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Using Arbitration as a Tool to resolve Landlord-Tenant (Licensor-Licensee) Disputes:

Posted by: Aditya Pratap Law Offices on 2024-03-01


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Leave and License Agreements are used everywhere in renting of property. Every person graduating from college and joining work in a new city is bound to take a house on rent. To rent a house he must sign a “Leave and License” agreement with the Landlord (or Licensor), which stipulates the rental amount, period and other essential conditions.

While legal parlance demands that the words “Licensor” and “Licensee” be used in place of “Landlord” and “Tenant” respectively, we will resort to using the latter for reasons of convenience. “Leave and License Agreements” will also be referred to as “Rent Agreements” for the same reason. It may be noted that usually the words “Landlord” and “Tenant” would imply creation of tenancy rights, which are avoided in rent agreements. However these terms will be used in this article for reasons of pure similicity.

Disputes arising out of Rental Agreements:

While many property brokers claim that Rent Agreements are an easy affair, this is not the case. Several legal complications arise at the end of the rent period when the tenant has to vacate the premises. In such cases Landlords have adopted the unhealthy practice of forfeiting the security deposit or making unreasonable deductions from the same. While this leaves the Tenant short-changed, the winding nature of India’s civil litigation system gives him zero incentive to sue.

Typically, disputes between landlords and tenants are observed to arise in the following areas:

  • Return or forfeiture of Security Deposit;

  • Damage caused to the premises, fittings or misuse thereof;

  • Premature termination of rent agreement;

  • Delay in rent payment;

  • Unpaid dues and utility bills;

Since Landlords tend to keep a security deposit ranging from two to six months’ rent, parties don’t see any incentive to take the matter to court. As a consequence, several cases where landlords exploit tenants do not see the light of the day as the latter consider it more expedient to forfeit the security deposit and move on rather than get caught up in the vicious cycle of ‘tareekh pe tareekh’.

Arbitration – A Quicker and Cheaper Alternative:

The rise of arbitration can however offer a new avenue to settle disputes. An arbitrator is a person, usually a lawyer or retired judge, whom parties can appoint by mutual consent to hear and decide disputes among them. If the parties insert an arbitration clause in the contract and specifically name a person to Act as the arbitrator, it will be valid and binding under the Arbitration and Conciliation Act, 1996 (also referred to as the “Arbitration Act”).

Fixed-Fee Arbitration – An Efficacious Procedure:

Since Security Deposits in high-value rental deals can amount to six months’ rent, appointing a fixed-fee arbitrator may seem feasible. Section 29B of the Arbitration Act provides for provides for a ‘fast-track’ procedure wherein the arbitrator decides the cases on the basis of written pleadings and submissions from the parties. Thereafter he can call for further information if necessary. Finally, an oral hearing may be held only if the parties make a request or the arbitrator considers the same necessary. Thereafter, the case is closed for passing of the arbitral award or judgment. The entire procedure must be completed in a time-bound period of six months.

The fast-track arbitration procedure prescribed under Section 29A can be useful for resolving Landlord-Tenant disputes. Once the fee of the arbitrator is fixed at one-month rent, he will be incentivised to hear and dispose of the matter on a timely basis. Further the arbitral award will be valid and binding upon the parties under Section 35 of the Arbitration Act and can be enforced by filing an application for execution and enforcement before the local civil court under Section 36 of the Act.

The Way Forward:

The recent amendments to the Arbitration Act in 2015, through which Section 29A and other provisions were inserted, have opened avenues for the people to avail of the benefits of arbitration, which was hitherto considered the preserve of large corporations with deep pockets for spending on sitting fees and legal batteries. Landlords, tenants and brokers can take the initiative by including arbitration clauses in rental agreements. Further the Government and Judiciary too must take the lead by constituting panels of experienced lawyers and retired judges who can take up alternative dispute resolution on a timely basis. Such measures will go a long way in alleviating the problems faced by landlords and tenants and fulfilling the constitutional mandate which envisages justice for all and not for the select few.

Aditya Pratap is a lawyer and founder of Aditya Pratap Law Offices. He practices in the realm of real estate, corporate, and criminal law. His website is adityapratap.in and his media interviews can be accessed at http://www.youtube.com/@AdityaPratap/featured . Views expressed are personal.

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