India – Paradigm Shift: Tamil Nadu’s New Tenancy Law.

The law relating to tenancy in the state of Tamil Nadu was earlier governed by The Tamil Nadu Buildings (Lease and Rent Control) Act, 1960 (TNLRC Act). The said act was enacted for achieving three purposes[1]: (a) to regulate the leasing of residential and non-residential buildings; (b) the control of rents; and (c) to prevent unreasonable eviction of tenants.

 

This sexagenarian old TNLRC Act was enacted when the real estate industry was evolving. At that point of time, the supply of rental assets was limited and the ownership of assets was concentrated in the hands of few landlords. Therefore, the TNLRC Act was enacted as a piece of social reform to protect tenants from exorbitant rent and frivolous eviction but it was quite often tainted as a law as it was unfairly tilted towards the tenants.

 

Over time, the real estate industry has changed and the State’s horizon expanded in all spheres. Today, Tamil Nadu is the most urbanised State in India having an urban population of about 3.5 crores. In view of this burgeoning urban development, the Government of Tamil Nadu felt it necessary to revamp the law relating to tenancy.

Accordingly, the Government of Tamil Nadu enacted The Tamil Nadu Regulation of Rights and Responsibilities of Landlords and Tenants Act, 2017 (New Tenancy Act) in line with the Model Tenancy Act, 2017 framed by the Government of India. The New Tenancy Act came into force on February 22, 2019 and the erstwhile TNLRC Act has been repealed. This New Tenancy Act makes sweeping changes to tenancy laws – some of the key changes are analysed below.

 

RIP ‘Fair Rent’ –Pay What You Have Agreed

 

The concept of fair rent, promogulated under the old TNLRC Act has been completely abolished. The New Tenancy Act aims to regulate rent as per the terms and conditions of the agreement entered into by the landlords and tenants. The landlord and tenant are free to agree upon the rent payable for the premises and such other terms and conditions relating to tenancy. Thus, the ‘control of rent by fixation of fair rent’ to ‘regulation of rent by contractual rent’ is a paradigm shift in the rental market.

 

Similarly, the restrictions placed over the security deposit have been waived off. Earlier, under the TNLRC Act, if fair rent was fixed for the premises then the landlord could not receive more than one month’s rent as security deposit. Under the New Tenancy Act, however, parties are free to agree upon the amount of security deposit[2].

 

Tenancy Agreement

 

The New Tenancy Act mandates that all tenancy agreements should be in writing and registered with the Rent Authority[3]. This is in addition to the registration of the tenancy agreements under the Indian Registration Act, 1908 (Registration Act). The effect of non-registration of the tenancy agreements[4] is akin to section 49 of the Registration Act, i.e., unregistered agreements shall not create any lease rights over the premises in favour of the tenants and such tenancy agreements shall not be received in evidence of any transaction affecting the premises or conferring any rights.

 

Hitherto, tenancy agreements for a term exceeding one year were registered with the Sub-Registrar office under section 17 of the Registration Act; tenancy agreements for a term of less than one year were typically not registered, since the same were optionally registrable under section 18 of the Registration Act. Under the New Tenancy Act, irrespective of the term, all tenancy agreements are mandatorily registrable with the Rent Authority, i.e., the regulator under the New Tenancy Act.

 

Eviction of Tenants – No Longer a Herculean Task 

 

One of the key objects of the TNLRC Act was to avoid frivolous eviction of tenants. In achieving this, the erstwhile law laid stringent conditions and measures to evict tenants and the balance was tilted in favour of the tenants. This has been completely revamped under the New Tenancy Act and the balance has been restored.

 

Earlier, the landlord had to prove the ‘willful default’ of the tenant in paying the rent. This has been done away under the New Tenancy Act. If the tenants merely fail to pay the rent for two months, then they can be evicted, irrespective of whether such default is willful or not. Likewise, if the landlord requires the rented premises for his own purposes, the landlord was required to prove that such requirement was genuine. Under the New Tenancy Act this requirement has been completely done with. Undoubtedly, this move will reduce the costs and time of adjudication of disputes.

 

Three Tier Adjudication

 

To adjudicate disputes between landlord and tenant, the New Tenancy Act provides for a three-tier system: a) Rent Authority, b) Rent Court and c) Rent Tribunal. Under the TNLRC Act, it was a two-tier system i.e., Rent Controller and Appellate Authority.

 

The powers of the Rent Authority are administrative in nature, such as registration of agreements, uploading the same to the website (www.tenancy.tn.gov.in), providing a Tenancy Registration number (T.R.No), etc. In addition, the Rent Authority is empowered to adjudicate landlord and tenant disputes such as: a) fix or revise the rent, as per the agreement; b) conduct inquiry and pass suitable orders for restoration of essential services; and c) adjudicate termination of tenancy, etc.

 

All orders made by the Rent Authority can be appealed before the Rent Court. The final orders made by the Rent Court can be appealed before the Rent Tribunal. The order of the Rent Tribunal is final and no appeal or revision lies over the same. Under the TNLRC Act, the parties could file a revision petition before the High Court against the order of the Appellate Authority. Such a revision provision has been struck down under the New Tenancy Act.

 

Repairs and Maintenance

 

The New Tenancy Act casts the responsibility of maintenance of the premises and carrying out repairs upon both the landlord and tenant[5]. The scope of maintenance for the landlord and tenant respectively has been specified in Schedule II of the New Tenancy Act.

 

In case of default by the landlord, then the tenant can carry out the repairs and deduct the cost of repairs from the rent. Similarly, in case of default by the tenant, the landlord can carry out the repairs and deduct the cost from the security deposit.

 

Previously, the landlord and tenants were provided with these rights under the tenancy agreements as a contractual right but the New Tenancy Act provides for the same as a statutory right. Further, the New Tenancy Act provides statutory recognition to Property Managers[6], who are engaged by the landlord to manage and maintain the rented premises. The roles of the Property Managers are defined to include: a) collection of rents; b) inspection of the premises; c) carrying out maintenance and repairs; and d) issuance of notices on behalf of the landlord.

 

Other Significant Changes

 

The New Tenancy Act provides for severance of the tenancy of a vacant land from rest of the tenanted premises/ land. It is a trite proposition under the Indian laws that the landlord cannot split the tenancy and recover possession of part of the premises. The only exemption to this rule is transfer of part of the premises by the lessor as provided under section 109 of the Transfer of Property Act. In contradistinction to this general rule, the New Tenancy Act confers a statutory right on the landlord to claim severance of tenancy.

 

In relation to inheritance of tenancy rights, the TNLRC Act allowed the spouse, sons and daughters alone to inherit the tenancy rights. Under the New Tenancy Act the scope has been expanded[7] to include the wife of a predeceased son and the parents of the tenants.

 

If the tenant does not vacate the premises after termination of the tenancy, the New Tenancy Act entitles the landlord to compensation of double the monthly rent. Further, if there is a delay in payment of rent by the tenant, the landlord is entitled to charge interest at the rate of 8% per annum for the arrears of rent. Similarly, if the landlord delays refunding the security deposit, the tenant is entitled to interest at a rate of 8% per annum for the arrears of security deposit.

 

Conclusion

 

The essence of the New Tenancy Act is to declutter and honour the agreement made between landlord and tenant. Consequently, the changes brought in by the New Tenancy Act will have a far-reaching impact in the rental market of the southeastern State of India. This will indeed unlock the potential of the rental assets and thereby act as a stimulus to the growth of the real estate industry of Tamil Nadu.