When the Covid-19 hit Bhutan, one of the immediate economic measures His Majesty took was loan payment deferment as well as a waiver on the interest to curb hardship on the people.
Kuensel reported that “this is a generous kidu. The purpose of Kidu or incentives is to help someone in need, affected by disasters, misfortunes or calamities. In this case, it is for those whose sources of livelihoods are affected by the new coronavirus.” In terms of tenancy, one of the expectations from such kidu is to either reduce the rent or at least not to increase the rent since housing loan constitutes major benefactors of this Kidu. Yet the reports revealed otherwise affecting mostly lower-income and vulnerable groups. This is aggravated by the Tenancy Act of Bhutan 2015 allowing house owners to increase the rent up to 10 percent. Unless this provision is amended, tenants will continue to suffer at the hands of owners.
Section 25 of the Tenancy Act states that “the owner shall not increase the rent before two years from the day on which a tenant occupies the house” and Section 26 states “the increment of rent shall not exceed 10% of the monthly rent.” The objective of this provision was to ensure that no house owner increases the rent every year or month at least for two years. After two years, the house owner may increase the rent. The increment must not be more than 10 percent of the monthly rent. This noble objective of the legislature is today abused by most house owners. House owners have converted this provision into their right and imposed it on the tenants without assigning any reasons because the law allows it. While the rationale for 10 percent is based on the maximum inflation rate, the house owners use a 10 percent minimum increase in rent.
Further, this 10 percent was derived from the Tenancy Act of Bhutan 2005 and in today’s context is exorbitantly high considering the baseline of the high rents. In 2005, the house rents were not more than Nu 5,000, or less in most cases, while today the same house would easily cost Nu 10,000 or more. This means that if one tenant stays in the same house for 20 years the total rent increase will be 10 times the revised rate. Keeping the current rate of Nu10,000 per month, in 10 years the rent will be Nu 14,640 which is more than 46 percent of the monthly rent. If a tenant stays for 20 years in the same house, the rent will increase by more than 100 percent.
Thus, the current system of rent increase provision defeats or deprives the tenant to negotiate rent increase. In many parts of the world, if owners force rent increase, the state not only imposes the duty to refund the excess rent but also requires the owner to pay additional compensation to the tenants. It is time that our legislature takes cognizance of abuse of such laws and amend the laws to ensure fairness to both the house owners and tenants. Maximum Base Rent (MBR) system must be instituted. MBR means an increase in rent stops after some time. In our case, there is no maximum base rent system (MBR). The amendment must contain an MBR provision to protect the tenants as it forms the major rent stabilizing force.
Sonam Tshering Lawyer, Thimphu
Disclaimer: The views expressed in this article are author’s own.