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The Union Cabinet chaired by the Prime Minister has approved the Model Tenancy Act and circulated it to all States/Union Territories. The Ministry of Housing and Urban Affairs had earlier released the draft guidelines in July 2019. The Act aims to bridge the trust deficit between tenants and landlords by clearly delineating their obligations. It aims to create a vibrant, sustainable, and inclusive rental housing market in the country.
However, the success of the act depends upon the ground level realisation of the notified provisions. Further, it is not binding on states as Land is a state subject under List 2 of the Seventh Schedule. Therefore, optimum benefits would be generated only when states adopt the act in letter and spirit.
Salient features of the Model Tenancy Act
- Mandatory Rent Agreement: The act makes it mandatory to create a written lawful rent agreement between the owner and tenant.
- Rent Authority: The Act requires establishing rent authorities in every district to regulate renting of premises.
- Both the landlord and tenant will have to submit a copy of the rent agreement to the district Rent Authority.
- The proposed authority will also provide a speedy adjudication mechanism for the resolution of disputes.
- Tribunal and Courts: It calls for creating dedicated tribunals and courts for dealing with tenancy related disputes.
- Security Deposit: The act puts a cap on the amount of security deposit. It will be a maximum of two months of rent in case of residential premises and six months in case of non-residential premises.
- Subletting: The act bars tenants from subletting the property in part or whole.
- Vacating Rental Premises: It says that if a landlord has fulfilled all the conditions stated in the rent agreement, then the tenant has to vacate the premises.
- If the tenant fails to vacate the premises, then the landlord is entitled to double the monthly rent for the first two months and four times after that.
- Increase in Rent: The rent can be revised according to the terms and conditions mentioned in the agreement. If there is no such agreement, the landowner will have to give a 3 months notice to the tenant before revising the rent.
- Coverage: The Act will apply to premises rented for residential, commercial, or educational use but not for industrial use. It also won’t cover hotels, lodging, etc. This model law will be applied prospectively and will not affect existing tenancies.
Need of the Model Tenancy Act
- Obsolete Laws: The current tenancy regime is governed by the decades-old Rent Control Act, 1948 and its varied versions adopted by the state governments.
- These obsolete laws are more biased towards the tenant and were made with the sole intention of preventing exploitation of tenants by landlords.
- Further, many of the old laws have not amended in over two decades, ensuring that the rent ceiling remains capped at the levels prevalent in the late 90s.
- Institutionalise the Rental Market: Currently, the rental market is largely informal in nature. The rents are raised anytime, summary eviction of tenants is quite common. Sometimes the malicious tenants are seen illegally occupying the rented property. All this would be curtailed by the enactment of the new act as it forbids verbal rental agreements.
- Better Grievance Redressal: The establishment of a rent authority in every district and provision for rent courts/tribunals will enable quick and efficient settlement of disputes. The current process of dispute settlement through traditional courts is very long and expensive.
- Encourage Renting: As per Census 2011, nearly 1.1 crore houses were lying vacant in urban areas across the country. The act gives sufficient rights to landowners, which may encourage greater renting and reduce homelessness.
- Further, the act will encourage the private sector to develop housing projects for rent purposes.
- In India, the rental yield for residential property is quite low, even in bigger cities. It is in the range of 1.5% to 3% of the capital values due to obsolete laws.
- Preventing Unnecessary Financial Burden: The act places a cap of two months on the security deposit. This reduces financial strain on tenants and encourages more renting.
- Currently, the security deposit in Mumbai and Bengaluru can reach 6-8 times the monthly rent.
- Respecting the privacy of the Tenant: The landlords in India have a habit of entering the rented property as per their will. It violates the tenant’s Right to Privacy under Article 21 of the Indian Constitution. But now a notice of 24 hours needs to be given before entering.
- Minimise creation of Unauthorised Colonies: As renting would be made safer and easier, therefore people would be disincentivized to live in slums and unauthorised colonies.
Challenges with the Model Tenancy Act
- Non-Binding nature: Land and Urban Development is a state subject. The states may or may not adopt the proposed law, as done by them in the case of Real Estate (Regulation and Development) Act.
- Prospective effect: The new model act would have a prospective effect. This means it would be applicable to future disputes only, hence past disputes would continue to linger on for years.
- Inadequate Security Cover: Security Cap for two months may not be enough to cover damages, especially during the last month when tenants adjust their rent in the security deposit.
- Lacunae in the formation of the Act: The act fails to properly define the term ‘habitation’. Further, it fails to mention the penalty if the owner delays in paying back the security deposit. Also, it is altogether silent on sudden leave and license arrangements.
- States must immediately adopt the Model Tenancy act as per their peculiar needs. However, they should refrain from diluting the true spirit of the act like the West Bengal did it with WB HIRA.
- Further, they can allow retrospective application of the act for some specific set of cases in order to expedite the grievance redressal process.
- States will have to invest time and resources to set up rent authorities, rent tribunals and rent courts for effective implementation of the Model Tenancy Act.
The government has laid a good framework that balances the social welfare of tenants and the economic interests of landlords. The states now just need to adopt the Model Tenancy Act as per their peculiar requirements. This will help them in releasing the dream of Housing for All by 2022.