Why some 5-star hotels in New Delhi may have to pay crores to the govt

When was the land leased and to whom?

In 1911, British Emperor George V declared that the capital of British India would shift from Calcutta to New Delhi. As a result, the government began planning and acquiring land to construct new buildings such as the Council House (after Independence, it became the Parliament) for the new capital.

This also involved earmarking plots for the construction of hotels. These plots were given on perpetual lease — a type of lease which continues indefinitely until terminated by either the lessor or lessee — on the payment of an annual ground rent that was to be revised after 30 years. Among the leaseholders were businessmen and contractors who had worked on other government construction projects.

The lessees could pass on the perpetual lease to their heirs but the plot had to be used for a hotel alone, and the construction costs were to be borne by the lessees.

In the case of The Imperial, the 7.938-acre plot on Janpath Lane was given on perpetual lease to SBS Ranjit Singh from April 8, 1932, with the lease dated July 9, 1937. The lease mentions Singh as “contractor” and son of “RBS Narain Singh, Sikh, Contractor of NA Curzon Road New Delhi”. The ground rent was set at Rs 1,786 per year, with the first revision supposed to be in 1962.

The land for The Claridges, a 2.94-acre plot on Dr APJ Abdul Kalam Road (earlier known as Aurangzeb Road), was given to Lala Jugal Kishore on November 12, 1936, on perpetual lease with effect from November 17, 1931. The annual ground rent was fixed at Rs 470 and was to be revised after January 1, 1961. In 1972, the property was purchased by the current owners Claridges Hotel Pvt Ltd, which had the lease mutated in its name in 1976.

How is the ground rent calculated?

According to the lease, the ground rent was to be calculated based on the letting value of the land — the value of the plot without the value of buildings that were to be constructed. The annual ground rent would be not more than one-third of the letting value at the time of signing the lease, and subsequently at the time of revision. The letting value was to be assessed by the Collector or Deputy Commissioner of Delhi.

For The Imperial, the ground rent was revised to Rs 10,716 per year with effect from 1972 to 2002. The same rate was being charged for the next 30-year period — 2002 to 2032 — till the Centre hiked it to Rs 8.13 crore in March this year, according to the petition filed.

For The Claridges, the ground rent had been increased from Rs 2.13 lakh to Rs 8.53 lakh per year in 2016, which, the owner argued, was to remain in place till 2046. The new annual ground rent for the hotel spiked to Rs 3.85 crore.

What is the present dispute?

The dispute arises from the timing of the revision of the annual ground rent, and the way it has been calculated — not only the rent has increased but it will also apply retrospectively.

This means that the increased rent for The Imperial will be applicable not from 2024 but 2002 — the hotel has been asked to pay a due amount of Rs 177.29 crore from 2002 till now. Similarly, The Claridges has to pay a due of Rs 69.37 crore from 2006 till now.

The Ministry of Housing and Urban Affairs’s Land and Development Office (L&DO), which issued revised ground rent notices to the hotels in March, said the previous hikes had just been an ad-hoc measure. That is because the formula of one-third of the letting value was supposed to be in effect for the first revision after the lease was signed.

The L&DO added that the “competent authority” had now decided that the ground rent would be calculated “at the rate of 5% of the land value”. According to the lease, the lessees had agreed to pay all “rates, taxes, charges and assessments of every description”, present and future, Ministry sources said.

The Imperial’s owners — descendants of the original lessee — argued in their petition that the L&DO notice to them was issued “arbitrarily in haste”. They said the L&DO had neither issued any show-cause notices nor explained how the amount of Rs 177 crore had been calculated as back rent.

The Claridges argued that the notice to the hotel was illegal, saying the next revision was due in 2046 and the revised rates could not be sought with retrospective effect.

Both cases were heard by the Delhi High Court in May. The court ordered the L&DO to give a hearing to the hotels before revising the ground rent. According to sources, one round of hearings with the L&DO has been completed.