The Model Tenancy Act was approved by the Union Cabinet on Wednesday, with the goal of "unlocking nearly one crore unoccupied properties" and bridging the trust gap between landlords and tenants. Setting up separate rent authority, courts, and tribunals in each district to enable quick dispute resolution and developing a fair procedure to update rents to safeguard renters from arbitrary increases while also considering the owners' economic interests are only a few of the measures.
The law aims to strike a balance between the interests of renters and tenants, who have long been protected against eviction and rent increases by legislation enacted decades ago, primarily to prevent landlord abuse of tenants.
The ministry had submitted the Bill in a note attached to the draft Act as a step toward Prime Minister Narendra Modi's aim of "Housing for All" by 2022.
The model law "has been prepared with the objective of balancing the interests and rights of both the landlord and tenant; and to create an accountable and transparent ecosystem for renting the premises in a disciplined and efficient manner," the note said.
These measures, while well-intentioned, stand in stark contrast to the outdated Rent Control Act 1948, which continues to govern tenancy in India's states in various forms.
What is the Tenancy Act?
According to the 2011 census, just 21 million (20%) urban houses were rented out. Conservative estimates project up to 1 crore residences are empty for various reasons. However, one factor that dampened investor/owner sentiment was the lack of a sound mechanism for resolving tenant-landlord disputes other than the extremely expensive and time-consuming approach of initiating a civil lawsuit. This, along with other reasons brought about the Model Tenancy Act.
The Model Tenancy Act is part of the government's goal to institutionalize rental housing by progressively moving it into the legal market. The government stated in a statement that it expects to boost private participation in rental housing as a business model for tackling the massive housing shortfall.
To avoid petty conflicts, the Act requires all new leases to have a written agreement, which must be presented to the local 'Rent Authority.' This means that the tenant's rent and length will be set by mutual agreement in a written agreement between the owner and the renter.
The reason for issuing only a model Act rather than establishing binding legislation in this circumstance is that Parliament cannot pass a binding law. Land is included in the State List of the Seventh Schedule, and according to Article 246 of the Constitution, state governments have sole authority to enact legislation about the State List.
It also gives tenants three months' notice before raising the rent to ensure that landowners may achieve the greatest possible price for their properties while also giving tenants the time to make appropriate arrangements in their best interests.
The model law asks for the establishment of a rent authority, a rent court, and a rent tribunal, while also stating that such issues will no longer be heard in civil courts.
As a result, it establishes a quasi-judicial framework for resolving disputes with pre-determined fast-track timetables for resolution.
To facilitate the filling of the rent agreement, the rent authority is required to create a digital platform in a local vernacular language or the language of the state or UT.
The rule also requires all tenancy arrangements made after the law is notified to have a rental agreement in place. The landlord and the renter must jointly communicate this arrangement to the rent authority within two months.
Rent and Security Deposit in the Tenancy Act
The model law contains no monetary cap for rent, allowing the parties to negotiate and sign the agreement on their own terms.
Additionally, according to the Act, if a tenant fails to vacate rented premises following the tenancy agreement, the tenant will be obliged to pay the landlord twice the monthly rent for the first two months, then four times till the latter continues to occupy the premises.
The law stated, "If the landlord fails to make any refund, he shall be liable to pay simple interest to the tenant at such rate as may be prescribed from time to time on the amount which he has omitted or failed to refund."
The landlord or his property manager must issue a signed rent receipt to the renter after each payment of rent. The bank acknowledgment, on the other hand, would be a solid confirmation of payment if the payment was made electronically.
According to the legislation, the sum of the security deposit cannot exceed two months' rent in the case of a residential property and six months' rent in the case of non-residential property.
The state government can also appoint a district judge or an additional district judge as the rent tribunal in each district, after consulting with the high court.
According to the Act, no landlord or property management can refuse to provide any essential supply to the tenant's occupied in the residential premises due to a disagreement or any other reason. Before performing any repair work that may disrupt utility service, they must provide residents a 24-hour warning.
What is a 'model' law?
An act is designated as a "Model" Act if uniformity is a desirable and ideal outcome, but not the primary objective, and the act can promote uniformity and minimize diversity even if a large number of jurisdictions do not adopt it in its entirety, or the act's goals can be substantially met even if it is not adopted in its entirety by every state.
A "model" law that applies to both residential and commercial tenancies. This means that it serves as a model for a law that states and Union Territories can adopt in its entirety, with modifications, or not at all.
Here is a video which talks about all rights of Tenants till 2019 and what Lease Agreements covered by rent control laws.