A few weeks ago the cabinet Okayed the Landlord-Tenant Bill
to bring greater equity in the tenant-landlord relationship.
The proposed law is intended to replace and broaden the Rent
& Restriction Act that was passed in 1949 and is currently in place.
Judging by the way the current bill was drafted, it is safe
to say that it came from the pressure applied by tenants, especially those
renting business premises. It is no wonder then that the Kampala City Traders
Association (KACITA) is at the forefront of the lobby to see it passed into law
as is.
Tenants in the down town malls have long complained of
exploitation by their landlords, who raise rents arbitrarily, charge in hard
currency and often do not provide the basic amenities like parking, washrooms
and utilities to their tenants.
Hence the most nefarious clauses of the bill, which seek to
discourage the charging of rent in dollars, restrict annual rent increments to
10 percent and prevent the arbitrary eviction of tenants at the landlords’
whim.
The landlords on the other hand argue that all these
eventualities were covered in the old law, which when accompanied with a
tenancy agreement, would more than cater for their tenants’ rights.
Like many other things that go wrong around us or to us, we
often don’t think of seeking legal redress. I can bet few readers, even of this
column, have an updated tenancy agreement for the occupancy of their homes or
places of business.
"That being said the law in its current state, where it restricts landlords to charging in shillings, not asking for more than three months in advance, prevents rent increments of more than 10 percent annually and within intervals of less than 12 months while popular with tenants will actually create the situations that government is trying to avoid...
In crudely trying to control rents they will frustrate investment
in the sector, reduce supply rentable properties and force prices up anyway.
Of course the supporters of the law will say these are just
scare tactics, but history has born this out.
To begin with this issue of rent controls has come up in the
last three decades and was thankfully shelved promptly.
In the early days of this administration some socialist
leaning people in government were pushing for rent caps in Kampala and a
banning of dollar rents. They used the usual socialist rhetoric of these being
anti-people, retrogressive blah, blah blah. Thankfully the argument was nipped
in the bud.
With this one decision private investment in the sector
ballooned and while we have no yet bridged the housing deficit we have fewer if
any middle class families crammed into garages or one room hovels.
One of the reasons the deficit has not been bridged is the
lack of long term funding for real estate developers and the high mortgage
rates. As a way to get around it investors have borrowed in hard currency where
mortgage rates are in single digits. As a way to mitigate their foreign
exchange risk they pass the risk to the tenant.
The fact that this goes on is a sign that the shortage
persists. In an environment of adequate housing the competition would force the
foreign exchange risk on the landlord rather than the tenant. It has happened before.
"Many years ago mobile operator Celtel used to charge for airtime in dollars. They argued the same that their investment was funded with foreign money and therefore consumers should be charged likewise. Another foreign firm MTN came along and started charging in shillings – even though their financing was sourced abroad, and that was the end of dollar phone bills...
While there is more discomfort for tenants when the currency
goes against them, as more and more people invest in the sector that will soon
be taken care of.
And finally restricting the duration of tenancy to less than
three months is similarly unnecessary.
In the hard days landlords would ask for twelve months in
advance and you could take it or leave.
With the increasing stocks of houses
this requirement has come do to even a month. The reduction did not come out of
the goodness of the landlords’ hearts but a direct response to increased
housing supply, market forces.
While such a bill may give government some short term
political gains, they need to show leadership and legislate for the long term
good of the economy rather than for political expediency.
In the mean time tenants need to exercise their rights as
stipulated in current law and local governments need to ensure all building
meet their respective building codes.
