10 June 2021
The existing rent control and tenancy legislations in the country largely tilt in favour of the tenants. They inter alia involve stringent measures on the fixation of rent and long drawn legal challenges faced by the landowners in evicting tenants. For this reason, landowners are often apprehensive of letting out their vacant premises. This has resultantly affected the rental economy and the rental housing segment across the country, adversely impacting the availability of housing facilities and affordable rental accommodation in urban areas.
After deliberating for over five years, the Model Tenancy Act (“MTA”) was finally approved by the Union Government on June 2, 2021, for circulation to all States/UTs for adaptation by way of enacting fresh legislation or amending the existing rent control and tenancy legislations suitably with a view to (i) revamp the present rent control and tenancy regime across the country, (ii) protect and balance the rights and interests of both tenants and landowners to promote rental housing, (iii) bridge the trust deficit between tenants and landowners by clearly delineating their rights and obligations, (iv) enable creation of adequate rental housing facilities for all income groups and encourage private participation in rental housing as a business model to address the huge housing shortage and the issue of homelessness, and (v) provide speedy dispute redressal mechanism.
It is pertinent to note that the MTA is not binding on the States/UTs as land and urban development remain state subjects. Hence, it is for each State/UT to decide whether or not to adopt the MTA (with or without amendments) or repeal or amend their existing legislations on the subject. It is still to be seen whether the States/UTs choose not to follow the MTA or dilute the essence of the provisions of the MTA as approved by the Union Cabinet or otherwise.
Some of the key provisions of the MTA are discussed below:
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Applicability: MTA is applicable to premises (including vacant land) for residential and commercial use only, and excludes from its purview, all hotels, lodging houses, dharamshalas, inns and premises for industrial use. Further, MTA will not be applicable to (i) premises owned or promoted by the Government or local authority, (ii) premises owned by a company, university or organisation, let out to its employees as part of service contract, and (iii) premises notified by the Government in this regard from time to time, unless otherwise agreed to by the parties and informed to the Rent Authority. It is important to note that the MTA is prospective in nature and will not apply on existing tenancies, retrospectively.
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Tenancy Agreement: MTA mandates that all tenancy agreements, after commencement of the MTA, must be in writing and informed to the Rent Authority within the specified timeline. Pursuant to the above, the Rent Authority will allot a unique identification number to the parties. The parties are free to mutually decide on the term of the tenancy, rent amount and revision of rent, if any. However, in case of a dispute between parties concerning the revision of rent, the MTA provides that the Rent Authority, upon receiving an application in this regard, can determine the revised rent and also fix the date from which such revised rent becomes payable. The MTA further ensures that the security deposit amount to be paid by the tenants in advance is not unjustified, and provides a cap on it, i.e., (i) not exceeding 2 months’ rent for residential properties, and (ii) not exceeding 6 months’ rent for commercial premises.
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Restriction on Sub-Letting: MTA prohibits the tenant from sub-letting or transferring or assigning his/her rights in the tenancy, unless the same is carried out by executing a supplementary agreement to the existing tenancy agreement and thereafter informing the Rent Authority of the said sub-tenancy within the specified timeline.
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Deposit of rent with Rent Authority: MTA allows the tenant to deposit the rent and/or other charges with the Rent Authority if the landowner refuses to accept such payment or give a receipt in that respect consecutively for two months or in the event the tenant is unable to ascertain to whom the rent is payable. The latter may be particularly useful in a scenario where the lessor has expired, and the person who is entitled to receive the rent is not identifiable. In such situations, the Rent Authority will determine to whom the rent should be paid and pass orders to that effect.
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Division of maintenance responsibility: MTA clearly delineates the maintenance responsibilities between the landowners and the tenants, with major maintenance of the premises such as structural repairs, electrical wiring repairs, whitewashing falling in the share of the landowners and minor day-to-day repairs and maintenance falling in the share of the tenants. Having said that, parties are free to depart from these provisions of the MTA and record their preferred division of maintenance responsibility in the tenancy agreement.
