The Model Tenancy Act, 2020

According to Census 2011[1], 25 million of the country’s 331 million dwellings are unoccupied. The state with the most vacant dwellings is Maharashtra which has around 3.7 million unoccupied residences followed by Uttar Pradesh which has 2.4 million vacant dwellings. The Census also shows that more than 95 percent of the dwellings assessed are in decent and habitable condition. While the government aims to provide Housing for All by 2022 through Pradhan Mantri Awas Yojana – Urban[2], millions of dwellings throughout the country remain unoccupied.

The reason can be attributed to the lack of legal structure governing landlord-tenant interactions coupled with the increase in landlord-tenant disputes. As millennials opt to rent instead of buy, more and more individuals are coming to rely on rental housing. Furthermore, current rent control rules limit the creation of rental housing by discouraging owners from renting out unoccupied dwellings for fear of repossession.

A viable approach to unlock the unoccupied housing is to implement accountability and transparency in the current system of renting spaces by striking a balance of interests between the landlord and tenant. The Union Cabinet on 2nd June, 2021 has approved the Model Tenancy Act[3], thereby replacing the Rent Control Act 1948[4] which continues to govern tenancy in different India’s states.

ORIGIN OF THE ACT

Before the commencement of Pradhan Mantri Awas Yojana – Urban[5] (PMAY-U) in 2015, it was determined that 20% of the two crore dwellings to be built will be used for as rentals. The conclusion was based on a Task Force for Rental Housing study, which said that affordable rental housing tackles challenges of poverty and inclusive growth in a more direct way than affordable owned housing. The Expenditure Finance Committee approved a 6,000 crore rupees rental component in PMAY-U, with the Centre bearing 75 per cent and states, urban local authorities, or NGOs, or private sector CSR initiatives bearing the balance. This was a pivotal starting point for the inception of this Act.

IMPORTANT FEATURES OF THE ACT

The Model Tenancy Act[6] (MTA) is an endeavour to formalize rental housing by moving it to the market over time. The government expects to promote private engagement in the rental housing market as a business model for resolving the existing housing crisis.

  • To tackle the dispute the Act aims at setting up independent rent authority, courts, and tribunals in each district to enable quick dispute resolution[7]. The bill aims to strike a balance between the interests of landlords and tenants, who have long been protected against eviction and rent increases by legislation enacted decades ago, primarily to prevent landlord abuse of tenants. The Act will, however, be applied prospectively and would not impact pre-existing tenancies.
  • According to the Act, Agreement for all new tenancies must be filed to the ‘Rent Authority’ in the district[8]. This means the rent and rental period will be determined by mutual agreement between the landlord and the tenant via written agreement and the same will be updated with the appropriate authorities. This step might in the near future abolish the existing practice of drawing up 11 (eleven) month standard rental agreements which are by default heavily influenced in the favour of the landlords.
  • The Act also places a ceiling on security deposits for residential properties, which is equivalent to two months’ worth of rent ensuring that tenants are not obliged to commit huge sums at the outset of their tenancy[9].
  • In event the landlord serves the tenant, a notice against misuse of the property, the Rent Court might authorize the landlord to reclaim the property[10]. The term “misuse of the premises” refers to causing a public disturbance, causing damage, or using it for “immoral or unlawful reasons.” If the tenant fails to quit the premises as per the agreement, he or she will be obliged to pay the landlord double the monthly rent for the first two months and then four times the monthly rent until the latter occupant leaves[11].
  • Another important face is that in case the landlord fails to refund the security deposit, s/he will have to shell out a simple rate of interest stipulated from time to time on the amount that s/he has omitted or failed to repay[12].
  • The Act prohibits landlords and property managers from withholding any necessary supply to an inhabited unit as a protest or for any other reason[13]. If a repair, inspection, or any other reasonable clause[14] is going to disrupt utilities’ supply, the tenant needs to be notified in advance. Additionally, tenants cannot be evicted during the tenancy unless agreed otherwise in writing by both parties[15].
  • The landlord by default will be responsible for activities such as structural repairs, except those occasioned by damage done by the tenant, whitewashing and painting of doorways and windows, changing and maintaining plumbing fittings, and internal and external cabling and related upkeep[16] unless both the parties mutually decide otherwise.
  • The tenant will be responsible for cleaning drains, switch and socket replacements, kitchen fixture repairs, window and door glass pane replacement, and garden and open area maintenance[17]
  • The Act states that if a landlord wishes to make any enhancement to or build any additional structure on any establishment that has been rented to a tenant and the tenant does not allow the landlord to make such enhancement or build such additional structure, the landlord may file an application in the Rent Court[18]. It further states that the tenant would not make any structural changes or establish any permanent structures in the premises rented out without the landlord’s written permission[19].
  • In the event of a force majeure incident, the landlord must enable the tenant to remain in possession of the property for one month after the incident has ended, according to the provisions of the existing tenancy agreement[20].

