Leasehold Lands To Freehold Lands: Whether Cooperative Housing Societies Up For Re-Development Should Consider Converting Their Underlying Lands To Freehold?

Considering that land is a scarce commodity in an island city like Mumbai, with the continuously increasing value of land, the Government was finding it challenging to continue charging the same lease rent as was being levied under the old lease agreements which were granted by the Government eons ago. With a view to overcome such challenges, the Government had issued various circulars whereunder the Government had decided to charge lease rent on the value of the land as per the ready reckoner rate prevalent at the time of renewal of such a lease. There are many housing societies and individuals having rights in leasehold lands, and hence the said government resolutions/circulars were adversely affecting their rights as in some cases, basis the renewed method of calculation of rent, there appeared to be an increase of almost 400 to 1900 times the lease rent that was being charged earlier. Hence, various petitions were filed by several cooperative housing societies and individuals challenging the resolutions/circulars passed by the Government of Maharashtra dated (i) 29^th May, 2006 ("2006 GR"), (ii) 12^th December, 2012 ("2012 GR") and (iii) 5^th May, 2018 ("2018 GR") (hereinafter collectively referred to as the "said Resolutions") which were inter alia issued for deciding the new method for calculation of lease rent and provided for conversion of leasehold plots to freehold.

The Hon'ble Bombay High Court, in Writ Petition No. 939 of 2014 filed by Anil Kapoor & 11 Ors. ("Petitioners") vs. State of Maharashtra & Ors. ("said Writ Petition") (tagged along with several other writ petitions which had similar facts) dealt with a challenge to the said Resolutions and has identified the following three issues in relation to the said Resolutions:

1. Can the Government fix the lease rent for lands leased by the Government to the Petitioners by taking into account the value of the land as per the Ready Reckoner?
2. Even if the answer to the question [A] above is in the affirmative, then whether the increase in lease rent as stipulated in the 2006, 2012 and the 2018 GRs is extortionate, exorbitant and/or manifestly arbitrary?
3. Another facet which needs to be considered is that even if questions [A] and [B] above are answered against the Petitioners and in favour of the Government, whether the Government can revise/reset the lease rent every 5 years, depending on the value of the land on the date of such revision?

Facts of the case:

The predecessors in title of the Petitioners were granted leases by the Secretary of the State for India in Council (British Crown) for a period of 50 years and a majority of the Petitioners were put in possession of their respective plots of land in the year 1901. Since a majority of the leases had expired in the year 1950 and thereafter in the year 1957, the Government passed a resolution directing the Collector to renew the earlier leases for a period of 30 years. The leases were thus extended for a period commencing from 31^st January, 1951 and expiring on 1^st January,1981, on terms and conditions mentioned in the said resolution. Thereafter, the lessees to whom the plots were granted had also developed most of the lands and sold the flats to third parties. Subsequently, in the year 1986, the Government of Maharashtra, passed a resolution dated 14^th March, 1986 ("1986 GR"), whereby the Government inter alia increased the lease rent for residential use by approximately by 25 times than the rate prevalent prior to 1^st January, 1981. However, the 1986 GR was challenged and the same was set aside by the Hon'ble Bombay High Court vide its order dated 23^rd April, 1992. Thereafter, the Government of Maharashtra passed another resolution dated 5^th October, 1999 ("1999 GR") whereby the lease rent of the plots of the Petitioners was increased and calculated basis the value of the land on the date of expiry of the lease. In the year 2004, the 1999 GR was withdrawn by the Government. Thereafter, the Government of Maharashtra passed the 2006 GR for adopting the "Annual Statement of Rates" (i.e. ready reckoner rate) as the basis for determining the value of Government lands. Subsequent thereto, the 2012 GR was passed inter alia directing that the lease of the Petitioners to be renewed for a further period of 30 years at the revised rates being on the value of the land i.e. Ready Recknor Rate and to be revised on a 5 yearly basis. Further, the 2012 GR also granted the lessees an option to convert their leasehold land into Occupancy Class-II land on payment of premium mentioned therein. Thereafter, the Government passed 2018 GR thereby revising the rates mentioned in the 2012 GR.

Upon hearing both the parties, the Hon'ble Bombay High Court has passed an order dated 10^th July, 2024 ("the said BHC Order") wherein it has inter alia held that:

1. the Government has not taken into consideration the full value of the land but has been mindful of the fact that there are sitting lessees on the said land and hence decided that the lease rent would be calculated only on the basis of 25% of the value of the land as per the Ready Reckoner and accordingly affirmed that the Government had the right to revise the lease rent;
2. that the rates mentioned in said Resolutions are not exorbitant, extortionate and/or manifestly arbitrary; and
3. lastly, the Government does not have the right to revise/reset the rates on a 5 yearly basis.

In furtherance to the 2012 GR which provided for conversion of leasehold lands to freehold lands, the Government of Maharashtra, by its notification dated 8^th March, 2019, notified the Maharashtra Land Revenue (Conversion of Occupancy Class-II and Leasehold lands into Occupancy Class-I) Rules, 2019 ("said Rules") which provided for conversion of leasehold lands and lands held on Occupancy Class II tenure to freehold lands. The said Rules were amended being the Maharashtra Land Revenue (Conversion of Occupancy Class-II and Leasehold lands into Occupancy Class-I lands Seld-redevelopment Amnesty Scheme) (Second Amendment) Rules, 2024 dated 16^th March, 2024 and read along notification dated 28^th June, 2024 ("said Amended Rules"). The said Amended Rules inter alia provides for the following rates at which the Co-operative Housing Societies planning to undergo redevelopment and, situated on the leasehold lands can convert the same to freehold subject to applications being made before 30^th September, 2024:

Thus, the Co-operative Housing Societies situated on leasehold lands which are proposing to be redeveloped would be able to enjoy the following benefits in the event they opt for converting the underlying land to freehold:

1. Unit holders of Co-operative Housing Societies will not be required to obtain approval of the Collector prior to transferring their unit/s to a third party;
2. Unit holders of Co-operative Housing Societies will not be required to pay any premium for transfer of their unit/s, as would otherwise be required to be paid in case;
3. The Co-operative Housing Societies will not be required to pay lease rentals to the Collector including any enhancements that may become applicable on such lease rentals;
4. The entire benefits of enhancement and land value can be derived by the Co-operative Housing Societies and its members; and
5. The Co-operative Housing Societies will have ownership rights without any such restrictions on transfer including through any redevelopment agreement.

Co-operative Housing Societies which are situated on leasehold lands and are proposing to undergo redevelopment can thus take advantage of the said Amended Rules and consider making an application for converting their lands to freehold on or before 30^th September, 2024.

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