Model Tenancy Act: What is it? How will it help property owners, tenants?
The Model Tenancy Act aims to balance the interests and rights of property owners and tenants and proposes the establishment of a rent authority, separate rent courts and tribunals in every state to ensure speedy dispute resolution.
The Union Cabinet approved the Model Tenancy Act on June 2, 2021 that aims to streamline the legal framework for the process of renting a property in India. The centre had released a draft of the law in 2019.
The Model Tenancy Act is a part of the government's efforts to enable the institutionalization of rental housing by gradually shifting it towards the formal market.
The act aims to balance the interests and rights of property owners and tenants and proposes the establishment of a rent authority, separate rent courts and tribunals in every state to ensure speedy dispute resolution of rent-related disputes. It mandates the requirement of a written agreement for renting of any property.
Why do we need the Model Tenancy Act?
• As per 2011 Census, over 1 crore houses were lying vacant in urban areas. This is reportedly because the existing rent control laws are restricting the growth of rental housing and discouraging owners from renting out their vacant houses due to fear of losing possession.
• The absence of a model law leads to informal agreements with arbitrary clauses and often litigation arising out of disputes. Both the tenant as well as the owner are often found at the wrong end of a bargain in informally drafted agreements.
• The Model Tenancy Act aims to address this very concern and facilitate the unlocking of vacant houses for rental housing purposes and create a vibrant, sustainable and inclusive rental housing market in the country.
How to unlock vacant houses?
As per the Act, one of the key ways to encourage property owners from renting their vacant houses is to bring transparency and accountability in the existing system of renting of places and to balance the interests of both the property owner and the tenant in a judicious manner.
The states are free to adopt the Act as it is with fresh legislation, as it is a state subject, or they can amend their existing rent law to factor in the new MTA.
Model Tenancy Act: Key Objective
The Model Tenancy Act aims to formalise the shadow market of rental housing and unlock vacant properties and thus increase rental yields, remove exploitative practices, reduce procedural barriers in registration and increase transparency and discipline.
What does the law propose?
1. The Model Tenancy Act proposes setting up of Rent Authority, Rent Courts and Rent Tribunals to dispose of complaints in time-bound fashion.
i) The law states that if orders get backlogged these courts will lose their potency as has happened with consumer courts.
ii) The law proposes setting up the infrastructure and providing adequate staffing.
iv) State governments are expected to play a critical role in this.
2. The law also mandates written agreements for all new tenancies to minimise petty disputes. The rent and duration of renting the property will be fixed by mutual consent between owner and tenant through the written agreement and it will then be submitted to the concerned district 'Rent Authority'.
3. The Act also proposes three months' notice to tenants before a hike in rent to ensure landowners can get the market price for their properties while at the same time the tenants also get enough notice to make adequate arrangements to make the increased payment.
4. The Act also caps security deposits for residential properties to ensure that tenants are not forced to pay a huge amount at the start of their tenancy, as is the norm in metro cities such as Mumbai and Bengaluru.
Under the Act, only two months' rent can be taken as advance for residential property. The current norm in metro cities is to take 5-12 months' rent in advance.
5. In case the tenant fails to vacate the premises in accordance with the tenancy agreement, then that person will be liable to pay the landlord twice the monthly rent for the first two months and then four times till he/ she continues to occupy the rented property.
6. In case the property owner fails to make any refund, he/ she will be liable to pay simple interest to the tenant at a rate that may be prescribed from time to time on the amount he omitted or failed to refund.
7. In case of a dispute between the owner and tenant, the parties will be required to first approach 'Rent Authority' and if they are not satisfied with the Rent Authority's order, they can approach the 'Rent Court' and finally the 'Rent Tribunal'.
8. As per the act, no property owner can withhold any essential supply to the premises occupied by the tenant in the event of a dispute or on any other pretext. They will be required to provide a 24-hour notice to the tenants before undertaking any repair work that may disrupt utilities' supply.
9. Further, the tenants can not be evicted during the continuance of the tenancy agreement unless otherwise agreed to in writing by both parties.
10. The landlord will be responsible for structural repairs under the Model Tenancy Act except those necessitated by damage caused by the tenant unless otherwise agreed in the tenancy agreement. The repairs include changing and plumbing pipes, whitewashing of walls and painting of doors and windows and changing of internal and external electrical wiring and related maintenance.
11. The tenant will be responsible for drain cleaning, switches and socket repairs, kitchen fixtures repairs and replacement of glass panels in windows, doors and maintenance of gardens and open spaces etc.
12. In cases where the landlord has proposed to make any improvement or construct any additional structure on the premises that has been rented out and the tenant refuses to allow it, then the landlord can make an application in this behalf to the Rent Court.
13. The tenant cannot carry out any structural change or construct any permanent structure in the premises let out on rent without the written consent of the landlord.
The Model Tenancy Act had been in the pipeline since 2015 but had been held up till this point. The act will cover all urban areas as well as all rual areas. The new Act is not expected to affect existing tenancies.
The government had decided in 2015, before the launch of the Housing for All by 2022 Mission, that 20 percent of the two crore houses to be created will be exclusively for rent.
The decision was based on a 2013 task force report for Rental Housing, which held that affordable rental housing addresses the issues of the underprivileged and inclusive growth, in a more direct manner than affordable ownership housing.