VIJAYAWADA: In a significant reform of urban governance, the State government has rationalised the rent fixation system for municipal shop rooms and commercial properties belonging to Urban Local Bodies (ULBs).
The new framework, notified through G.O.Ms. No.92 by the MA&UD Department replaces earlier steep escalation model with a practical and predictable annual revision system.
Under the revised rules, lease rents will now increase by 7% annually during the lease period, instead of the earlier 33% hike once every three years.
Officials explained that the earlier model, introduced in 2011, triggered litigation and defaults, with 584 leaseholders filing cases across 18 ULBs and arrears amounting to Rs 9.43 crore. The system is expected to reduce disputes, boost compliance, and ensure steady revenue to civic bodies.
Another reform relates to floor-wise rent differentiation in municipal commercial complexes. To address vacancies of upper-floor shops, rents will be fixed at 20% lower than ground-floor rates for first-floor shops and 30% lower for shops above the first floor. Officials said this rationalisation would improve occupancy and generate revenue from properties that have been vacant despite auctions.
The amendments also provide a clear formula for fixing upset prices in auctions. The rent will be determined based on whichever is higher between 10% of the market value of the property per annum (building and land) or the prevailing rent of similar properties in the vicinity.
In subsequent auctions, the upset price will be fixed either at this rate or 7% above the earlier rent, whichever is higher. Lease renewal powers remain unchanged, with ULBs authorised to renew leases up to three years, while government approval is required for period up to 25 years. MA&UD Minister P Narayana said the reforms, introduced under the leadership of Chief Minister N Chandrababu Naidu, strike a balance between revenue sustainability and affordability. He emphasised that municipal commercial properties should remain public assets rather than subjects of prolonged litigation and vacancy. He noted, it would benefit traders and local businesses, while boosting the fiscal stability of ULBs.
Principal Secretary S Suresh Kumar explained that the amendments were framed after a detailed analysis of court cases, arrears, and practices in other states. He pointed out that most states follow annual rent enhancement mechanisms of 5–10%, whereas AP’s earlier model had become an outlier.
The adopted 7% annual escalation system aligns the State with national practices, reduces administrative burden, and improves revenue realisation.
He clarified that the revised system will apply to new leases, while for existing leases, the 7% annual enhancement will come into effect only after completion of lease period. He said reforms form part of the government’s broader agenda to boost ease of doing business, rationalise urban governance systems, and boost the fiscal sustainability of ULBs through practical, implementation-oriented policies.