MODEL TENANCY ACT: PANACEA FOR HOUSING SHORTAGE?
ON PAPER, THE RECENT CABINET APPROVED MODEL TENANCY ACT SEEMS TO SOLVE THE URBAN HOUSING PROBLEM, BUT IN PRACTICE, IS IT TRULY SO
The Centre approved the Model Tenancy Act (MTA), 2021 with a provision to set up district-wise rental courts, authorities and tribunals across the country. The Act will be adapted by all states and UTs by way of enacting fresh legislation or amending existing rental laws.
According to the 2011 census, India has over 1 crore units which are lying unutilized. According to Minister of Housing and Urban Affairs Hardeep Singh Puri, the MTA will unlock vacant houses for renting purposes and promote private participation in addressing the housing shortage.
Being a model Act, MTA approval by the Centre is not binding on states. One should not expect any changes on the ground, unless the respective states enact a law based on it or amend their existing laws to adopt it verbatim. Also, the Model Tenancy Act does not have retrospective effect, which means it will not be applicable to any existing contracts.
WHAT IS MODEL TENANCY ACT 2021?
The MTA is a regulatory framework for residential and commercial, urban and rural housing. According to MoHUA, the existing rent control laws are restricting the growth of rental housing and discourage owners from renting out their vacant houses due to fear of repossession. The model code aims to encourage owners to put their property on the rental market by bringing transparency and accountability in the existing system of renting of premises and to balance the interests of both the property owner and tenant in a judicious manner.
The MTA requires states to establish a rent authority that will regulate the renting of premises. Once the property owner and tenant sign the leave and license agreement, they will need to inform the rent authority within two months. The proposed authority will issue a unique identification number. In case of disputes, the authority will take a decision based on the facts that were submitted.
IMPLEMENTATION IS THE KEY
While the Act can help organize the rental market giving owners and tenants equal rights, the essence will lie in how each state implements it. There are Rent Control Acts, implemented in different forms in all States and Union Territories (UTs) that regulate tenancy operations. For example, Delhi has the ‘Rent Control Act 1958’, Maharashtra has the ‘Rent Control Act 1999’, and Chennai has the ‘Tamil Nadu Buildings (Lease and Rent Control) Act, 1960. Given that MTA is left to the states to modify and implement it, its efficacy will have to be seen in the coming times.
The biggest fear as per realty experts is the dilution of the Act by States as was seen in the case of RERA as well. The states might weaken the norms as per their convenience. Also, to come into practice, timely enforcement is essential which is again up to the state governments. RERA took years for proper implementation and the homebuyers still feel that it has been far from being effective in protecting the buyer’s interests.
The cap on the security deposit might turn out to be a pain-point for the landlords as in some cases, a two month security deposit might not cover the landlord’s expenses of repair or losses due to non-payment of the rent. The aspects of alternate use of the property by tenant and timely property maintenance by the owner too have been overlooked in framing the guidelines. Property Consultants also point out the lack of clear definition of terms and certain conditions such as the clear meaning of a “Habitable” house, or what would be the interest penalty in case of landlord’s delay in returning security deposit etc.
RECOMMENDATIONS OF THE ACT
MTA is part of the Concurrent List, where it’s desirable for states to implement it uniformly, but it’s not mandatory. The Act is more of a policy guideline for states and not the prescribed limits by the Centre. Some of the major provisions mentioned in the Act are –
- A written agreement will be required between the owner and tenant for rent and duration of tenancy which is to be submitted to the district’s rent authority
- The Act caps the security deposit to a maximum of two months’ rent for residential properties and a minimum of six months’ rent for non-residential ones.
- Unless stated otherwise in the tenancy agreement, the landlord will be responsible for structural repairs (except those caused by the tenant).
- Any intentional or negligent damage to the property would be the tenant’s purview.
- Tenants will not be evicted during the tenancy agreement period unless otherwise agreed to in writing by both parties
- Tenancy will be deemed to be renewed on a monthly basis if the premises are not vacated and the tenancy not renewed.
- If rent revision is not in the agreement, the landowner can give a three months notice before the revised rent becomes due.
- If the tenant fails to give a notice of termination, they must accept the proposed revised rent.
- In case there is a force majeure (events like flood, quake), the owner must allow the tenant to continue possession of the house for a month after the cessation of such an event.
