Non-occupancy charge for the flat you rent out could be illegal!

Forced to put extra non-occupancy charge on your tenant, hiking the rent of your flat? The collection of the charge itself may not have any legal backing! Read more.

In some Apartment Complexes, it is a practice to charge two different rates of Monthly Maintenance Charges (MMC). While the owners residing in the society are charged a certain basic rate, the owners of the tenanted apartments are charged an extra amount. This additional amount is referred to as Non Occupancy Charges (NOC) – not to be confused with No Objection Certificate. They are also interchangeably called as Tenancy Charges or Tenancy Differential.  

This practice is usually the cause of acrimonious relations between the Management Association and the owners who have rented out their property. The situation remains controllable till the charges remain limited to a reasonable rate. The problem begins when the managements start charging the differential amount at exorbitant rates, which in extreme cases can be as high as 100-150% of the basic MMC or even more. Notwithstanding the rates, the non-resident owners always feel discriminated against.

Your management may provide many justifications like the extra charges being for the additional resources involved in handling tenant-related issues like clerks, security guards and discipline enforcement personnel et al. But, what are these Non Occupancy/ Tenancy Charges? Your management may also quote that they are authorised to levy the extra charges as per Supreme Court ruling, which is often cited incorrectly.

The case in point is the Court Case known as Mont Blanc Co-operative Housing Society Limited, Mumbai & anr vs State of Maharashtra &Ors (WP- 2635/2001), which is discussed in detail here.

The Maharashtra example

Although the practice prevails in many states, the problems in Maharashtra, especially Mumbai have remained more in focus. Some important facts of this case are:-

(a)   Many Housing Societies in Maharashtra were charging exorbitant rates of Non Occupancy Charges to the owners who had rented out their flats.

(b)  The Deputy Registrar of Co-op Housing Societies, Maharashtra issued a circular on 13 August 2001, placing an upper ceiling of 10 % of the MMC.

This order was challenged by the Management of the Mont Blanc Co-operative Housing Society Limited (Mont Blanc Society for short) on the basis that the State Government did not have powers to overrule their Bye Laws & majority resolutions. The case progressed as follows:-

(a)     The Hon’ble Mumbai High Court dismissed the petition (2635 of 2001) on the basis of being devoid of merit and upheld the Maharashtra Government order.

(b)    The Mont Blanc Society filed a Special Leave Petition (SLP 7391) in the Supreme Court against the Mumbai High Court Judgement. The Apex court gave the following INTERIM ORDERS:

            (i)      The Judgement of Mumbai High Court is upheld which inter alia had ruled that there will be a uniform rate of non-occupancy charges all over the State of Maharashtra i.e. 10% of the service charges.

            (ii)       The SLP of Mont Blanc Society and all others are converted into Ordinary Civil Appeals to be heard in their own turn (CA 4089 of 2009)

            (iii)      The subject Civil Appeal CA 4089 of 2009 is still pending in the Apex Court.

Law in Karnataka

There are cases in Bengaluru too, where the managements are charging extra from the owners of the flats on rent, in the name of NOC. In some places the difference is nominal and hence there are no issues. But there are also large number of cases of  the Societies where the managements are charging an unrealistically high rates of NOC.

The rationale used by these Societies in most cases is the Supreme Court ruling in the case of the MONT BLANC CO-OP HOUSING SOCIETY LD. & ANR .VS. STATE OF MAHARASHTRA & ORS in the Hon’ble Supreme Court In SLP (Civil) 7391 against Mumbai High Court order dated 02 Mar 2007 in Writ Petition no 2635 of 2001 incl a few other similar petition like SLPs 7964, 7965 and 7966 tagged for consolidation.

Legal Reasons against NOC in Karnataka

If you are one of the affected owners, you have grounds to contest the ruling of the management for the following reasons:

      (a)  There is no order of Karnataka State Government which specifically caters for any additional charges to be recovered from the owners who have rented out their flats

      (b)  Any order issued by Maharashtra Government including its subordinate bodies is not enforceable in the State of Karnataka.

      (c)  The judgement of the Mumbai High Court is RESTRICTIVE in nature for the Societies located within its jurisdiction i.e. Maharashtra and hence cannot be taken as law in Karnataka.

      (d) The interim order and relief given by the Hon’ble Supreme Court are RESTRICTIVE, INTERIM, and CASE SPECIFIC for the Societies in Maharashtra and therefore cannot become a Precedence or Case Law for all States till the final Judgment comes and further depending on what is laid out in the final judgment.

In addition to the above, you may also need to consider the under mentioned points:

      (a) A Group Housing Society functions on the principles of Commune Bonum i.e. Common Good. Therefore, every member should pay for his share in maintenance of facilities common to all but at the same time the Society should not indulge into profiteering at the cost of members who give their flats on rent.

      (b) The Society management must not work towards unjust enrichment, the costs of certain benefits to one group of owners, must not be at the cost of the others.

      (c) The interests of the minority group should not be made to feel being exploited.

      (d) In case of Government departmental housing societies, a majority of owners are prevented from occupying their flats because of their service compulsions and not merely for profit making. In such cases charging NOC to members serving elsewhere must will be bad in law.

Hence any collection on this count is subject to legal and administrative scrutiny. So, the bottom-line is that the Non Occupancy Charges must not be charged at least in the State of Karnataka.

As such, with the RERA-2016 becoming applicable from 01 May 2016, the Apartment Law will undergo some substantial changes, thereby necessitating a de novo look at the issue soon after the State Government makes the same applicable through publication the official gazette.

Disclaimer: The above article is purely an academic exercise and in no way makes it a cause for action in way whatsoever. Although utmost care has been taken to mention the Case details as accurately as possible, but the error if found is regretted. All readers are advised not to take this as an authority for any purpose. If they do, they do so at their own risk and cost.

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