The Draft Model Tenancy Act, 2019

deepak mehto
By deepak mehto October 3, 2019 17:05

The Ministry of Housing and Urban Affairs (MHUA)  came out with the Draft Model Tenancy Act 2019. IT mainstreams the rental home ecosystem with formal agreements between owner and tenant, the ground of eviction, increment in the rent and its regulation etc,

Provisions of the Draft Model Tenancy Act:

  • It is applicable to both urban and rural areas in a state.
  • The Act will be applicable to premises let out for residential, commercial or educational use, but not for industrial use. It also won’t cover hotels, lodging houses, inns, etc.
  • Regulator for disputes: It proposes a Rent Authority and Rent tribunals to address the disputes between owners and tenants. The district collector will appoint an officer, not below deputy collector as Rent Authority.
  • Rent Agreement: The owner and tenant will have to submit a rent agreement to the Rent Authority and the authority has the power to revise the rent on the recommendation of landlord or tenant.
  • As land is a state subject, states are free to adopt the law.
  • States are required to establish rent courts and rent tribunals for settling the disputes between the landlord and the tenant.
  • A digital platform will be set up for the submission of the rental agreements.
  • Revision of the rent: The landlord will have to send a notice to the tenant before 3 months if he/she wants to revise the rent.
  • Vacation of the house: Twice the monthly rent amount should be paid as compensation to the landlord if the tenant overstays above the agreed period. However, the tenant can vacate the house if it turned out to be uninhabitable and the landlord refuses to carry out repairs.
  • Cap on Security deposit: The draft capped a maximum of two months’ rent as a security deposit for residential properties and one month for commercial properties.

Current Provisions and their issues:

  • There are no uniform tenancy laws across states. There is a Rent Control Act in Delhi, Tamil Nadu Buildings (Lease and Rent Control) Act 1960 in Tamil Nadu and the residuary regulations related to tenancy are governed by Transfer of Property Act, 1882 (“TPA”).
  • Currently, all disputes are taken up by small causes of courts and civil courts. As the burden on the judiciary is so high, it takes years to settle these disputes.
  • Some of the current rules on vacation do not have any penal provisions for overstay after the agreement has expired and the landlord cannot ask a tenant to vacate in the mid-term of the agreement with a valid reason.
  • Security deposit is the major cause of concern across the states. It may range from 2 to 4 months of rent in cities like Delhi and Pune and it may range up to 12 months in cities like Mumbai and Bengaluru.

Need for the model act:

  • The 2011 census found that 1 crore houses are lying vacant with 4.8 lakh units in Mumbai and 3 lakh each in Delhi and Bengaluru.
  • The existing rent control regulations are restricting the growth rental housing market.
  • The migrants and students are unable to rent properties due to high-security deposits and non-transparency in rental agreements.
  • The commercial spaces are unable to find suitable properties to establish their offices and businesses, which is affecting the Ease of Doing business.
  • One of the potential measures to unlock the vacant house is to bringing transparency and accountability in the existing system of renting premises and to balance the interests of both the property owner and tenant in a judicious manner.

Significance of the model act:

  • The model act will be applied prospectively and will not affect existing tenancies.
  • When enforced in all states, it will lead to a better regulated rental house market for middle and high-income segments.
  • The Pradhan Mantri Awas Yojana( Housing for all by 2022 mission ) has a component of having 20 percent of 2 crore houses shall be created exclusively for rent.
  • 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.
  • A segment-specific court would mean the 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 unfavorable consequences.
  • A cap on security deposits would make a correction in these markets, where housing is expensive and renting is not cheap either.
  • Squatting by tenants is the key reason why landlords are wary of letting their unoccupied property. Since the policy sets monetary penalties for squatting, landlords will have greater confidence.
  • This would work as an alternative to eliminate the problem of the housing shortage in view of the ever-increasing population in India.

Criticism of the model act:

  • There is no clarity about the paying guest accommodations as the hotels and lodging houses are kept out of the model act. This may discourage the migrants and especially students to approach low priced paying guest accommodations due to lack of transparency.
  • As the model act is prospective in nature, there is no scope for redressal for the existing agreements that are not covered under the model act.
  • Model act is open to be adopted by the states and hence may not create a uniformity all over the country.
  • The term ‘rent’ is not defined under the model act, hence the mode of payment (cash or any other transaction) is not clear.
  • The Draft Model Tenancy Act does not address the situation in case of failure to execute tenancy agreement, failure to obtain the consent of landowner for subletting and failure to observe obligations imposed on parties.
  • Although the specific establishment of adjudicatory bodies has been provided under the Model tenancy act the same results in the increase of litigation matters before judicial bodies established under the Model Tenancy Act.

Way Forward:

  • NITI Aayog should act as a platform for cooperative federalism and the model act should be made adopted by all the states.
  • The act, when applied to slums which are government lands needs a whole different approach as the slum lords and government are the landlords.
  • There should be publicly provided rental housing for the poor and migrants as most of them try to dwell on footpaths and pavements due to the unaffordability of rental houses.
  • The vacancy is higher in the upper segments of the housing market. Across urban India, vacancy rate 10.1% while in slums it is 7.3%. Implementation of the Act in the upper segments of the housing market will allow some of these vacant houses to enter the rental market.

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deepak mehto
By deepak mehto October 3, 2019 17:05