In India, tenancy and property leasing-related matters usually fall under the purview of state governments. Although there are a number of acts that take care of the aforementioned issues, the question of rent and related matters lacked sufficient policy formulation. As a result of this ambiguity and lack of appropriate legal framework, the rental segment has faced myriad problems.
The latest example could be the problems that were raised by the onset of the COVID-19 pandemic across the Indian real estate verticals. While some tenants, who were affected by salary cuts or job losses, had to face evictions. The landowners, on the other hand, were forced to defer or lower the rents. In order to address such loopholes and to regulate rental housing by a market-oriented approach, a draft of the Model Tenancy Act was released in 2019.
The following article shall aim to provide a nuanced way of looking at the problems that plague the Indian rental accommodation segment and how much or how little the Model Tenancy Act contributes in tackling the issues at hand.
Shortcomings of the Rental Housing Sector in India
Alongside food and clothing, housing happens to be one of the basic necessities of human existence. However, the rising Indian population and the urban migration have led to increased demand and pressure on the housing sector that has been unable to support this change. Be it ownership or renting, affordable housing is still a dream for many, even though there has been stockpiling of properties in the highly-priced segment of real estate.
Even with the present Rent Control Laws that have been formulated by states, they do not seem enough for the regulation and monitoring of rental housing. Here are some other pitfalls associated with the rental housing segment in India.
1. Unambiguous Deposit Amount
The present norms and laws that govern the rental housing sector demand a security deposit at the start of the tenancy period. Since there are no regulations surrounding the security deposit amount, a lot of times landlords end up charging unfairly high deposits. This puts the tenants at the risk of exploitation. Besides, the present Rent Control Laws do not mandate the handing over of a rent receipt from the side of the landlord.
2. Standard Renting Method
The Standard Rent refers to the calculation of a fixed amount based on plot and construction costs. It fails to take into account the market value of property that is subject to change and evolution with time. This discourages property owners who are willing to invest in rental housing because the yield is extremely low, given a low rate of return. Moreover, in case of a legal proceeding related to the property, the law does not allow the landlord to rent out the property for the period of the proceeding.
3. No Code of Conduct for Tenants
There exists no such law that a landlord might turn to, for redressal in case the tenant misbehaves or decepts the warning for property vacancy. This might involve a long legal proceeding that is very time-taking. This is what demotivates property owners to enter the rental housing sector. Instead, they look for people who are interested in ownership
4. Absence of Dispute Redressal Mechanism
In case of a tenant-landlord dispute, the parties are required to move to civil courts. However, with burgeoning pending cases in the lower courts, the contending parties often find no relief for years. Not only does this impact the parties monetarily, but also reduces the confidence of tenants as well as landlords who want to invest in the renting segment.
5. Ambiguity in Existing Laws
Certain provisions under acts like the Transfer of Property Act, Leave and License Contract, etc, are very vague in terms of their scope. This makes understanding them confusing and they can be manipulated to the needs of the landlord or the tenant. Therefore, the renting business turns into a very ambiguous affair.
How Model Tenancy Act, 2019 Seeks to Address These Issues?
The draft version of the Model Tenancy Act was formulated with the aspiration of boosting the rental housing demand in India (commercial and residential) and for balancing the interests of the landowner and tenant. For this, the act brings forward several measures and stringent regulations that offer a win-win situation for both the parties. This ranges from mandating the establishment of adjudicatory bodies to maintenance responsibility.
| What is Rental Housing? “A property occupied by someone other than the owner, for which a periodic mutually agreed rent has to be paid by the tenant to the owner.” |
1. Setting up a Rent Authority
Under the present laws, all the rent agreements have to be registered at the sub-registrar’s office. However, the MTA now gives power to the states to set up rent authorities across cities. These authorities will be appointed by the district collector or district magistrate with the previous approval of the state governments or union territory administrations. The rent authority shall exercise control over matters relating to-
- Tenancy agreements
- Revision of rent
- Determining revised rent in case of dispute
- Deposit of rent with Rent Authority
- Repair and maintenance of property
- Duties of property manager
- Consequences of violation of duties and withholding essential service or supply
2. Establishing Rent Courts and Tribunals
One of the most significant provisions that has been added in the model tenancy act is regarding the setting up of segment-specific courts for dispute redressal. If any dispute arises, the parties concerned would first have to approach the rent authority. The parties can then approach the rent court or a rent tribunal (within 30 days of the verdict) as set by the district magistrate or district collector, if the order is not satisfactory. The act makes it mandatory for courts/tribunals to pass a verdict within 60 days.
