Model Tenancy Act & Its Impact
Subhankar Mitra, Managing Director, Advisory Services (India), Colliers.
About 28% of urban India lived in rented houses, according to Census 2011. The number has gone upward over the last decade because of rapid urbanization, which far outpaced the supply of affordable dwelling units in the cities. Despite having nearly one-third of cities living in rental houses, it never got much attention from the government. At present, rental housing is highly fragmented, unorganized, and burdened with cumbersome rules and regulations, resulting in bitter disputes between the Landlord and the Tenant. The Model Tenancy Act, which was drafted by the ministry of housing and urban affairs last year, now got approved by the government of India’s government. The government will now send the model act to the state governments, who can enact their law since housing is a state subject.
Few provisions in the act make it a powerful document in rejuvenating the sector. These are as follows:
- Standardization of Terms and Tenure: Earlier, there used various agreement formats between the Landlord and Tenant. The terms were imposed unilaterally and used to be interpreted differently in the absence of any standard document. The model act now eliminates all ambiguity and arbitrariness. It brings consistency on security deposits, termination of the agreement, rent escalation, etc., which were done arbitrarily.
- Right and Obligations of the Tenant and the Landlord: the model act clearly defines the do’s and don’ts of both the parties in a house renting process, which was otherwise very open-ended, vague, and often forced upon one party. Thus, the precise definition of obligations by both parties putting many potential disputes to rest.
- Setting up of Rent Authority: The rent authority is to play the role of adjudicator. Its’ role is to bring transparency by making the rent agreements registered and making it available online. The authority can intervene promptly to settle any dispute between the Landlord and the Tenant.
- Setting up of Rent Court: The Model act provides for setting up rent court, where aggrieved parties who are not satisfied with Rent Authority in any dispute resolution can approach the court-mandated to order a verdict in 60 days.
- It also protects the Tenant against unjustified eviction while protecting the Landlord from illegal possession of the house by the Tenant or from a structural threat.
The model document paves the way formalization of the vast rental housing sector. It is, in a sense, a RERA moment for the rental housing, which will make it possible for the institutions to get into the industry and own housing stocks that are given out on rent. India is likely to double its urban population over the next three decades. It will require a massive supply of housing. At least one-third of it needs to be directed towards rental ownership. The model document will provide a good base for the organized players to look at the sector positively. If the government takes the next step to provide cheaper financing and tax incentives for rental housing, it could become a viable REIT product. It would attract domestic and foreign investment.