Cabinet Approves New Model Tenancy Act and How It May Impact You

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Cabinet Approves New Model Tenancy Act and How It May Impact You

Key Factors:-

Tenants who live in a residential area would be obliged to carry a security deposit of up to two months' rent, while Tenants who live in the commercial areas would be obligated to deposit a security deposit of six months' rent.

According to real estate experts, the Act can increase rental housing supply by attracting more investors, and a larger rental housing stock will help students, working professionals, and migrant groups in finding urban residences, especially in COVID-19-like scenarios.

Only the rent court, not the civil court, will have jurisdiction over applications involving landowner-tenant disputes and similar issues.

The Ministry of Housing and Urban Affairs presented a proposed model tenancy law in July 2019.

The Act is expected to make it simpler to unlock abandoned properties for rental purposes.

The National Conference of Commissioners on Uniform State Laws drafted a Uniform Residential Landlord and Tenant Act, which will be implemented in all states.

 

Brief

The Union Cabinet enacted the Model Tenancy Act on Wednesday, with the intention of enacting significant reforms such as the creation of separate rent authorities, courts, and tribunals in each district to protect both the landlord and the tenant's interests.

Residential tenants would be obliged to carry a security deposit of up to two months' rent, while commercial tenants would be required to pay a security deposit of six months' rent. To comply with the Model Tenancy Act, states and union territories can either establish new laws or amend their existing rental rules.

Private engagement in rental housing as a business model for tackling the country's severe housing issue will be expanded, according to the administration. All new tenancies must have a documented agreement that is to be presented to the 'Rent Authority' of the respected area. 

According to the administration, the MTA would apply prospectively and will not affect current tenancies. The rent and the period of the lease should be agreed upon between the owner and the tenant in a written agreement.

It also plans to create an independent organization in each state and union territory to register tenancy agreements. Only the rent court, not the civil court, will have jurisdiction over applications involving landowner-tenant disputes and similar issues. It requires that complaints and appeals be resolved within 60 days by the Rent Court and Rent Tribunals.

How it impacts Residential And Commercial Properties:-

The Act will apply to rented properties for residential, commercial, or educational uses, but not to properties rented for industrial use. Hotels, lodging houses, inns, and similar facilities are also excluded. Current tenancies will not be impacted by this model law because it will be implemented prospectively. It strives to cover both urban and rural settings.

 

How Would States Go About Implementing It?

According to the memorandum of agreement agreed between the states and union territories under PMAY-U, states and union territories will establish or amend existing rental laws in line with the Model Tenancy Act.

Why it was Considered to be Necessary?

The Ministry of Housing and Urban Affairs presented a draught model tenancy law in July 2019.

Without a well-rounded rental policy and appropriate implementation of the rental contract, there was no viable way to solve tenant-landlord issues. Landlords find it difficult to remove tenants who violate the property. Property owners typically choose to keep their houses unoccupied rather than rent them out to prevent such problems. The rental income is unattractive.

Even in India's larger cities, the rental income on residential property is extremely low. It is calculated as a percentage of the capital value and varies from 1.5 to 3%. As a result, many have been discouraged from owning second or third homes that may be rented out.

NRIs have traditionally found it difficult to rent out their properties because of the difficulties of locating reliable renters, negotiating rental agreements, and taking care of property maintenance. In the event that they return to India, they typically opt to leave their properties unoccupied. NRIs avoid leasing their residential homes for fear of occupants and dealing with the processes of eviction.

Key points of the Act

If a tenant fails to vacate rented premises in accordance with the tenancy agreement, the tenant must pay the landlord twice the monthly rent for the first two months, then four times till the latter continues to occupy the premises, according to the Act.

If the landlord fails to make any return, he is responsible to pay the tenant simple interest at the rate stipulated from time to time on the amount he has omitted or failed to refund.

If the owner and the tenant have a conflict, they must first approach the 'Rent Authority.' If a party is unhappy with the Rent Authority's judgment, they can appeal to the 'Rent Court,' and then to the 'Rent Tribunal.'

According to Union Minister of Homes and Urban Affairs Hardeep Singh Puri, the proposal would help reform the legal framework for rental housing across the country. At a press conference, Puri noted that the 2011 Census indicated that more than 1 crore residences in metropolitan areas throughout the country were vacant.

Making 1 crore vacant homes available for rent will help the minister achieve his goal of "Housing for All by 2022." Most owners do not want to rent their property because they are scared that the tenants would not leave and will occupy it illegally, according to a ministry official.

The Model Tenancy Act would provide owners with a sense of security since it defines the duties of both the owner and the tenant. No landlord or property manager can refuse to furnish any essential supply to a tenant's occupied premises under the Act.

Tenants will not be evicted throughout the period of their tenancy agreement unless both parties agree in writing, according to the government. Unless otherwise stated in the tenancy agreement, the landlord is liable for such things as structural repairs (excluding those caused by the tenant), the whitewashing of walls, painting of doors and windows, and replacing the locks, Internal and external electrical wiring, as well as associated maintenance, are all things that need to be looked after.

Drain cleaning, switch and socket repairs, kitchen fixture repairs, window, and door glass panel replacement, and garden and open space upkeep, among other things, will be the tenant's responsibility.

The Act stated that "if the landlord proposes to make any alteration to or construct any new building on any property that has been rented out to a tenant, and the tenant refuses to let the landlord make such improvement or construct such extra building,"

It further said that the tenant would not make any structural alterations or install any permanent structures in the rental premises unless the landlord expressly agrees.

After conferring with the jurisdictional High Court, the State Government and Union Territories can appoint a District Judge or Additional District Judge as a 'Rent Tribunal' in each district.

An Additional District Collector, Additional District Magistrate, or an official of equal status shall serve on the 'Rent Court.'

"With the earlier approval of the State Government and the administration of the Union Territories, the district collector or district magistrate shall appoint an officer not lower than the rank of deputy collector to be the Rent Authority within his jurisdiction," the Act declared.

"The Model Tenancy Act has been approved by the Union Cabinet, led by Prime Minister Shri Narendra Modi, for distribution to all States and Union Territories for adaptation by means of new legislation or properly altering existing rental laws," the ministry said in a statement.

The Act is expected to make it simpler to unlock vacant houses for rental purposes.

 

Final Remarks

The MTA is not applicable to lodges or motels. As a result, the MTA's applicability to businesses that provide paid guest services is questionable.

MTA only accepts prospective applications and has no remedy for tenancies that were already in existence before MTA implemented. As a consequence, current tenancies will not be affected. MTA is open for state adoption and does not mean that all states must comply with its standards.

MTA is a great step towards easing the rental process of any vacant property. In tenancy matters, the introduction of adjudicating bodies will reduce the load on subordinate courts around the country. However, because the MTA is only a model, states are not obligated to accept it, it will be fascinating to see how many states really implement it.