All about Model Tenancy Act 2019

Context

After several years in the making, a draft of the Model Tenancy Act, 2019, was released by the Ministry of Housing and Urban Affairs

Background

• The existing rent control laws are restricting the growth of the rental housing segment and discourage the landowners from renting out their vacant premises.
• Policy states that transparency must be brought into the housing sector by fixing the accountabilities of landlords and tenants to promote rental housing at a time when the government is chasing its Housing-For-All-By-2022 target.
• The policy is not binding on states/UTs since land is a state subject under the Indian Constitution. The policy also does not have any retrospective effect. It means existing rental contracts remain outside the purview of the policy.

Key features of the act

1. The new draft Model Tenancy Act, 2019 aims to cap security deposits at two months’ rent for housing and one month’s rent for other properties. However, this cap may hurt landlords in cities where much larger security deposits have been the norm. A two-month security deposit will also not be enough to compensate the landlord if significant damage has been done to the property.
2. The Act seeks to penalize recalcitrant tenants for refusing to move out of their rental properties after the agreed-upon rental period expires. The landlord will be able to claim double of the monthly rent for two months and four times of the monthly rent after that as compensation.
3. The Act stipulates that a landlord cannot refuse to provide essential utilities and access to common facilities. This has been a fairly common grouse of tenants in the past.
4. The landlord will also not be able to increase the rent without giving at least three months’ notice to the tenant, and cannot increase rent in the middle of a rental term.
5. Once this Model Act comes into force, no person will be able to let or take on rent any premises except by an agreement in writing.
6. Within 2 months of executing the rental agreement, it will be mandatory for both landlords and tenants to intimate to the Rent Authority about this tenancy agreement. The Rent Authority, within 7 days, will issue a unique identification number to both the parties.
7. After the commencement of this Model Act, a tenant without the prior consent in writing of the landowner won’t be able to sublet whole or part of the premises held by him, or transfer or assign his rights in the tenancy agreement or any part thereof.
8. The terms of agreement executed between a landlord and his tenant will be binding upon their successors in the event of the death of the landowner or tenant. In such a case, their successors will have the same rights and obligations, as agreed in the tenancy agreement, for the remaining period of tenancy.

Changes Proposed in the Model Tenancy Act, 2019 and their impacts

• Rent authority: Currently, rent agreements are registered at the sub-registrar’s office. In order to bring transparency, fix accountability and promote fairness in the rental housing segment, the policy proposes setting up of a rent authority.

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. 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 tenant’s 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 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.