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Rs 1 lakh security deposit illegal? Landlords can take only one month's rent as advance, rules court

In a ruling that is likely to have an effect in cities across India, a Chennai court has ruled that landlords can only take one month's advance from tenants.

So tenants can now breathe easy while house-owners have a tough task ahead as a XIII small causes court in Chennai in a recent order cited a 1996 Supreme Court verdict which said that a landlord is entitled to only one month's rent in advance.

The court had then directed a house-owner to adjust the advance amount paid for rent arrears.

The Chennai court passed the ruling last week while hearing an eviction petition filed by a landlord under the Tamil Nadu Buildings (Lease and Rent Control) Act.

Petitioner Nimauthullah submitted that he had filed an eviction petition pertaining to the renting out of his premises to an advocate who had agreed to pay Rs 2,500, excluding electricity charges. But the tenant defaulted on payment of rent and electricity charges for 11 months from February 1, 2007, to January 31, 2008, amounting to a cumulative Rs 27,500.

So, the tenant could be evicted on the basis of ‘wilful default’, the petitioner said.

The tenant, in his counter argument, told the court that he had paid Rs 25,000 as advance to the house owner. The problem began when Rajan tried to deposit the rent to the owner's bank account instead of paying cash. Following this, Rajan tried to pay the rent by money order, but the landlord refused.

 Rs 1 lakh security deposit illegal? Landlords can take only one months rent as advance, rules court

Real estate issues. AFP

The lawyer said that the house-owner, in contravention of rules, had collected more than one month’s rent as advance and that any pending amount could be adjusted from the advance.

Judge C Sasikumar noted that the advocate had submitted rental receipts as proof. It showed the rent for May and July, 2007, were not paid. As the house-owner already collected Rs 25,000 as advance, arrears of Rs 5,000 could be adjusted from it.

“The contention of Niamuthullah that (the advocate) had committed wilful default is not acceptable and the court comes to the conclusion that he had not committed wilful default. This petition deserves to be dismissed,” said the judge.
The verdict, however, attracted criticism from the legal fraternity.

“Whittling down the advance amount to one month is impractical and unfair,” said advocate Sanjay Pinto.

Underlining that the Rent Control Act favoured tenants, he said the law had to be fair to tenants and houseowners.
Evicting a tenant for not paying rent was a cumbersome process and the only safeguard an owner had against default in rent and damage to property or fixtures by a tenant who is often a stranger is the rental advance, he said.

So this means that asking tenants to pay massive security deposits of Rs 1 lakh and more is actually illegal, since the small causes court's order was based on a Supreme Court order, which is applicable across India.

The verdict, however, attracted criticism from the legal fraternity.

"Whittling down the advance amount to one month is impractical and unfair," said advocate Sanjay Pinto.

Underlining that the rent control Act favoured tenants, he said the law had to be fair to tenants and houseowners.

Evicting a tenant for not paying rent was a cumbersome process and the only safeguard an owner had against default in rent and damage to property or fixtures by a tenant who is often a stranger is the rental advance, he said.

With inputs from PTI

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Updated Date: Aug 14, 2015 11:55:57 IST

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