Do Landlords Have More Power Than Tenants?

The Indian government is in the process of liberalising norms governing rental housing. The law has long been skewed in favour of the tenants. For example, it is difficult to evict a tenant and in many large Indian cities, rents were frozen for so many decades. In Mumbai, for example, according to some estimates, market rents can be as high as 1,000 times as much as the rent stipulated by rent control norms.

Still many think that landlords have more market power than tenants. The critics of the draft Model Rent Control Act say that after a year after the Act comes into force, landlords would be allowed to charge any rent as they wish. Decontrolling the rental housing will put many tenants in a difficult situation, they argue. Is it actually true that landlords have more power than tenants?

To begin with, rent control norms do not protect all tenants alike. In Mumbai, for example, the rent control legislation protects only a small fraction of the tenants. As a Mumbaikar told The Times of India, it is not fair if a person who lives in a 850-square foot apartment in Mumbai pays Rs 300 as rent, when your maid and driver pay Rs 3,000 to Rs 5,000 as rent. People who benefit from rent control are just lucky to live in rent-controlled buildings.

But of course, there can be power asymmetry between landlords and tenants if tenants generally abide by the rules, but are unable to sue landlords for violation of the contract. This can happen if landlords can buy better police protection or lawyers. This can also happen if the laws are generally slanted in favour of landlords. It may seem that there is some truth to this. For example, the lease is written by the landlord or the landlord and the lawyer together. The contract has more about the rules that tenants are expected to live by.

But this does not necessarily mean that landlords have more power. While drawing up the contract, landlords have to make sure that they do not violate existing rules and it is not easy to penalise tenants for not paying rent on time in most countries.

There are, of course, other reasons why landlords expect tenants to comply with many rules, and insist on proof of identity, and in some country, even their credit history. The capital investment necessary to become a landlord is fairly high. Anyone can become a tenant by paying the rent, and perhaps a security deposit. But, you cannot be a landlord without owning a house. So, landlords control expensive assets. Hence, it is not surprising that landlords expect tenants to follow certain norms. It is too costly not to. At best, this means that tenants can possibly cause damage to such expensive assets.

Let us suppose that leases have many clauses in favour of landlords. Even if this is true, what is likely to happen? People will be less willing to rent out houses and hence, the rents would fall. And landlords who do not write such clauses will find it much easier to find tenants. This will be a great opportunity for landlords to write a tenant-friendly contract, and charge a higher rent. But landlords do not seem to be doing this, and this means that tenants do not find the contracting oppressive.