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Housing For All: Draft Model Tenancy Act May Help Unlock Rental Market

Housing For All: Draft Model Tenancy Act May Help Unlock Rental Market

Housing For All: Draft Model Tenancy Act May Help Unlock Rental Market
Buying directly from the developer will help you cut costs. (Dreamstime/Studio Grand Ouest)

 

 

The rental market has a reason to cheer, with the archaic Rent Control Act, 1948, finally on its way out. Over the past seven decades, the Act has made property owners sceptical about renting their houses for the fear that the tenant might never vacate the premises. Besides, even tenants have many a time been subjected to arbitrary eviction and uncalled-for rent increase.

Renting a property has often not been considered a good proposition as some tenants do not vacate the houses taken on lease, restricting a periodic increase in rentals. Low rental yields, coupled with the fear of losing the property, have kept owners away from giving their properties on rent for long. Also, if there is a cap on rent, premium properties find it unfeasible and remain out of the rental market.

But The Draft Model Tenancy Act, 2015, is expected to boost the confidence of the rental market. It promises to safeguard the interests of both landlords and tenants. This will not only give an additional source of income to property owners but a large number of unoccupied inventory will also become available in the market, lowering the rentals.

 

The Rent Control Act, 1948, vs Draft Model Tenancy Act, 2015

 

Wider applicability: The Rent Control Act, 1948, was applicable to tenancy of more than 12 months, but to escape the clutches of law all rent agreements were made for only 11 months. The new Act does not specify any maximum or minimum period of tenancy.

 

Non-interference by landlord: Earlier, there were no rules on when the property owner could enter the rented premises. This often led to cases of harassment of woman tenants because many property owners would visit their houses at odd hours. To minimise any nuisance, the Bill has proposed that the landlord may enter the rented premises only between 7 am and 8 pm, after serving a 24-hour notice.

 

Cap on security amount: The security paid by tenants is an arbitrary amount decided by the property owner. In many cities, such as Mumbai and Bengaluru, the security amount is equivalent to a year's rent. Tenants often find it difficult to arrange such a hefty sum. Even getting the security amount refunded is a daunting task, with many owners deducting money from the security amount on one or the other pretext. The Model Tenancy Act, 2015, proposes to cap the maximum security deposit at three months' rent. The security deposit is also to be refunded to the tenant within a month of vacating the premises.

Deterioration leads to reduction in rent: Tenants are accorded the right to demand a reduction in rent if the quality of the rented property is not up to the mark. This will ensure that the property owner is inclined to keep his property in a good shape and well-maintained, to continue receiving good rentals.

 

No arbitrary increase in rent: Though the Act permits the owner to raise the rent, this increase cannot be random. There will be a ceiling on rent imposed which will be decided in consultation with the appropriate authority. This provision is expected to result in a fair increase in rentals as dictated by the government.

 

No arbitrary eviction of tenants: The tenant also has a security of tenure because the owner cannot evict him except under the terms of the written agreement. Deviating from the present law, the tenancy has been proposed to cease on the death of the tenant. A tenancy agreement should ideally be of personal nature but this results in problem for the landlord, because he is compelled to accept the new tenant. Thus, a middle path was arrived at where eviction on violation of recalcitrant tenants is made easy but arbitrary surprise evictions of law-abiding tenants are done away with.

 

Transparency and notice period: Currently, if the tenant refuses to vacate the property after the expiry of his agreement and refuses to enter into a fresh agreement, the tenant has no other option but to approach the court and fight a long-drawn legal battle. The proposed Act states that the landlord must serve a notice of three months before an agreement expires. This must specify the revised terms, along with the new rent applicable. In case, the tenant refuses to accept the new terms, he has to give a termination notice stating that he will vacate the premises when the said agreement expires. If he doesn't serve the termination notice, it is assumed that he has consented to the new terms.

 

Establishment of a rental authority: The proposed Act also provides for the registration of the rent agreement with the rental authority. This state-appointed rental authority will cater exclusively to landlord-tenant disputes. So, the warring parties will now be spared protracted legal battles.

 

Treatment of a tough tenant: A recalcitrant tenant can be evicted by the landlord under the new Act over non-payment of rent or misuse of the property, after serving a one-month notice.

 

The way forward

Even if the Central government passes the Act, its adoption by states will be crucial. Without that, the Act will be a non-starter. According to the Constitution, land is a state subject and it will be up to the states to customise it in line with the needs.

To address the housing needs of the country, constructing houses is a long-term approach, but if the new law is put into practice, it will address the housing needs of the country to a large extent; many more houses will be available in the market.

Last Updated: Tue Jul 19 2016

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