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Draft Model Tenancy Act: Home Rule

Draft Model Tenancy Act: Home Rule
The new law may end up unlocking houses and shops for rent/Photo: Bhavana Gaur
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Above: The new law may end up unlocking houses and shops for rent/Photo: Bhavana Gaur

The Model Tenancy Act should make it easier to rent houses, benefitting both the landlord and the tenant. But states will need to constitute rent courts and rent tribunals first

By Ramesh Menon

Renting a house has been a sticky point both for the landlord and the tenant.

It has always been pockmarked with disputes related to non-payment of rent, yearly increases and repairs. All that might get streamlined now with a new Tenancy Act that is being proposed by the centre.

In the Union budget, Finance Minister Nirmala Sitharaman mentioned that there would soon be a Model Tenancy Law to regulate renting of premises. She said that current rental laws were outdated and not fair either to the landlord or the tenant.

Significantly, the new law could take some pressure off India’s overburdened courts as it streamlines renting of houses and establishments. Once the Act comes into force, disputes will be heard by rent courts in respective states and not civil courts. Thousands of rent-related cases are currently pending in courts.

The Union housing and urban affairs ministry is ready with the draft Model Tenancy Act, 2019, which has been put up to seek suggestions from the public. It will then be circulated to states as land is a state subject. They will be free to adopt the law as they want. But they will be required to constitute rent courts and rent tribunals to deal with disputes. Incidentally, this bill has been hanging fire for over four years.

No more will landlords in Mumbai be able to charge vulgar amounts as pagdi, which often amounted to many months of rent taken in advance as security deposit. They will be able to take just two months of rent after the law comes into force. Currently, in Bengaluru, ten months of rent is charged as advance from a tenant.

Anuj Puri, chairman, Anarock Property Consultants, Pune, told India Legal that many landlords in big cities will suffer as the security deposit cannot be more than two months and if the tenant damages the house, it will not be enough to repair it. As it will be mandatory for both the landlord and the tenant to inform the rent authority after getting into an agreement, it will naturally ensure that rents will not be arbitrarily increased nor be different from what the agreement states. Hereafter, no tenant can be evicted on the landlord’s whim and fancy.

The new law may end up unlocking a large number of houses and shops as property owners will no longer be as apprehensive as before about whether they will be vacated when they want. Tenants will no more be able to squat on their property against the terms of the agreement. Landlords will be able to charge rents at market rates.

The highlights of the Bill are:

  • A landowner cannot cut power and water supply in case of a dispute with the tenant.
  • State governments will set up a rent authority. It will be headed by a deputy collector-rank officer and be set up by district collectors. The authority will set up a website that will carry details of all agreements.
  • The rent authority may direct compensation from the person responsible for cutting off or withholding an essential supply.
  • The tenant will only have to pay two months’ rent as a security deposit in case of residential properties and a minimum of one month’s rent for a non-residential property.
  • Tenants overstaying will pay double the rent for two months and after that, will have to cough up four times the monthly rent.
  • The landlord has to give three months’ notice before raising the rent.
  • Both the landlord and the tenant will submit a copy of the rent agreement to the district rent authority that has the power to revise or fix the rent following a request by either of them.
  • If the tenant refuses to carry out scheduled or agreed repairs, the landowner shall get them done and deduct the amount from the security deposit.
  • A landowner cannot enter the rented premises without a 24-hour prior notice to carry out repairs or any replacement.
  • A digital platform will be set up in the local language of the state for submitting tenancy agreement and other relevant documents.
  • Once the Act comes into force, no person shall let or take on rent any premises except by an agreement in writing.
  • The tenant cannot sublet a part of or the whole property to someone else.
  • Within two months of executing the rental agreement, both the landowner and the tenant will be required to intimate the details of the agreement to the rent authority. Within a week, a unique identification number will be issued by the authority to both parties.
  • An independent authority would be set up in every state for the registration of all tenancy agreements. A separate court would be set up for tenancy-related disputes. It also has a provision to cap rent rates to check arbitrary hikes.

However, the Act will work only if the states are on the same page as the centre. Currently, every state has its own tenancy laws and with the new Act coming in, these will have to be in sync. Otherwise, there will be chaos.

Puri said: “Like RERA, the Model Tenancy Act, 2019 may lose its real purpose if states do not follow the basic guidelines or dilute them. It may well become a process rather than an event, and need several course corrections to reduce regional dilutions before it becomes a force to reckon with.”

India’s housing policies have so far largely focused on building homes for individual ownership. The focus has never been on renting a house. But that may change with the new law.

Though there is an acute housing shortage in India, millions of flats all over the country in the metros and Tier II towns lie empty as owners are apprehensive of giving them out for rent. According to the Census, 12 percent of urban houses are vacant. Mumbai has the highest number with nearly 4.8 lakh units. Both Delhi and Bengaluru have almost three lakh vacant homes.

Puri further said that in the absence of a sound rental policy, distorted property rights, weak rental contract implementation and low rental yields prompt homeowners to keep their houses vacant.

In cities like Mumbai, Gurgaon, Noida and Bengaluru, high net worth individuals or NRIs have invested in homes but do not live in them as they already have one and have bought another only for investment purposes. They now might be lured to rent it out as it is safer to do so with the new law.

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