The Model Tenancy Act will enable institutionalisation of rental housing by gradually shifting it towards the formal market.
In the absence of a formal and regulated rental tribunal, the disputes and mistrust between owners and tenants in the rental sector have been high. To the extent that a large number of owners decided not to rent the property and keep them vacant. The recently-approved Model Tenancy Act (MTA) aims to bridge this chasm by streamlining India’s rental landscape and bringing rental laws into the 21st century.
Here’s taking a look on how the Act aims to identify and arrest discrepancies.
What is the Model Tenancy Act? A quick explainer
The Act, which is seen as a long overdue update to the Rent Control Act of 1948, aims to rid the rental sector of arbitrariness and bridge the gap between landlords and tenants by way of formal and written agreements thereby dismissing verbal contracts, in addition to many other things. According to the government, the MTA “aims at creating a vibrant, sustainable, and inclusive rental housing market in the country.” It will achieve this by creating “adequate rental housing stock for all the income groups thereby addressing the issue of homelessness. Model Tenancy Act will enable institutionalisation of rental housing by gradually shifting it towards the formal market.”
The rental market has so far been subject to primitive laws that prevented the flourishing of a quality rental market owing to the lack of clarity and stability in the system which discouraged owners from renting out their houses. First drafted in 2019, the Model Tenancy Act is intended to aid the rental estate market and overhaul the legal framework around it. The Act seeks to bring vacant properties to market, counter procedural bottlenecks in registration, increase rental income, and provide housing for fast urbanising India. Some of its top provisions include:
The end of (verbal agreements) ambiguity
Verbal agreements, which dictated the terms of most rental agreements, were often a cause of strife and petty disputes between the stakeholders. To rectify this problem, the Act mandates for written agreement by mutual consent between the owner and the tenant. The agreement will detail the duration of the tenancy, acceptable practices, the rent amount, etc., and submitted to the district ‘Rent Authority.’ To facilitate this, the Act requires the installation of a digital platform in the local vernacular language for the submission of all the important documents.
An easier grievance redressal process
In line with the provisions of the Act, states that choose to implement it will be required to set up a three-tier grievance redressal system for a more equitable and transparent dispute resolution process. A district-level judge will oversee dispute resolution. In case a dispute arises, the aggrieved party will first approach Rent Authority, before approaching the higher tiers: ‘Rent Court’ and ‘Rent Tribunal’.
The biggest fear any landlord had was that tenant may squat on the property and then he would have to go through a long legal battle to get his property back. But, with a clear timeline of 60 days for solving any dispute, the law gives a lot of confidence to the landlords.
Clear demarcation of responsibilities
The biggest area of dispute used to be around the maintenance and arbitrary charges deducted by landlord from the security deposit. The new Act has balanced the scales through clear delineation of landlord and tenant responsibilities. Unless agreed otherwise in the written agreement, the landlord will take charge of structural repairs, whitewashing, painting of doors and windows, and plumbing and electrical maintenance, among others. The tenant, on the other hand, will take responsibility for any repairs on damage caused by them, alongside activities including drain cleaning, repair of switches, sockets, kitchen fixtures, replacement of glass panels, maintenance of gardens and open spaces, etc.
The new law also prevents the subletting of property by the tenant without the landlord’s consent. MTA disbars any structural change to the property by the tenant without the landlord’s consent while delineating provisions for vacation of property by the tenants.
Provisions for the protection of tenants’ rights
The Act has lowered the cap on security deposits by a tenant to two months. The Act prohibits the landlords from withholding essential supplies for any reason. MTA also mandates for a 24-hour notice to be served to the tenants before any repair work is carried out on the property that may curtail the supply of utilities, structural repairs by the landlords, etc. In the case a landlord fails to refund the rent, they will have to pay simple interest on the refund amount to the tenant at regular intervals. Furthermore, the law ensures that tenants can’t be evicted during the tenure of their tenancy unless the details of it are furnished in writing by both parties. The Act also mandates a three-month notice before a hike in rentals to safeguard the economic interests the tenants.
A much-needed boost to strengthen the rental landscape
Through this law, the government plans to make the real estate sector more conducive to the creation of a migration-oriented society while facilitating a 50-50 distribution between rental and owned property. If followed in letter and spirit, the law can be the key to unlocking a huge stock of vacant properties as a way of bridging the massive housing shortage which disproportionately affects Indians from low- to middle-income groups. It had noted that according to the 2011 census, around 110 lakh houses were lying vacant.
MTA marks a watershed moment in the Indian real estate market. Its implementation can lead to several constructive developments such as uniform legislation across all states; protection of tenant and landlord rights; and a clear demarcation of stakeholder responsibilities and provisions. It is the solution to a problem too long in the tooth and may just prove to be the silver bullet required for the rejuvenation of India’s rental real estate by unlocking the vacant houses for rental purposes.
(By Saurabh Garg, Co-Founder & CBO, NoBroker.com)