Bombay High Court Quashes Five-Year Rent Revision Clause in Government Leases, Upholds Ready Reckoner-Based Calculations

“The unilateral imposition of a five-year revision clause is contrary to the original contractual terms and is therefore quashed,” rules the High Court.
In a significant judgment delivered on July 10, 2024, the High Court of Judicature at Bombay upheld the revised lease rent calculations based on the Ready Reckoner value for government-leased lands but struck down the clause allowing the government to revise rents every five years. The bench, comprising Justices B. P. Colabawalla and Somasekhar Sundaresan, emphasized that the government cannot unilaterally alter the lease terms in a manner inconsistent with the original lease deeds. This decision impacts numerous cooperative housing societies and individual leaseholders in Mumbai’s prime localities.
The writ petitions challenged the constitutional validity of government resolutions from 2006, 2012, and 2018, which revised lease rents for government-leased lands. The primary contention was the calculation of lease rents based on the Ready Reckoner value of land and the inclusion of a clause allowing the government to revise rents every five years. The petitioners, including various cooperative housing societies and individual leaseholders, argued that the revised rents were exorbitant and the five-year revision clause was arbitrary and contrary to the original lease agreements.
The court affirmed the use of the Ready Reckoner to determine the value of the land for lease rent calculations, noting it as a transparent and fair method. “The application of the Ready Reckoner value ensures a consistent and reasonable basis for determining lease rents, provided it is applied uniformly and without arbitrary variations,” the bench stated.
The court found the revised lease rent calculations based on the 2012 and 2018 government resolutions to be fair and reasonable. For cooperative housing societies, the revised rents were calculated at 1% of 25% of the Ready Reckoner value, while for individual plots, rents were calculated at 2% of 25% of the Ready Reckoner value. The court noted that these revised rents were not exorbitant, considering the prime location of the properties and the long period during which the rents had remained unchanged.
However, the court quashed the clause allowing rent revisions every five years, deeming it contrary to the original lease agreements. Justice B. P. Colabawalla remarked, “Clause B(1)(d) of the 2012 GR, which seeks to reset/revise the lease rent every five years, is unsustainable as it unilaterally alters the original lease terms, which did not contemplate such periodic revisions.”
The judgment extensively discussed the principles of contract law and the obligation of the state to act fairly and reasonably in its contractual dealings. The court emphasized that while the state is exempt from rent control legislations, it must still adhere to constitutional mandates of fairness and reasonableness. “The state cannot act arbitrarily and must ensure that any revisions or alterations to lease agreements are mutually agreed upon and not unilaterally imposed,” the court observed.
Justice Colabawalla stated, “The unilateral imposition of a five-year revision clause is contrary to the original contractual terms and is therefore quashed. However, the revised lease rents based on the Ready Reckoner value are upheld as fair and reasonable.”
The High Court’s judgment strikes a balance between the need for the government to obtain fair returns on its leased properties and the rights of the lessees to a stable and predictable lease arrangement. By quashing the five-year revision clause, the court has ensured that lease agreements cannot be altered unilaterally, reinforcing the principles of contractual fairness and constitutional mandates. This decision will have significant implications for future lease agreements and the redevelopment of cooperative housing societies in Mumbai.
Date of Decision: July 10, 2024