Model Tenancy Act 2019: Opportunities And Challenges

The rental market in India has long been ignored and has thus turned into an arena of dispute. Due to lack of proper legislation, tenant-landlord conflicts are quite common, resulting in a distorted rental market. Given this scenario, it’s no surprise that the recent formulation of the draft Model Tenancy Act 2019 has been welcomed by one and all. For the first time in decades, the government has given rental housing its due attention which may help it fulfil its vision of Housing for All.

The Model Tenancy Act aims to bridge the trust deficit between tenants and landlords by clearly delineating the obligations of tenants and landlords. To ensure speedy redressal of disputes, it proposes to establish Rent Courts and Rent Tribunals to hear appeals for matters connected to rental housing. Ultimately, the creation of a rental housing stock will help students, working professionals and the migrant population, at large, to find accommodation.

Why India Needs Rental Legislation

The rental market in India remains quite underdeveloped despite acute housing shortage. Simultaneously, the vacancy levels of homes in India has been on the rise.

These vacant homes could clearly feed the rental market across the country, but various factors have created roadblocks:

• Lack of rental policy: In the absence of a sound rental policy and proper rental contract implementation, tenant-landlord conflicts remain unresolved. Property owners find it challenging to evict tenants if they fall back on rent or misuse the property. To avoid dealing with these complications, homeowners often choose to leave their houses vacant rather than rent them out.
• Low rental yield: The rental yield accrued from residential property in India remains low and does not exceed single digit figures for major cities. There is no major incentive for homebuyers to invest in a second or third home as the rental income is not attractive enough.
• Lack of demand in far-flung areas: Vacancy rates increase as we move further away from the denser urban areas. There are very few takers for homes in the most far-flung areas. Even if rents are very low in these areas, many of these areas are simply not liveable because they lack the necessary infrastructure.
• NRIs hesitate to lease properties: They find it challenging to lease properties in terms of finding the right tenants, managing rental agreements and property maintenance. They also prefer to leave their homes vacant in case they return to India. NRIs avoid leasing their residential properties for fear of squatters and dealing with the legalities of eviction.

Proposals Favouring Both Tenants And Landlords

Considering these issues, there was a dire need for the government to relook at rental laws and propose guidelines that enforce rental contracts and protect the rights of landlords as well as tenants. As per the new draft Model Tenancy Act, 2019, the government has laid down the following new proposals:

• Security deposit has been capped to a maximum of two months’ rent in case of residential property, and a minimum of one month’s rent in the case of non-residential property.
• The landlord is entitled to get a compensation of double of the monthly rent for two months and four times of the monthly rent thereafter if a tenant does not vacate the premises after tenancy has been terminated by order, notice or as per agreement.
• The landlord cannot indulge in mid-term hike in rentals or cut-off or withhold essential supplies or services like electricity, water, etc.
• The property owner must give prior notice of three months before revising the rent value.
• The tenant cannot sublet a part of or the whole property to someone else.
• It’s the landlord’s responsibility to rectify structural damages and undertake measures like whitewashing walls and painting doors and windows.
• The proposed rent authority must be informed about the rental agreement within two months of its signing.
• An officer of the rank of deputy collector will act as rent authority to adjudicate any issue arising out of a rental disagreement.

Problems In Implementation

While the proposals in the Model Tenancy Act have been widely welcomed, their implementation could be far from simple. The Act is not binding on the states as land and urban development remain state subjects. It is still a matter of choice for states and Union Territories to repeal or amend their existing Acts. Like in the case with RERA, the fear is that states may choose not to follow guidelines, diluting the essence of the Model Act.

Another pain point could be the cap on the security deposit which is not likely to find favour with many landlords. In cities like Bangalore, the norm is a ten-month security deposit as a two-month deposit is unlikely to cover any damage to the property or a default in rent payment by the tenant.

Step In The Right Direction

Despite these challenges, The Model Tenancy Act must be lauded and is a step in the right direction. It provides a clear roadmap for states to follow and tweak according to their local conditions and market.

For example, Tamil Nadu already came out with its Tenancy Act in February and may or may not follow the Model Act. A fair and balanced tenancy law protecting the rights of all parties will go a long way in formalising and stabilising the rental market. If enforced by states in letter and spirit, it could revive the fortunes of not just the rental market but the housing sector at large.

Anuj Puri is the Chairman at ANAROCK Property Consultants.

The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.