High Court Rules State Entitled to Reasonable Return on Leased Land

The High Court's ruling underscores the state's right to a reasonable return on its land while addressing the complexities of lease rent calculations and the conversion of leasehold lands to freehold, impacting numerous leaseholders and boosting state revenue.

1. Court's Verdict on Lease Rent

In a significant verdict, the Bombay High Court ruled that the state is entitled to a reasonable return on its land. Justices B P Colabawalla and Somasekhar Sundaresan emphasized that lease rents do not necessarily need to be affordable to individuals if such low rents fail to cover inflation, administration costs, and escalation impacts.

2. Historical Context and Case Details

A series of petitions filed in 2014 and 2015 challenged a December 2012 Maharashtra government decision to revise the method for fixing lease rents on government land and renewals. The High Court noted that Mumbai's land is a precious commodity, with prices expected to rise continuously.

3. Impact on Leaseholders

The court rejected the state's argument that a regular 5% increase linked to land value might benefit lessees. It stated that it is unrealistic to suggest that property prices in Mumbai would fall. There are approximately 1,500 leased land parcels in south Mumbai and 500 in the suburbs.

4. Lease Rent Fixation and Freehold Conversion

The High Court found no illegality in the government applying the Ready Reckoner to determine land value for fixing lease rents. The court noted that some prime areas in Mumbai were leased for minimal amounts. However, legal counsel argued against linking lease rents to land value. The state defended the rise, stating it was necessary and not unconstitutional.

5. Government's Stance on Lease Rents

Advocate General Birendra Saraf explained that lease rents for lands with housing societies are calculated using only 25% of the value given in the Ready Reckoner. This results in a lease rent of just 0.25% of the land's full value, which Saraf argued is neither extortionate nor exorbitant. The High Court agreed that rents should be fixed fairly and reasonably, as held by the Supreme Court in the Ratti Kapadia case.

6. Petitioners' Concerns and Court's Response

Petitioners, including various cooperative housing societies and individuals, argued that the 2012 decision to steeply raise rents led to uncertainty in development. The High Court held that for individual cases with special circumstances, values less than the Ready Reckoner could be considered, thus protecting the petitioners' rights.

7. Implications for Leaseholders

The ruling boosts the state’s revenue but poses a financial burden on cooperative housing societies existing on leasehold lands, as they will need to pay arrears of lease rent. The court clarified that applications for converting leasehold lands to freehold should be considered based on its earlier ruling, with the state free to reject applications filed after March 7, 2024.

Key Facts and Figures

• State’s Right: Entitled to reasonable return on land.
• Number of Leased Land Parcels: 1,500 in south Mumbai, 500 in the suburbs.
• Lease Rent Calculation: Based on 25% of the land value as per Ready Reckoner.
• Historical Context: Petitions filed in 2014 and 2015 challenged the 2012 decision.
• Advocate General’s Defense: Lease rent for housing societies is 0.25% of land value.
• Court’s Ruling: Agreed with fair and reasonable rent fixation.
• Conversion to Freehold: Applications to be considered if filed before March 7, 2024.