- In the event of the tenant defaulting on vacating the property, the landlord is entitled for double the monthly rent for the first two months and four times the monthly rent subsequently.
- In the Model Tenancy Act, the dispute resolutions are time-bound. An order must be passed within 60 days
ROADLOCKS ON THE WAY
Claiming the Act will have an adverse impact on the 25 lakh tenants in Mumbai, the Shiv Sena leaders claim there is no need for a new Act to regulate rent. For that, the existing Bombay Rent Act and Maharashtra Rent Control Act is competent and complete. According to the party, the new rent Act proposed by the Centre is not in the interest of tenants.
Tamil Nadu Builders Association representatives believe that the Central Act is not feasible as it is difficult to register each and every agreement. It would have been better if the Act specified that rents above `25,000 or property above 2,000 square feet be registered. Ensuring that all the agreements are registered online will be a difficult task. It was in February 2019 that Tamil Nadu Regulation of Rights and Responsibilities of Landlords and Tenants Act, 2017 was notified during the previous AIADMK regime and with the Union government approving the MTA in 2021, the question remains whether the State Act will be notified again.
The majority of landlords and real estate agents in the national capital lauded the Model Tenancy Act, however some are of the view that the new law would enhance confusion. Homeowners will not be interested in giving their properties on rent as the capping of security deposits is an issue.
RENTAL REGULATIONS IN OTHER COUNTRIES
In a number of other countries, regulated and non regulated rents co-exist in the private rental sector. In Australia, Austria, Canada, Denmark, France, Germany, Ireland, Japan, Mexico, the Netherlands, Sweden and the United States, rent controls apply to a portion of the housing stock. The rate at which rent levels can be increased during the term of a contract and/or the frequency of such increases is regulated in 23 countries.
- In Australia and Mexico, for instance, each state/ province operates differently.
- In the Netherlands, all dwellings with a rent below EUR 737.14 per month (in 2020) are regulated and there are maximum rent increases and other regulations (e.g. rent reductions in case of quality issues).
- In France, the ELAN law of 2018 authorizes agglomerations with tight housing markets to pilot a rent control measure for five years, whereby the initial rent levels are determined within a benchmark range (with some exceptions). The city of Paris was the first jurisdiction to implement the measure in 2019, and the European Metropolitan Area of Lille implemented the measure in March 2020.
- In Germany, regulated rents apply to rental dwellings in areas where there is pressure on the housing market, whereby rent levels may only exceed the benchmark rent of the area by up to 10%.
- In the United States, rent control measures have been introduced in some major cities but are not uniformly applied at national level.
THE ACT IF IMPLEMENTED IN ITS TRUE SPIRIT CAN BE A HARBINGER OF POSITIVE CHANGE IN THE RENTAL HOUSING LANDSCAPE OF INDIA. ESPECIALLY FOR NRIS, THE PRESENCE OF SOUND RENTAL LAWS AND TIME BOUND LEGAL REPRIEVE WILL BOOST THEIR CONFIDENCE IN INDIAN REAL ESTATE FOR BUYING AND RENTING. THE ACT FAILS TO RECOGNIZE THE ROLE OF PROPERTY BROKERS IN TERMS OF THE DEFINITION OF THEIR RESPONSIBILITIES, LIABILITIES AND COMPENSATION FOR A TRANSACTION.
Lease Features – With regards to the term and duration of lease in most countries the terms can be freely negotiated between the tenant and landlord. The most common rental duration across the OECD is one year (9 countries). The typical rental duration is generally less than one year in Canada, Ireland, Poland and the United Kingdom. In Denmark, Germany, Luxembourg, the Netherlands and Sweden, most rental contracts are open-ended.
Landlords are often allowed to take a deposit equal to 3 months of rent (10 countries), but larger deposits up to a half a year of rent exist as well (4 countries). Greece, Ireland, Latvia and the Netherlands do not have a specific maximum deposit level, while deposits are not commonly used in Colombia and Sweden.
Rules On Rental Housing Quality – Many countries have regulations in place to ensure a minimum level of quality of rental dwellings. A minimum dwelling size is required in certain cities like Austria, applies only to dwellings built with public support in Switzerland and to specific sizes for rooms and apartments in Finland. Several countries also report additional minimum standards regarding the cleanliness of the building as well as the functioning of different aspects of the dwelling.