsorily registered at the sub-registrar's office.

"Hence, the lease agreement of 2002 cannot be looked into to consider the claim made by the Srinivasa Enterprises for enhanced rent," the order said.

The order stated that the trial court was not allowed to rule that the tenant was obliged to pay rent at the rate of Rs 23,414 from 1998 by relying on the agreement.

Aside from providing a copy of the lease agreement from 2002, Srinivasa Enterprises has not provided any other supporting documentation for its claim of increased rent, the court noted.

The Karnataka High Court order said the finding of the trial court was erroneous and liable to be set aside.

The court further impounded the rental agreement and directed Srinivasa Enterprises to pay the penalty for not registering the agreement as per law.

Who needs to register rental agreements?

According to advocates, several rental deals in Bengaluru happen without registering the lease documents due to a "good relationship" between the landlord and tenant.

"People consider registration a hassle, involving several visits to the sub-registrar's office. Most importantly, after registration the parties have to pay stamp duty as laid down by the state government," Amit Amarnath, an advocate, added.

However, unregistered documents cannot be used in a court of law in case of any litigation in the future, he said.

Advocates say residential rental agreements with a lease period of 11 months or less are not required to be registered at the sub-registrar's office.