India - The Model Tenancy Act, 2020: A Blessing For Homeowners And Developers.

Legal News & Analysis - Asia Pacific - India - Construction & Real Estate

10 June 2021

 

On 2nd June, 2021 the Union Cabinet gave ascent to the Model Tenancy Act (MTA) for circulation to the states and union territories for adoption. The main aim of this act will be to open up vacant housing stock for rental housing purposes and to establish a policy to heal the trust deficit between landlords and tenants. The act will apply to residential, commercial as well as educational use properties in rural as well as urban areas, but not to industrial use properties or hotels, lodging houses, inns etc.
 

Why do we need the MTA?
 

The previous regulation on Rental properties was formed all the way back in 1948; a lot has changed since then. There are many factors in the existing legislation that has reduced the interested people in giving out their homes on rent or lease. Owners are weary that tenants may not vacate the premises, may damage the property or even refuse from paying rent. With no speedy dispute resolution mechanism in place, their property could be locked up in court proceedings for multiple years.
 

NRIs being far away from the property find it really difficult to manage tenants and thus prefer to leave their homes in India vacant collecting dust, than to let it out on rent for menial income and marginal risks. For all of these reasons, there is now a relative housing shortage in the country, and this new policy framework could be the correct step towards the government’s “housing for all” goal.
 

MTA’s focus itself is to boost rental housing and reduce rental litigation by providing a well rounded rental policy to enforce rental contracts and resolve tenant-landlord disputes in a sound manner. This should ideally attract more investors which would mean more rental housing stock and hence help more of the population find urban accommodation. Once a propitious policy framework for rental housing is enacted, it will attract corporate investors and a lucrative proposition foreign direct investment as well as appreciation in the property value.
 

Key Features of the Model Tenancy Act

 

The model act is divided into eight chapters with each segment covering an important issue that wasn’t clearly tackled in the previous version of the act. The states and Union Territories will have the freedom to decide whether they want to amend the existing legislation or enact fresh legislation. 
 

Being prospective in nature, any tenancies existing before the commencement of the act would not be affected by the update, which means that it will not solve any issues of the existing owners of property whose tenants have settled down in their premises for absurdly low rents.
 

An interesting concept brought about by this model act is the formation of Rent Authorities, Courts and Tribunals which will regulate their own procedure guided by the principles of natural justice and provisions of the act. These bodies will have sole jurisdiction over rent related matters and must resolve disputes within 60 days from the first application. This provision for expedient dispute resolution itself will impulsively attract investments in the business of rental properties, as owners feel safer and protected in case of dispute, unlike the previous legislations that allowed the disputes to go on for multiple years and the property stayed stuck for all that time.
 

No one will be permitted to rent out any premises except by an agreement in writing and it will be mandatory to register the rent agreement with the district rent authority to be entitled to relief under this act. The tenant will also no longer be allowed to sub-let the property or any part of it without entering into a supplementary tenancy agreement which shall also be registered. In case of the death of either party, their successor will have the same rights for the remaining period of the tenancy agreement.
 

The act sets out limitations on the security deposit as a maximum of two month’s rent for residential properties and a maximum of six month’s rent for commercial properties, a provision that did not exist before. Also, revision in rent shall not be permitted in the middle of the tenure unless it is stipulated in the agreement. Even to hike the rent for the next tenure, the landlord must give a notice three months in advance, and the tenant if fails to give notice of termination of tenancy, will be deemed to have accepted the revised rent. This puts control back in the hands of the owner, to be able to let his property at his own terms. In case of any dispute regarding revision of rent, the Rent Authority will make a decision.
 

Rights and obligations of the Tenants as well as the landlords has been balanced and more specifically laid out under this model law, to reduce the possibility of disputes entirely. There is also a whole chapter for eviction and recovery of possession of the premises by the landlord, which was not given as much importance in the previous regulations. The tenant will be liable to vacate the premises if he does not agree to the revised rent notified to him by the landlord in the correct manner as provided in the act.
 

Rights & Obligations
 

The tenancy agreement will be signed in duplicate by both parties, and each party shall have the right to retain an original copy. The Rent Authority will accept deposits of rent in cases where the landlord may not be reachable or where the tenant may not know whom to pay etc. The Rent Authority will then enquire as to whom the rent is payable and pay the sum forward as the authority may deem fit.
 

The responsibility to repair and maintain the property will be specifically divided between the landlord and the tenant as provided in the act, if the tenancy agreement doesn’t speak on it. It will be the duty of the landlord to whitewash the walls, paint the doors/windows, changing and plumbing pipes, maintenance of electrical wiring and any structural repairs except those caused by the tenant. The tenant on the other hand will have to manage drain cleaning, repairs kitchen fixtures, switches and sockets, replacement of glass fixtures and the maintenance of gardens and open spaces by themselves. The tenants must also not intentionally or negligently damage the premises or permit such damage to be caused to the property, and in case of any damage, they must notify the owner as soon as possible.
 

A new role has been defined and provided in the model act by the term “Property Manager” who will be the authorized agent of the owner only with respect to the management of the rented property with such powers as may be allotted by the owner under the act including collecting rent, inspecting the property, and giving notices to the tenant on behalf of the landlord. The landlord will now have to give a 24 hour notice to the tenant to enter the property while in tenancy, and he will also not be allowed to withhold essential supplies or services in any case. But with all the new provisions and alternate redresses, the owner will not feel need to take such extreme steps anyway.
 

Eviction and Recovery

 

A tenant cannot be evicted during the continuance of the tenancy unless it is provided in the agreement, but a landlord may apply to the Rent Court to make an order for recovery and repossession on the grounds that rent or arrears weren’t paid, the tenant is misusing the premises or has parted with the possession of part or whole of the premises or when the landlord needs to carry out necessary repairs etc. and the Rent court will expeditiously pass an order as it may deem fit.
 

When the tenant refuses to vacate the premises even after the expiry of the agreement, or after an order or notice of termination of the agreement under the act, the tenant shall be liable to pay the landlord twice the monthly rent for each month for the first two months from the expiry, and four times the monthly rent thereafter for every month that he occupies the premises. But if the tenant has not been notified to vacate the premises, the tenancy agreement will be assumed to have been extended on a monthly basis for up to six months with the same terms.
 

Concluding Comments
 

The model act seems to be in the interest of the owners of the property as they will have the security of the property and the law will now help them to get the property back once the agreement ends. There are a number of investors who already invest in the real estate industry as a safe bet, getting only the returns they receive on the value of the property going up. Even more investors will be willing to invest in properties once their fear of not getting back the property after leveraging is eradicated.  
 

The implementation of laws is relatively challenging due to the multiple levels of bureaucracy they have to pass. In the present case, land and urban development falls under the state’s list of powers, so the centre can only recommend these laws and the final decision lies in the hands of the states whether to adopt the guidelines or ignore them. Despite these proposals being widely welcomed, there are certain aspects that the act failed to touch on; one of them being the nationwide urban-housing shortage. People would prefer to stay closer to their workplaces, and the government can help the working population by creating a public housing policy along with the MTA.
 

Whatever the law may be, it is to be remembered that when normal day to day living is not subsidized, a major reform still needs to be carried out for tenant premises: compulsory conversion of tenant property buildings into cooperative housing societies. The members would be required to contribute to the safety and security of common areas as well as the upkeep of society. This will not only benefit the society, but also create benefit to the state as the expenses of running the municipality can then be charged uniformly to all.
 

herbert smith Freehills

 

For further information, please contact:

 

Krrishan Singhania, Managing Partner, Singhania & Co

[email protected]