3. Better Tenancy Agreement
In order to solve the issue of record maintenance and accountability, the Model Tenancy Act mandates the necessity of a written agreement, which shall be informed to the rent authority by the landlord and tenant jointly. This tenancy agreement has to be formulated within a period of 2 months from the date of the signing the rental agreement.
Once the rent authority has received information about the execution of the deal, it shall provide a unique identification number to the parties and upload the details of the tenancy on its website in local vernacular language or the language of the State/Union territory.
4. Capping Security & Rent Deposit
The Model Tenancy Act caps the security amount payable by the tenant to a maximum of 2 months in the case of housings and to a maximum of 6 months in the case of commercial properties. Besides, landlords are legally allowed to deduct the amount from the security deposit, if the tenant refuses to carry out scheduled or agreed repairs in the premises.
When it comes to the rent payable, the act mandates the landowners to give a notice in writing not less than three months in advance before revising rent. This provision efficiently deals with the issue of arbitrary rent hiking by landlords, thereby protecting the rights of the tenants.
5. Penalties with Regard to Essential Supplies & Services
Many times, it has been observed that the landlord or property manager withholds the supply of an essential service in the premises occupied by the tenant. Now, the Model Tenancy Act provides a stringent provision that bars landowners from cutting power and water supply in case a dispute arises with the tenant. More importantly, if the property owner wants to carry out repair works in the rented accommodation, a 24-hour prior notice has to be given to the tenants.
6. Prevents Squatting
The act also seeks to address the squatting or overstaying issue, where the tenant does not leave the rented accommodation, even after agreement expiry. In such cases, the tenant is liable to pay the landlord twice the set monthly rent for 2 months and four times the monthly rent for the months overstayed thereafter. This provision inculcates greater confidence in landlords when it comes to rental housing.
Drawbacks of the Model Tenancy Act
Even though the Model Tenancy Act solves a number of problems related to rental housing in India, it has certain drawbacks. Some of which have been enumerated below:
- The terms ‘Lessor’ and ‘Lesse’ used as substitutes for the terms ‘Landlord’ and ‘Tenant’ creates a sense of ambiguity when compared with the Lease Under the Transfer of Property Act, 1882.
- The scope of the Model Tenancy Act does not extend to lodging houses and hotels. Therefore, it is not clear how paying guest facilities will work.
- The act provides for redressal measures in case of any matter or dispute related to tenancies. However, it doesn’t talk about the legal issues pertaining to the tenancies that have already been in existence before the draft policy.
- The definition of ‘tenant’ does not include his/her successor in case of death. However, the same act also talks about the tenant’s successor getting all the rights specified in the tenancy agreement. This is an inconsistency that can be exploited by the tenant or the landlord.
- Additionally, the act gives no clear definition of the word ‘rent’ and the mode of payment for it (cash or kind or services). Besides, it also does not specify what happens in case the landlord refuses permission for subletting.
Way Forward
The Model Tenancy Act, 2019 is a progressive step in matters related to rent and rental housing in the Indian real estate sector. By combining a range of clauses covering aspects from security deposit to rent tribunals, the draft policy will aid in protecting the rights of the tenants as well as the property owners.
It also proposes the establishment of adjudicating authorities in an effort to lessen the burden on lower courts in the matters relating to tenancy. In doing so, it offers a comprehensive and well-structured approach to solving tenancy-related issues in India.
Although the provisions offer a win-win situation for both tenants and landowners, the scope can still be broadened. For instance, the draft policy should draw a clear distinction between residential tenancies and commercial rental accommodations, which attract higher institutional investments. Furthermore, the central and state governments can work in tandem to provide affordable rental housings. This will not only attract a lot of tenants but will also increase the supply of formal rental accommodations.
Taking all the factors into consideration, including the setting up of tribunals and courts, the act does bring transparency, fixes accountability, and promotes fairness in the rental housing segment.
