reforms-under-model-tenancy-act

Context: The Union Cabinet recently approved the Model Tenancy Act (MTA) that aims to ensure a level playing field between the tenants and the landlords.

Background:

  • The Act replaces the existing Rent Control Acts of the states. However, it depends on the states if they wish to adopt the MTA fully, partially or not at all.
  • This is because the MTA is a part of the Concurrent List, where it is desirable for states to implement the laws uniformly but not mandatory.
  • Such laws merely act as a guideline and therefore just need to be approved by the Cabinet and not tabled in the Parliament.
  • Concerns have been raised regarding the pace of implementation of the law. However, experts have observed that the MTA brings benefits for both tenants and landlords and safeguards their rights and hence will be implemented easily.
  • However, there are some concerns that still remain like the Act does not apply to the agreements that have already been made and that the role of property brokers still remains undefined in such transactions.
  • Nonetheless, the Act definitely aims to bring positive changes regarding renting laws in India and thus minimises the scope of disputes. Yet, all this depends on its implementation.

Need of the Act

  • Restrictive Laws: As per Census 2011, more than 1 crore houses were lying vacant in urban areas. The existing rent control laws are restricting the growth of rental housing and discourage owners from renting out their vacant houses due to fear of repossession. 
  • Large scale informalisation in the sector: One of the potential measures to unlock the vacant house is to bring transparency and accountability in the existing system of renting of premises and to balance the interests of both the property owner and tenant in a judicious manner.
  • Lack of Uniformity: Since it is a state subject, states have enacted their laws and it differs from one state to another.
  • Housing Poverty: 2013 report by a Task Force for Rental Housing held that affordable rental housing “addresses the issues of the underprivileged and inclusive growth, in an even more direct manner than affordable ownership housing”. The Model Tenancy Act helps bring investment in the sector as the sector provides better safeguards.

New provisions in the Model Tenancy Act:

  • Dedicated Institutions: States will set up a grievance redressal mechanism consisting of Rent Authority, Rent Court and Rent Tribunal to provide fast-track resolution of disputes. 
  • Time Bound Resolution: Disposal of a complaint/appeal by the Rent Court and the Rent Tribunal will be mandatory within 60 days.
  • No monetary ceiling on rents: At present, in many old properties let out under archaic rent-control Acts, such ceilings have left landlords stuck with outdated rent amounts. This will be done away with in the new model act.
  • A digital platform will be set up in the local vernacular language or the language of the State/Union Territory for submitting tenancy agreement and other documents. The Rent Authority will keep a tab on these agreements.
  • Proper Documentation: Verbal agreements will be out of the picture, as the MTA mandates written agreement for all new tenancies (prospective) which is to be submitted to the Rent Authority. 
  • Clarity on Subletting: Subletting of premises can only be done with the prior consent of the landlord, and no structural change can be done by the tenant without the written consent of the landlord.
  • Guidelines on Security Deposit: The security deposit to be paid by the tenant should not exceed two months’ rent for residential property (six months’ rent in case of non-residential property)
  • Provision for eviction: The Rent Court can allow repossession by the landlord if the tenant misuses the premises, after being served a notice by the landowner. Misuse of the premises, as defined, includes public nuisance, damage, or its use for “immoral or illegal purposes”.
  • It requires states to establish a rent authority to regulate renting of premises and take decisions based on facts in cases of disputes between the tenant and the landlord.
  • Rent tribunals and rent courts will be set up to resolve disputes with an aim to fast track resolution. 
  • The MTA makes the resolution process time bound i.e., an order must be passed in 60 days.
  • It provides for scenarios that can arise when the owners want tenants to vacate and also provides compensation for landlords on the basis of the agreement if the tenant does not vacate even after being notified by the landlord.
  • The Act provides a special provision for cases of force majeure like flood, quake, where the owner must allow the tenant to continue possession of the house for a month after the end of such an event.

Challenges ahead

  • While the proposals of the Model Tenancy Act have been widely welcomed, their implementation may not be very simple. The Act is not binding on the states as land and urban development remain state subjects. It is still a matter of choice for states and Union Territories to repeal or amend their existing Acts. Like in the case with RERA, the fear is that states may choose not to follow guidelines, diluting the essence of the Model Act.
  • Also, the Model Act is prospectively applicable and will not affect the existing tenancies. The repeal of rent control Acts can be governed by political exigencies. This may be a complicated process in cities like Mumbai, where tenants have occupied residential properties in prime areas for absurdly low rents.
  • The cap on the security deposit may not find favour with many landlords. In cities like Bengaluru, the norm is a 10-month security deposit as a two-month deposit may be insufficient to cover any damage to the property or compensate for defaulted rent payments.
  • Model Tenancy Act (MTA) will have to be seen in light of the existing tenancy laws, most of which (baring a few exceptions) were enacted post the Second World War with the specific purpose of preventing exploitation of tenants by landlords, in markets that then had scarce housing stock.
  • The welfare objective of the existing tenancy laws, which are heavily skewed in providing tenant protection, appears to be fading away when we have instances of tenants occupying prime premises for paltry rents.
  • In the present form, the draft legislation envisages a three-tier dispute redressal mechanism and lacks provisions which can mitigate long drawn landlord–tenant litigations.
  • MTA is altogether silent on leave and license arrangements. This is perhaps the most significant aspect which it must cover, he adds.
  • Also, the Model Tenancy Act is prospective, which means it won’t affect the owner-tenant relationship as it stands today under the Rent Control Act of the respective state.

Way Forward

  • As per Census 2011, nearly 1.1 crore houses were lying vacant in the country and making these houses available on rent will complement the vision of ‘Housing for All’ by 2022.
  • The existing rent control laws are restricting the growth of rental housing and discourage the owners from renting out their vacant houses due to fear of repossession.
  • One of the potential measures to unlock the vacant house is to bring transparency and accountability in the existing system of renting of premises and to balance the interests of both the property owner and tenant in a judicious manner.

Source- IE