Draft Model Tenancy Act: What’s In Store For Tenants, Landlords 

The government's draft model law for tenancy provides for a separate regulator and suggests how rent can be increased as the Modi administration looks to unlock housing and boost the rental market.

The Ministry of Housing and Urban Affairs put up the draft Model Tenancy Act, 2019—which aims to balance the interests of landlords and tenants—on its website for feedback from public and stakeholders till Aug. 1. It proposes to establish a rent authority by states, and addresses issues like tenancy agreement, how rent can be increased, the level of security deposit and repossession of property, among others.

The draft covers all kinds of tenancy-landlord agreements, according to property consultant Anarock. But since land is a state subject, each local government has the power to change and modify the rules, like in case of the Real Estate Regulation Act.

Here’s how proposals in the draft model tenancy law compare with the existing Maharashtra Rent Control Act, 1999.

Separate Regulator

Draft Law: It proposes setting up a Rent Authority and Rent Tribunal to handle tenancy-related issues.

Existing Law: These issues are handled by courts under the Presidency Small Causes Court Act, 1882.

Registration Of Agreement

Draft Law: Landowners and tenants are required to compulsorily sign a tenancy agreement with details like monthly rent, duration of tenancy, and then submit the document with the proposed authority.

Existing Law: Maharashtra requires registration only if parties ink an agreement.

Increase In Rent

Draft Law: It makes it mandatory for the landlord to file an application with the proposed authority to increase or revise rent.

• The landowner will have to send a written notice three months before the revised rent becomes due.
• If a tenant fails to send a notice to terminate tenancy, tenant shall be deemed to have accepted the increase in rent proposed by the landlord.
• No mid-term hikes allowed unless the two parties have agreed at the outset in the agreement.

Existing Law: It doesn’t allow any increase in rent if the tenancy is for a fixed period, unless it’s expressly part of the rent agreement. So, the draft and the existing law are similar on this aspect.

As of now, tenants have the right to challenge unilateral increases in rent, but the law doesn’t address the issue of apportionment, or distribution, of taxes and statutory levies.

According to Ameet Mehta, managing partner at Solicis Lex, there’s no specific threshold or limit to increase rent in the draft law. But the Maharashtra Rent Control Act stipulates that the landlord is entitled to a hike of 4 percent every year, he said.

Security Deposit

Draft: Deposit capped at two months of rent for residential properties and one month for non-residential properties.

Existing Law: Maharashtra doesn’t have any regulation on security deposits.

Overstaying Tenants

Draft: A penalty of twice the rent for overstaying by up to two months, and the fine goes up to four times the rent for overstaying for more than two months.

The draft law allows repossession of property by filing an application with the Rent Authority if the tenant fails to agree on the rent.

Repossession can also happen if:

• The tenant fails to agree on the rent.
• Rent arrears pile up for more than two months.
• The premises are required for construction, repairs or alterations.

Existing Law: The property owner has to file a case in the court for repossession.

Most of the state tenancy acts didn’t have effective deterrents for overstaying tenants, said Avikshit Moral, partner at Juris Corp. “The model act brings in strict penalty provisions.”

The draft model law’s penal provisions will dissuade the tenants from overstaying, giving landlords confidence to offer properties on rent, said Jayen Trivedi, an advocate who takes up rental law casts in the Bombay High Court.

Replacing Archaic Laws

The draft model act attempts to replace tenancy laws with standardised versions across the country. “Current rental laws are archaic as they don’t address the relationship between the lessor and the lessee realistically and fairly,” Finance Minister Nirmala Sitharaman said during her Budget 2019 presentation.

Rajeev Jain, spokesman for Ministry of Housing and Urban Affairs, said to BloombergQuint over phone, the existing rent control laws are restricting the growth of rental housing and discourage owners from renting out vacant home due to fear of repossession. One of the potential measures to unlock vacant houses is to bring transparency and accountability in the existing system, he said.

The government is looking to unlock more than 1.1 crore houses lying vacant in the due to inadequate rental laws that don’t safeguard owners’ interest, Anarock Property Consultants said citing 2011 census data. Mumbai has the highest number of vacant homes at nearly 4.8 lakh units, and may increase significantly by 2021.

According to Ramesh Nair, chief executive officer and country head of JLL India, with nearly 30 percent of households in urban areas staying in rented accommodation, this regulation will have a significant impact on the rental market.

Agreed Pankaj Kapoor, founder and managing director of the real estate consultancy Liases Foras. “If more supply comes, it will lead to healthy competition and make the rental market efficient.”

State Hurdle

Still, that won’t be easy. Since land is a state subject, every state and union territory will have its own land and tenancy laws.

“While the government lays down basic policies, exact rules will likely change within each state since land is a state subject,” said Anuj Puri, chairman at Anarock. “Like we saw in the highly lopsided rollout of RERA, the Model Tenancy Act, 2019, may lose its real purpose if states do not follow the basic guidelines and dilute them.”

Jain hinted as much. The Model Tenancy Act, 2019—like RERA—may needs several course corrections to reduce regional dilutions before it becomes a force to reckon with, he said. But states are free to either accept the act as is, make changes or not follow it altogether and conform to its existing provision, Jain said.

Existing Tenants Excluded

There’s another prickly issue. The draft says the model law will be prospective and isn’t applicable to existing tenants. In cities like Mumbai and Delhi, tenants pay token sums in prime locations as rents are frozen under archaic laws.

The beneficiaries won’t gain if this prospective law is not made retrospective, said Uday Wavikar, a Supreme Court lawyer.

Agreed Avikshit Moral, partner at Juris Corp. Even if Maharashtra government adopts the model tenancy act, it won’t have much effect in the state as this act is not retrospective. The practice these days is to offer larger commercial properties on lease under the Transfer of Property Act, and sign a leave and licence agreement for a residential property under the Easement Act, he said.

Most landlords go for leases or leave and licence agreements to avoid getting into any complications under the rent control act, according to Moral. “Here the law is not one sided and there is a pure contractual obligation between the two parties and the licensee has to leave the premises.”