BW Legal | 20 July, 2021
In the backdrop of around 11.1 million houses lying vacant in urban areas as per Census 2011 and with an objective of (i) establishing a Rent Authority to regulate renting of premises, (ii) to protect the interests of landlords and tenants and to (iii) provide speedy adjudication mechanism for resolution of disputes, the Union Cabinet recently (on June 2, 2021) approved the Model Tenancy Act 2020 (MTA).
The Government had first released the draft of the act in 2019.
States will now make tenancy laws in line with this approved draft or amend the existing laws in compliance with the MTA.
Some of the striking features of this new Act is as follows:
- No premises to be rented except by an agreement in writing on mutually agreed terms between landlord and tenant which shall be binding on successors of both landlord and tenant;
- Rent to be fixed by mutual agreement between landlord and tenant;
- Cap on Security Deposit;
- Applicable prospectively to both residential and commercial tenancies and to whole State/UT;
- MTA to applicable to all tenancies with no monetary threshold, unlike the existing rent laws;
- Sub-letting shall not be permitted without permission from landlord vide supplementary agreement;
- MTA recognizes force majeure event;
- Establishes “Rent Authority” that will regulate the renting of premises. Once the property owner and tenant sign the agreement, they will need to inform the rent authority within two months of signing it;
- MTA proposes to set up Rent Court and Rent Tribunals to resolve disputes.
- The MTA says that if a landlord has fulfilled all the conditions stated in the rent agreement – giving notice etc. – and tenant fails to vacate the premises on the expiration of the period of tenancy or termination of tenancy, the landlord is entitled to double the monthly rent for two months and four times after that;
- Recognizes the “Property Manager” and defines its duties and liabilities.
Let us now understand the provisions of the MTA from the perspective of Landlord & Tenant and also discuss role of the new authorities/ courts created under the MTA and analyze the challenges that may still be pegging the rental realm down.
RENT AGREEMENT IN WRITING:
After the commencement of the MTA, no premises can be put on rent except by an agreement in writing.
CAP ON SECURITY DEPOSIT:
As per MTA, the Security Deposit for residential premises is capped at 2 month’s rent and that of commercial premises at 6 months.
HIKE IN RENTAL:
The hike in the rental shall be only in accordance with the rental agreement.
NOTICE TO ENTER:
Save and except emergent situations like war, flood, fire, earthquake, cyclone etc., Landlord or the property manager can enter the rented premises only after serving a prior written notice of 24 hrs. on the tenant and for carrying out repairs/replacement or inspection or for other reasonable cause. However, no person shall be allowed to enter the premises before sun rise or after sunset.
NO ARBITRARY EVICTION OF TENANT:
No tenant can be evicted from the rented premises except by the order of the Rent Court and only under certain specific circumstances as detailed in MTA.
NO WITHOLDING OF ESSENTIAL SERVICES
No landlord or property manager shall, either by himself or through any other person, withhold any essential supply or service in the premises occupied by the tenant
STAY DURING FORCE MAJEURE EVENTS:
In case if the tenancy expires at a time when the locality where the rented premises is situated is affected by any disastrous events of “force majeure”, then subject to requisition by the tenant, the landlord shall allow the tenant to continue in possession of the said premises till a period of one month from the date of cessation of such disastrous event on the same terms and conditions of the tenancy agreement already entered into.
FROM THE PERSPECTIVE OF LANDLORD
OVERSTAY BY THE TENANTS
MTA provides that in case the tenant fails to vacate the rented premises on expiry of the tenancy agreement either on its expiry or termination as per the provision of the tenancy agreement, then the tenant shall be liable to pay the landlord twice the monthly rent for first two months and 4 times the monthly rent thereafter, till such time the tenant continues to occupy the premises.
This is expected to act as a deterrent for overstaying by the tenants which is not so unusual in the Indian rental market.
The MTA provides that no tenant shall be able to sub-let whole or part of the premises or transfer/assign his rights in the tenancy agreement or any part thereof, save and except by entering into a supplementary agreement with the landlord.
EVICTION OF TENANT IN CERTAIN CASES:
MTA empowers the landlord to approach Rent Court in helping evict tenant in certain circumstances
REGULATION OF TENANCY AND DISPUTE RESOLUTION:
Just like the RERA, the MTA proposes that each state shall set up its own Rent Authority, Rent Court and Rent Tribunals, for regulating the relationship between landlord and tenant and for fast track and exclusive resolution of disputes between them. The rent court/rent tribunal shall decide the dispute within a period of sixty (60) days;
FINAL DRAW: THE ROAD AHEAD:
Although, MTA appears to be a good initiative of the Government in the right direction to bring the rental market towards institutionalization and under codified governance. The fact that MTA is applicable across the nation be it rural or urban India and also that there is no monetary threshold for its application suggest that, the Government is planning to bring a uniform policy to stabilize the rental business and hence attract the private players for its capitalization. However, only time will tell how long it will go to prove its worth as there are challenges that galore:
- Firstly, given that land is a state subject, the eagerness, pace and the extent to which the State Governments will participate and draft new rental laws or modify their current ones will depend on many local and geo-political factors prevailing;
- The MTA is prospective in nature which means that the long-drawn disputes plaguing the existing tenancies will not be within MTA ambit;
- The Security Deposit cap of 2 month’s rent for residential units and 6 month’s for commercial units may not be boosting the confidence of the landlords especially in the urban metro spaces in the long run.
- The MTA may not seem to be creating any big and direct impact on rental yield and hence may not be able to completely turn the table in terms of private participation, as it is expected to.
Finally, if embraced and implemented in its true spirit, the MTA will from the point of view of creating a level playing field and codifying the relationship between landlord and tenant, safeguarding both parties, either in case of overstay or wrongful eviction, for faster and exclusive resolution of disputes, and many more, definitely go a long way to create a prelude to what could be a journey towards more organized and disciplined Rental Business in the Country.
Disclaimer: The views expressed in the article above are those of the authors’ and do not necessarily represent or reflect the views of this publishing house