Model Tenancy Act 2019: All You Wanted To Know

In what could be termed as a major step to revive India's rental housing market, which had taken a severe beating due to the Coronavirus pandemic-induced socio-economic conditions, the union cabinet, on June 2, 2021, approved the Model Tenancy Act 2019. The approved law was then circulated to states and union territories, so that they can make rental laws in line with the centrally-approved version. They may also make changes in their existing rental laws, to make it compliant with the new law.

However, till July 25, 2022, only four states-- UP, Tamil nadu, Andhra Pradesh and Assam--- had adopted the new law. 

How Model Tenancy Act 2019 Will Change India’s Rental Market?

It is only unfortunate that over 1.1 crore housing units in India are currently lying vacant despite the fact that the country’s migrant population finds it hard to afford itself a decent accommodation in big cities. This also indicates that those who invested in immovable properties to earn themselves a handsome rental income are actually suffering losses on their investment.  To address this and a myriad of other problems that hamper the growth of rental real estate in India, the housing ministry on July 10, 2019, put out the Model Tenancy Act, 2019, in public domain seeking suggestions on the policy. The Act, which has been in the making since 2015, is likely to get an approval from the Union Cabinet by March 2021, if all goes as planned. 

“We have received no comments from some states (on the draft act) we are analysing the responses we have received from some other states. We are in the process, and we should be taking the draft law to the Union Cabinet for approval in a month or so. By March, it should be through,” Housing Secretary Durga Shankar Mishra said during an annual press conference of the ministry on January 11, 2021.

The Balancing Act

The Act aims to, among many things, “balance the interests of landowner and tenant, and to create an accountable and transparent environment for renting the premises in disciplined and efficient manner to promote inclusive and sustainable ecosystem to various segments of society, including migrants, formal and informal sector workers, professionals, students and urban poor”.

To that effect, several new steps have been suggested in the model policy ─ it is worth mention here that the policy is not binding on states since land happens to be a State Subject under the Indian Constitution; states have the right to accept/reject the policy as they deem fit.

Rent authority

On the lines of the Real Estate Regulatory Authority (RERA), the policy suggests states set up a rent authority that would act as the sole regulator for rental real estate. All rent agreements that are entered into after the establishment of the rent authority must be registered with it.

“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 landowner 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.

The rent authority has the responsibility to upload on its website that would be set for this specific purpose every detail pertaining to the registered rent agreements.

“The rent authority shall put in place a digital platform in the local vernacular or state language for enabling submissions of documents within three months after setting up of the rent authority,” the policy states.

The impact: So far, there is no official data source to analyse data related to rental real estate. This informality is the key reason why this housing segment, despite its huge potential, remains largely untapped. When landlords and tenants have a common platform to refer to understand the market dynamics, the rental housing segment would slowly march towards transparency and a formal setup. Landlords won’t be able to set rent arbitrarily; tenants will have a clearer understanding of what they need to pay for what.

Rent courts/rent tribunals

The policy envisages setting up of rent courts/rent tribunals to hear disputes. So far, landlords/tenants have to move civil courts in case of contention.

“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 landowner and tenant,” states the Act.  

So in case of an issue, the parties concerned must first approach the rent authority. In case they are not satisfied by the verdict, they could move rent court/rent tribunal within 30 days after the order is passed. These courts are liable to pass an order within 60 days of appeal.

The impact: India’s lower courts are overburdened which leads to contending parties finding no relief for years. A segment-specific court would mean grievance redressal mechanism would work efficiently. This would generate in landlords the confidence to let out their units, which they otherwise shy away from, fearing squatting and other such unfavourable consequences.

Cap on security deposit

Landlords, says the policy, cannot ask for more than two months’ rent as security deposit. In case the terms of the rent agreement states that the tenant is liable to bear the expenses of maintaining the property, the landlord can deduct money from this deposit in case the tenant fails to make the payment when he vacates the premises.

The impact: In cities such as Mumbai and Bengaluru, landlords demand the tenants deposit at least a year’s rent as a security deposit. This makes renting almost impossible for a large section of the working population. A cap on security deposits would make a correction in these markets, where housing is expensive and renting is not cheap either. Tenants in other big cities would benefit equally from the more.

Cap on rent revision

If a rent agreement is created for a specific period, landlords will not be able to increase the rent in between. However, tenants must be careful while the terms and conditions of the agreement are set. If a provision expressly states that the landlord can hike the rent as he deems fit, they would be within their right to do so. Also, the landlord will have to give a written notice three months in advance before revising rent.

The impact: Arbitrary rent hiked by landlords is quite common in Indian rental real estate. A provision that limits landlords’ right in this regard would benefit the tenants immensely.

Cap on entering premises

The policy states that the landlord will have to give a 24-hour written notice – this could be done through electronic mediums, too; this means the landlord can send a WhatsApp message or a text message – before entering the premises. They would also need a valid reason to explain the short intrusion. Also, they can’t visit the premises before 7 in the morning and after 8 at night.

The impact: Landlords consider themselves the master of their dwelling even if they are generating income by letting it out. They often march in and out as they please, bothering tenants a great deal. This is a key reason why people are driven to change rented homes time and again. This issue certainly begged addressing.

Penalty on overstay

In case a tenant continues to live in the rented accommodation after the tenure of the rent period has expired, they will have to pay the landlord twice the monthly rent for two months and four times the monthly rent in the months thereafter. Landlord can also move court if the tenant refuses to vacate the premises for two months after the rent tenure is over.

The impact: Squatting by tenants is the key reason why landlords are wary of letting their unoccupied property. Since the policy sets monetary penalty for squatting, landlords will have greater confidence. This way, supply of rental housing will see a phenomenal growth. This would consequently lead to price correction.

Maintenance responsibility

The Act says landlords and tenants are equally responsible for maintaining the premises unless the rent agreement sets specific conditions over the matter. In case the unit is not fit for habitation because no regular maintenance has been carried out, the tenant would be within his right to leave it after serving a 15-day notice period.

The impact: Since maintenance has been a grey area, a lot many disputes arose between the two parties over this issue. This term would afford them better clarity, leaving little scope for manipulation by either party.

Law will be prospective

In what offers tenants and landlords more clarity on the newly-approved Model Tenancy Act (MTA), 2019, Housing Secretary Durga Shanker Mishra, on July 21, 2021, said that the law would be prospective. Mishra said that all existing rent agreements would be dealt with according to the existing rent laws of states, since the MTA was prospective in nature and not retrospective. The housing secretary also added that all states have been asked to implement the model tenancy law soon.