CONCLUSION

The 2011 census revealed that 20% of urban dwellings were given out on rent[21]. Conservative estimates say that 1 crore dwellings are unoccupied for different reasons. Investor/owner sentiment was slowed down by the lack of a clear means of solving tenant-landlord disputes other than through a costly and prolonged litigation.

The Rent Control Act, which is implemented in varied forms in all states, carefully regulates tenancy and leasing operations in India. The ‘Rent Control Act 1999[22]‘ in Maharashtra, the ‘Rent Control Act 1958[23]‘ in Delhi, and the ‘Tamil Nadu Buildings (Lease and Rent Control) Act 1960[24]‘ in Chennai are examples. The overarching goal of any Rent Control Act is to safeguard tenants from wrongful eviction and to resolve landlord-tenant conflicts. However, most of these laws have not been updated in almost two decades, ensuring that the rent ceiling remains at the levels of the late 1990s. Due to the low capital returns, this has deterred property owners from renting out their properties, as well as investors from buying second or third houses.

Furthermore, residential real estate returns are still at historically low levels. Property values have breached the economic impact threshold in the majority of major Indian cities, with rental income being very low compared to the real estate value. As a result, when weighed to the anguish that property owners may have to face in the event of a bad tenancy, it fails to attract funding or long-term operating interest from property owners.

The Act attempts to address how a landlord might properly raise the rent without jeopardizing a tenant’s rights. Furthermore, the legislation not only reduces the likelihood of conflicts by clearly outlining the roles and duties of landlords and renters but also establishes a powerful dispute settlement system to ensure that conflicts are resolved quickly. However, the states are not bound to implement the said Act as the said subject falls in the State list. States and Union Territories can adopt the Act or amend their current rental laws appropriately.

Since the guidelines aren’t legally enforceable, States are unlikely to rush to adopt them, especially if political expediency is a factor. The bill also envisions a three-tiered complaint system, with a district-level judge overseeing conflict settlement.

This means that States will have to devote time, resources, and effort to establishing new institutions, as well as divert human resources away from an already overburdened lower judiciary. The Act also gives a lucrative proposition for REITS and Foreign Direct Investments players with a steady income as well as appreciation in the property value. The Act can fuel the rental housing supply pipeline by attracting more investors, and more rental housing stock will help students, working professionals, and migrant populations to find urban accommodation, especially in COVID-19-like exigencies. It will be interesting to see whether rental housing will gain traction with a conducive policy framework.

By Chandan Goswami & Rohan D’Cruz


[1] Houselisting and Housing Census Data Highlights – 2011.

https://censusindia.gov.in/2011census/hlo/hlo_highlights.html

[2] Pradhan Mantri Awas Yojana – Urban. https://pmay-urban.gov.in/about

[3] THE MODEL TENANCY ACT, 2020. http://mohua.gov.in/upload/uploadfiles/files/3%20ENGLISH.pdf

[4] Central Rent Control Act, 1948.

[5] Ibid.

[6] Supra 3.

[7] CHAPTER VII, RENT COURTS AND RENT TRIBUNALS, THE MODEL TENANCY ACT, 2020.

[8] Section 4 (1), THE MODEL TENANCY ACT, 2020.

[9] Section 11 (1) (a), THE MODEL TENANCY ACT, 2020.

[10] Section 21 (2) (d), THE MODEL TENANCY ACT, 2020.

[11] Section 23, THE MODEL TENANCY ACT, 2020

[12] Section 44 (2) (e), THE MODEL TENANCY ACT, 2020.

[13] Section 20 (1), THE MODEL TENANCY ACT, 2020.

[14] Section 17, THE MODEL TENANCY ACT, 2020.

[15] Section 21 (1), THE MODEL TENANCY ACT, 2020.

[16] Part-A, Second Schedule. THE MODEL TENANCY ACT, 2020.

[17] Part-B, Second Schedule. THE MODEL TENANCY ACT, 2020.

[18] Section 26 (2), THE MODEL TENANCY ACT, 2020.

[19] Section 26 (1), THE MODEL TENANCY ACT, 2020.

[20] Section 5 (3), THE MODEL TENANCY ACT, 2020.

[21] Supra 1.

[22]THE MAHARASHTRA RENT CONTROL ACT, 1999.

[23]THE DELHI RENT CONTROL ACT, 1958.

http://www.delhihighcourt.nic.in/library/acts_bills_rules_regulations/The%20delhi%20rent%20control%20act%201958[1].pdf

[24] The Tamil Nadu Buildings (Lease and Rent Control) Act, 1960. http://www.bareactslive.com/TN/tn109.htm

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