In the aftermath of wartime bomb damage, shortage
of materials and building restrictions, the increased demand for homes from
those returning from World War I resulted in housing shortages. By simple
economics, rents will rise genuinely; however, it is worth noting that the
precursor was artificial and was expected to return to equilibrium within a
short time of increasing supply by regeneration and new developments. A reality
check was inevitably as unlike normal economic goods for which supply could be increased
within short spans of time, the supply of housing and for that matter real
estate by nature systematically almost always lags market demand.
This was the genesis of Rent Control and security
of tenure;
which were first introduced on 23 December 1915 by the enactment of the Increase of
Rent and Mortgage Interest (War Restrictions) Act 1915 in the United
Kingdom. They were intended to be temporary measures, due to expire six months
after the end of the First World War to deal with excessive increases in rents
which were anticipated by restricting the right of landlords to eject their
tenants and preventing them from raising the rent except for limited purposes.
This law was however consolidated and amended in 1920 to operate in the long
term due to continuing deterioration in housing supply. At the same time, in
fairness to the landlords, mortgagees of houses controlled by the Act were
prevented from increasing the rate of interest and restricted in their rights
to enforce the security.
The counterfactual
would have been the ejectment of tenants for better rents which was the nature
of contracts at the time. It is hard to support the view that an exercise of a
sort was exploitation although there may have existed unscrupulous landlords;
but the economics and law at play at the time justified such acts. But as a welfare state, this socialist
motivated intervention was eminent to salvage a possible market failure. Today,
the very archetypes that led to the extension of the temporary rent control
Acts are still with us. The fact that unscrupulous landlords are charging
outrageous rents without an evidence base from the valuation fundamentals,
arbitrary ejectment of tenants for higher rents and abrupt abrogation and
breaching of contracts. How then has the Rent Act which seeks to protect these
tenants outlived its usefulness?
Although questionable,
we can assume for the purpose of this reflection that the 220th act
of the parliament of the Republic of Ghana entitled the Rent Act, 1963 was
enacted in this same spirit; to:
“Consolidate
and amend the law relating to the control of rents and the recovery of the
possession of premises in certain cases; to amend certain provisions of
existing enactments and to provide for matters connected therewith or
incidental thereto”
The article is
therefore only intended to diagnose the ineffectiveness of the Rent Act by
conceptualizing the problem. The term “anachronism” simple means a
chronological mistake; that is to say outdated or inappropriate at the time in
question because it belongs to a different historical setting. For this reason,
it is a popular view that this Act has outlived its usefulness; but assuming
that is wholly true, what factors have contributed to this effect? Through a
discussion of these factors, I wish to question this assertion on the basis
that some provisions are still alive and worthy of enforcement.
Amendments to the Rent Act
1963
Age and time does not
necessarily invalidate or render a law stale but the effectiveness of a law
lies in its enforceability to meet changing circumstances and for that matter
the need for amendments if necessary. It is in this context that Section 25(5)
- “Offences” of the Rent Act, 1963 (Act 220) below was amended by Section 19(2)
of the Rent Control Law, (1986), P.N.D.C.L 138; thus:
“Any
person who as a condition of the grant, renewal or continuance of a tenancy demands
in the case of a monthly or shorter tenancy, the payment in advance of more
than a month’s rent or in case of tenancy exceeding six months, the payment in
advance of more than six months rent shall be guilty of an offence and shall
upon conviction by the appropriate Rent Magistrate be liable to a fine not
exceeding one hundred pounds”
Section 25(5) of the
Rent Act, 1963(Act 220) was amended as follows-
a. by the deletion of the words “appropriate Rent Magistrate”
b. by the substitution of the words “one
hundred pounds” for the words “ten
thousand cedis or a term of imprisonment not exceeding two years”
The phrase “the
appropriate Rent Magistrate” in Section 25(5) only limited the adjudication of
disputes to Rent Magistrates who were appointed as arbitrator for the purpose
of this Act in certain areas. As such not every judge could sit on cases of
rent disputes. In other words, however, the deletion of the phrase “appropriate
Rent Magistrate” occasioned the granting of legal permission for any magistrate
to arbitrate cases associated with rent control and the recovery of possession
of premises. It was also essential to maintain the value of the fine in
consonance with current economic conditions. Paragraph (b) of section 19(2) of
Rent control Law (1986) substituted the phrase “one hundred pounds” for “ten
thousand cedis”. An inclusion of “a
term of imprisonment no exceeding two years” as an option and deterrent to
defaulters who could not pay the fine but could not be left unpunished either
was only in the right direction.
Yet, with
all its amendments to make current its provisions to enhance enforceability,
the Amended Rent Act, 1963 (Act 220) seems to have outlived its usefulness in
modern times, a view which owes its thought to “regulatory arbitrage” and “regulatory
lax”. These two factors in my view are but a few and the kingpins
indispensable in explaining and attributing the failure of the Rent Act.
Regulatory
Arbitrage and Regulatory Lax: Causes of the Ineffectiveness of the Rent Act
Regulatory
arbitrage is a practice whereby legal entities (in this case a tenant or
landlord) capitalize on loopholes in the regulatory system in order to
circumvent unfavourable regulation. These loopholes occur
as a result of differences between economic circumstance and regulatory
position; thus, new circumstances, usually economic in nature have developed
which are not covered by the law. This is an advantage exploited at little or
no cost; or the possibility of a risk-free benefit. For instance, when the
punishment for a landlord who demand or receive two years rent advance instead
of the six months rent advance for monthly or shorter leases as stipulated by
Section 25(5) of the Rent Act is “ten thousand cedis, which is GH¢1 today. I
contend that no rational landlord will comply when the probability of a
costless or risk-free benefit is inevitable. A penalty of GH¢1 today could be
considered as virtually costless.
