The union cabinet, on June 2, 2021, approved the draft model tenancy law, in a move that is likely to revive India’s rental housing market by effectuating a multitude of reforms. Let us scrutinise how the Model Tenancy Act 2019 aims to fix this problem, so that the demand-supply gap is bridged.
Click here to download PDF of MTA.
Model Tenancy Act 2019: Key features
The Act has put in place several measures, by way of tightening regulations and making it lucrative for landlords and tenants, to boost rental housing.
A ‘Rent Authority’ will be established under the Model Tenancy Act 2019
On the lines of the Real Estate Regulatory Authorities that have been set up under the Real Estate (Regulation and Development) Act, 2016, states could set up rent authorities in cities. After its establishment, landlords and tenants would have to be present before the authority to get the rent agreement registered. In its part, the authority would set up a website, to maintain all the data it receives in the form of rent agreements.
“No person shall, after the commencement of this Act, let or take on rent any premises except by an agreement in writing, which shall be informed to the rent authority by the landlord and tenant jointly, in the form specified in the first schedule, within a period of two months from the date of agreement,” reads the policy document.
Rent courts/tribunals to address disputes under the Model Tenancy Act
In case of any discontent, the contracting parties would first approach the rent authority for a solution. In case the disputing parties are not satisfied with the order of the rent authority, they could approach the rent court/tribunal to seek relief. These courts would have to pass an order within 60 days of receiving a complaint.
After the rent courts are set up, civil courts would have no jurisdiction over disputes pertaining to rental housing. ‘Only the rent court and no civil court, shall have jurisdiction, except the jurisdiction of the rent authority under Section 30, to hear and decide the applications relating to disputes between landlord and tenant’, states the Act.
Model Tenancy Law: Provisions that could help landlords
To discourage overstay of tenants
The policy states that tenants would be liable to pay the landlords double the rent for two months and four times the rent in the consequent months, in case they stay after expiry of the rental agreement.
To make eviction of tenants easy
Under the model policy, landlords could approach the rent court asking for eviction, if the tenants fail to pay the rent for two months in a row.
To stop sub-letting by tenants
Without prior permission of the landlord, the tenant is not eligible to sub-let whole or part of the rented accommodation.
Model Tenancy Law: Provisions that could help tenants
To stop intrusion of the landlord
That landlords march into one’s premises as and when they want, is a common complaint among those living in rented homes. To stop this from happening, the policy states that landlords need to give a written notice, 24 hours in advance, to visit the premises. Also, they cannot make a visit before 7 am and after 8 pm.
To cap security deposit demanded by landlords
In cities like Mumbai and Bengaluru, tenants have to pay at least a year’s rent, as security deposit. Landlords in states that adopt the policy would not be able to ask more than two months of rent, as a security deposit.
To regulate increase in rentals by landlords
During the entire rent agreement period, landlords cannot hike the rent, unless something giving them the right to do has been clearly mentioned in the rental agreement. The landlord will have to give three months’ notice to the tenant, before increasing the rent.
Landlord responsible for structural maintenance of rented premises
While the policy states that both parties will be responsible to maintain the physical health of the rented property, the responsibility of structural maintenance will lie on the landlord.
How effective can the Model Tenancy Law be?
“Model Tenancy Act will enable institutionalisation of rental housing by gradually shifting it towards the formal market. It is expected to give a fillip to private participation in rental housing as a business model, for addressing the huge housing shortage,” the housing ministry said when the law was approved.
According to a report by Knight Frank and Khaitan & Co, titled ‘2021: A New Era for Rental Real Estate in India’, the Act will have far-reaching implications for both, the residential and commercial, real estate asset classes and would help create a three-tiered regulatory ecosystem for the stakeholders. From a residential standpoint, the report cites that India’s high vacant stock of total residential census houses can be brought within the fold of formal rental housing, once the Act is implemented by states and union territories in letter and spirit.
Apart from rental housing, the law will also promote growth of investment in the sector and give a boost to entrepreneurial opportunities and innovative mechanisms of sharing of space. The law will be applicable prospectively and will not affect existing tenancies.
The government expects that the Model Tenancy Act will facilitate unlocking of vacant houses in India’s key housing markets. It is expected to give a fillip to private participation in rental housing as a business model for addressing the huge housing shortage.
However, questions remain over the effectiveness of the model policy, its laudable provisions notwithstanding. Firstly, land is a state subject and hence, states are free to accept or reject the model policy, which has been in the works since the prime minister Narendra Modi-led National Democratic Alliance (NDA) first formed the government in 2014. As the rules are not binding, states would hardly be in a hurry to embrace it. “Two years after the launch of the Act, states are still busy setting up authorities under the RERA. Barring some, most are still struggling to learn the ropes,” points out Brajesh Mishra, a Gurugram-based lawyer who specialises in property disputes. “Not many states would show the willingness to adopt the policy, as it involves a great deal of work on their part,” Mishra adds.
Even if states set up the regulatory framework, developers may not be willing to engage in this housing segment, despite the fact that they are sitting on an inventory stock worth Rs 1.13 trillion. This is because rental yield, which ranges typically between 2%-3% annually, is not lucrative enough. In contrast, developers have to pay interest ranging between 12%-14% on loans for project development. The Model Tenancy Act does not address the issue of low rental yields. Hence, one may witness a scenario, where builders may be reluctant to build houses for the rental segment but may use their inventory stock for rentals.
MTA to be prospective in nature
Housing and urban affairs secretary Durga Shanker Mishra, on July 21, 2021, said hat states have been asked to soon implement the Model Tenancy Act, which was passed by the union cabinet in June 2021.
While positioning the Model Tenancy Act as a reform that would create a lot of demand for rental housing in India, Mishra, however, said that since the the tenancy law will be prospective in nature, all disputes related to rent agreements will be dealt under the old laws of the respective states.
The provisions of this Model Tenancy Act clearly mention that all disputes related to existing rent agreements would be dealt under the old laws even after they are repealed, Mishra said.
Only 4 states have adopted MTA so far
Only 4 states of UP, Tamil Nadu, Assam and Andhra Pradesh, have aligned their local rental laws with the provisions of the Modal Tenancy Act, the Rajya Sabha was informed, on July 25, 2022. It has been more than a year since the centre circulated the central version of the law, asking states and union territories to either amend their existing laws or make new laws to make rental laws in line with the MTA.
FAQs
What is the new law for tenants?
The Centre has unveiled a draft model tenancy law in 2019, which aims to protect the interest of both renters and landlords.
What does the new tenancy law says about security deposit?
Tenants have to deposit at least a year’s rent, as security deposit.
How does new tenancy law help landlords?
The new laws discourages overstay by tenants and makes eviction easy for landlords.
Have states implemented the draft model tenancy law?
States are expected to form their own tenancy law, based on the Central version.
An alumna of the Indian Institute of Mass Communication, Dhenkanal, Sunita Mishra brings over 16 years of expertise to the fields of legal matters, financial insights, and property market trends. Recognised for her ability to elucidate complex topics, her articles serve as a go-to resource for home buyers navigating intricate subjects. Through her extensive career, she has been associated with esteemed organisations like the Financial Express, Hindustan Times, Network18, All India Radio, and Business Standard.
In addition to her professional accomplishments, Sunita holds an MA degree in Sanskrit, with a specialisation in Indian Philosophy, from Delhi University. Outside of her work schedule, she likes to unwind by practising Yoga, and pursues her passion for travel.
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