Leasehold to freehold conversion: In major U-turn, Chandigarh raises 8 key objections to proposal - Hindustan Times
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Leasehold to freehold conversion: In major U-turn, Chandigarh raises 8 key objections to proposal

By, Chandigarh
Aug 27, 2022 03:29 AM IST

In its letter to the MHA, UT officials write, “If commercial and industrial plots are converted to freehold, there will be a shortage of properties with the administration.”

After years of aggressively seeking in-principle approval from the ministry of home affairs (MHA) to permit conversion of commercial and industrial leasehold properties to freehold properties, the UT administration, in a major U-turn, has raised eight objections against its own proposal.

In its letter to the MHA, UT officials write, “If commercial and industrial plots are converted to freehold, there will be a shortage of properties with the administration.” (HT File)
In its letter to the MHA, UT officials write, “If commercial and industrial plots are converted to freehold, there will be a shortage of properties with the administration.” (HT File)

Now, the administration is of the mind that should the proposal be approved it will entail major loss of income in terms of rent and unearned profit, lead to legal conflicts, and shortage of properties with administration, among a slew of other issues.

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In its letter to the MHA, UT officials write, “If commercial and industrial plots are converted to freehold, there will be a shortage of properties with the administration.”

On the legal implications of allowing the conversion, they wrote, “In some cases, multiple transfers have already taken place. In these cases, chances of legal conflicts may arise on account of huge gain.”

Conversion in this case, will entail allowing it in all other leasehold properties such as institutional and educational, UT officials said.

Nearly 70% commercial and industrial plots in the city are leasehold, allowing occupation for a limited period, mostly 99 years, with government agencies holding ownership rights.

Financial implications

The UT officials have argued that revenue loss is another reason against the permitting the conversion. As the properties have been leased out, the administration draws an annual ground rent from them, which constitutes a regular source of revenue. “The government may lose regular income once they are converted to freehold,”UT officials reasoned.

Loss of income will also be in the form of ‘unearned increase”, they contended. “At present, the administration is charging 25% unearned increase at the time of transfer of leasehold property, which is a major source of income.”

Once a property is converted from leasehold to freehold, the owners will be entitled to sell them immediately. “So, there will be huge windfall gain at the cost of exchequer,” the letter states.

Re-lists objections raised by former UT administrator

In addition to these objections, the UT has also re-listed the objections raised by the former UT administrator Shivraj Patil, who had rejected the proposal right off the bat. Patil believed that allowing leasehold properties to be converted to freehold will drum up a scandal as it will lead to profit-making on part of allottees at the cost of the administration.

What brought about the change in stance?

In compliance with the directions of the Supreme Court in the “Estate Office versus Charanjit Kaur” case, the UT and MHA officials had met on August 8 to resolve the issue.

“It was in this meeting that the MHA had sought pros and cons of permitting the conversion. In the exercise of this, the administration has now listed these objections against allowing conversion,” said a senior UT official, who did not want to be named.

Officials conceded that the exercise should have been done at an earlier stage. Notably, the administration has already allowed sale of unsold leasehold properties with its departments as freehold properties.

“The administration has also listed some arguments in favour of the conversion. The industry has been unable to raise loans on such properties. The development of industrial areas has been completely stalled due ambiguous titles of these properties,” said the official.

Since the first proposal was submitted to the MHA for in-principle approval for conversion on the lines of the Residential Policy of 1996, the UT has sent four reminders to the Centre.

The Chandigarh Industrial Policy, administrator’s advisory Council and MP Kirron Kher had repeatedly supported the policy. Recently, the SC-appointed committee headed by Kher had also recommended it.

UT’s arguments at a glance

Cons

1. Will lead to shortage of properties with the administration

2. administration will lose regular rental income

3. Loss of income in the form of unearned increase

4. Huge windfall for allottees at the exchequer’s expense

5. Chances of legal conflicts

6. Entail allowing conversion in other categories too

Pros

1. Will allow better development of industrial areas

2. Industry will be able to raise loans on such properties

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