Typically, current
economic circumstances have outdated the Rent Act, rendering its compliance
useless. This leverage exploited by landlords is deeply seated in the shortage
of housing in Ghana, such that the highest bidder wins the auction. Regulatory lax on the
other hand results from the partial and/or non-enforcement of the Rent Act;
typical in instances where landlords or tenants who breach the law are not
reported and even in some instances when reported. This manifests in two ways,
(1) intentional and (2) unintentional. It is intentional when authorities
indiscriminately hesitate to apply the law discretionarily for some unwarranted
and legally unjustified benefits whiles the counterparty benefit or detriment
accrues to either landlords or tenants; i.e. bribery and corruption. Thus, the
law is not evoked by either landlord or tenant when a right accrues. In fact, Rent
Officers are estopped by Section 24 of the Rent Act from awarding cost or
receiving payment for any service except his salary and such other remuneration
as may be prescribed.
Nonetheless, officers
of the Rent Control Department have been vilified for conniving with landlords
to fix recoverable rent over and above the recoverable rent to be paid by the
tenant in exchange for kick-backs from the landlord. It is also alleged that
Rent Officers charge law abiding Landlords before assessing recoverable rents
for their premises. This illegal act is a disincentive to Landlords who wants
to abide by the provisions in the Rent Act. Situations
have been reported where Landlords bribe the Rent Control officer to evict
tenants faster and the tenants on the other hand “counter bribe” the Rent Control
Officer rather than pay back rent. In all these scenarios, parties have not acted on the law. Conversely,
unintentional regulatory lax emanates from regulatory arbitrage. This evokes a
sense of simultaneity between regulatory lax and regulatory arbitrage. That is,
regulatory lax could be caused regulatory arbitrage and vice versa. Unintentional
regulatory lax is therefore a clog on the enforceability of the Rent Act. For
instance, the Rent Act only covers specific buildings registered under the law;
now, what happens to buildings not affected? In recent time, such buildings
virtually exist. The law is therefore incapable of enforcement even when a case
is reported.
More so, excessive cost
and the cumbersome nature of the processes leading to enforcement usually
results in extralegality; which leads to regulatory lax. It is costless or
cheaper to operate without the law; as Ghana’s land courts are clogged with
numerous land cases, which delay the delivery of justice. This is aside agents
or brokers charging more than 5% on the whole rent-advance required by
landlords instead of 5% of the recoverable rent for one year for premises as
commission (transaction cost) for providing services in connection with grants,
renewal, continuance or assignment of tenancies demand. In the first place,
landlords are only permitted by the Rent Act to charge up to six (6) months
rent in advance; yet, even the most sophisticated of tenants (someone with full
knowledge of the pros and cons of the Rent Act) compromise on landlords’ demand
for more than six months rent advance.
Three main reasons
account for extralegality. First, this happens because Secondly, the huge
housing shortage of about 1,500,000 in Ghana and the high information asymmetry
makes landlords and the demand for estate agency services inelastic. This makes
prospective home buyers or renters vulnerable to exploitation by agents and
landlords. Secondly, it is due to what I call “cultural mediocrity”; which is a
quintessence of the “medea mep3 asomdwea” slogan – as for me, I want peace as preached
by the poor and even the rich. The consequence for not engaging in
extralegality is almost always the forceful ejectment of tenants by landlords
without an order to recover possession from the law courts; which is a
contravention of paragraph (g) of Section 25(1). Excessive cost involved in
enforcing the law results in unintentional regulatory lax especially when there
is no certainty of the verdict going in favour of the complainant. Thirdly, another
occasion for unintentional regulatory lax is due to incomplete tenancy and
lease agreements; which may be invalid, not binding and unenforceable. This
problem is mostly created at the initial negotiation stage due to ignorance on
the part of both landlords and tenants of the substance of the Rent Act. In
most cases, there are no written tenancy or lease agreements to start with.
Weak institutional
capacity evidenced by the lack or inadequate human resource like valuers and
land economists also contribute to unintentional regulatory lax. A clear case
is the instance of remodelled premises. Landlords determine their own
recoverable rent ignoring Section 18(4) of the Rent Act, which enjoins the
Landlord to apply for an assessment of the recoverable rent from a Rent Officer
within one month of completion of the remodelling. However, landlords have therefore
usurped the roles of valuers of the Rent Control Department which in one
instance is due to unnecessary delays in assessing the appropriate rent. This
problem is also linked with poor records management and the lack of or
inadequate monitoring systems. This is because the Rents Cards which are meant
for this exercise are no longer used. Based on this evidence,
I support the popular view that the Rent Act, 1963 (Act 220) is anachronistic,
but in part, because some provisions are alive and worthy of enforcement; for
instance, the use of the Rent Cards for records keeping. This could be an
evidence-base for enforcing the law.
Conclusion
Summarily, the Rent Act
of Ghana by the persistence of regulatory arbitrage and regulatory lax is
anachronistic. Regulatory arbitrage exists because of “substance over form”; that is to say, the unfavourable economic
situation underscored by the shortage of housing renders compliance and
enforcement of the law difficult. Thus, some critical provisions of the law are
outdated. On the contrary, regulatory lax which could be intentional or
unintentional also remains a clog on the enforceability of the Rent Act. Going forward, a review of the Rent Act is
eminent.
Kenneth A.
Donkor-Hyiaman
MPhil
Planning Growth and Regeneration
University
of Cambridge
kwakuhyiaman@gmail.com
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