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.
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.