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Withholding essential supplies and services: MTA prohibits the withholding or disruption of essential supplies and services by the landowner and prescribes penalty in the form of compensation to the tenant for non-compliance. However, to protect the interests of the landowner, MTA also prescribes penalty on the tenant if the Rent Authority finds that the complaint made by the tenant in this regard was frivolous or vexatious. Further, MTA also entitles the landowner to initiate eviction and recovery of possession proceedings against the tenant, should the tenant refuse to pay the rent accrued or fails to pay the rent (including interest for delayed payment) for two consecutive months from the date of service of demand. MTA prescribes that such eviction and recovery of possession proceedings are to be decided by the Rent Court within 90 days from the date of filing of application.
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Speedy Dispute Redressal Mechanism: MTA provides for a three-tier adjudication system comprising (i) Rent Authority, (ii) Rent Court, and (iii) Rent Tribunal. Rent Authority will be headed by an officer, not below the rank of Deputy Collector and appointed by the District Collector or District Magistrate with the prior approval of the State. Appeals against the orders passed by the Rent Authority may be made before the Rent Court, which will be headed by an officer, not below the rank of Additional Collector/Additional District Magistrate and appointed by the District Collector or District Magistrate with the prior approval of the State. The orders passed by the Rent Court can be appealed before the Rent Tribunal, which will be headed by an officer not below the rank of District Judge or Additional District Judge and appointed by the State in consultation with the jurisdictional High Court.
The order of the Rent Tribunal is final, and no appeal or revision lies over the Rent Tribunal. This is a departure from the existing rent control legislations, which provides the parties an option to appeal in the form of a revision petition against the orders of the Appellate Authority before the High Court. It may be noted that the MTA provides that the Rent Courts and Tribunal will not be bound by the Civil Procedure Code, 1908, but will be guided by the principle of natural justice and shall have the power to regulate their own procedure.
Further, the MTA provides for specific timelines to adjudicate disputes (including eviction and recovery proceedings) between the parties to ensure speedy dispute resolution. MTA states that the Rent Court/Rent Tribunal shall endeavour to settle disputes within 60 days (90 days for certain specific disputes) from the date of receipt of application/appeal and shall not allow more than three adjournments at the request of a party throughout the proceedings, without a reasonable and sufficient cause to do so. Further, in case of disputes where the tenant has parted with the possession of the premises without the consent of the landowner or the tenant has continued to misuse the premises even after a desist notice from the landowner, MTA requires the Rent Court and Tribunal to decide these disputes within 30 days from the date of receipt of application.
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Enhancement of Rent in case of refusal to vacate by the tenant: In a bid to safeguard the interests of the landowners, the MTA also provides that if the tenant refuses/fails to vacate the premises on the expiration of the tenancy or termination of tenancy by notice or order, such tenant will be liable to render enhanced rent to the landowner, which is prescribed at twice the monthly rent for the first two months and four times the monthly rent thereafter, till the tenant continues to occupy the said premises.
Conclusion
While the MTA appears to have struck a much required balance between protecting the interests of both the tenant and the landowner, and has also proposed necessary provisions to ensure quick dispute redressal, it is yet to take shape through its adoption by the Sates/UTs.
It is to be noted that while the MTA may be a step in the right direction for the rental housing sector, the MTA is silent on various practical aspects and how the States/UTs work to fill these voids in the MTA will be interesting to see. For instance, the MTA is completely silent on the treatment of leave and license agreements, which could be seen as a significant exclusion. Also, the definition of ‘force majeure’ in the present form, for the purposes of the MTA, does not expressly include ‘pandemic’, ‘epidemic’ or the like, which can be looked at by the Sates/UTs while adapting to the MTA especially in view of the present scenario.
For further information, please contact:
Siddhartha Iyer, Partner, Cyril Amarchand Mangaldas
siddharth.iyer@cyrilshroff.com
