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Key Features of Model Tenancy Act in India - 2021 - LawSimpl

Key Features of Model Tenancy Act in India – 2021

The Ministry of Housing and Urban Affairs said that the existing rent control laws are restricting the growth of rental housing as they discourage owners from renting out their vacant houses due to fear of not getting them back. Landlords have never been sure whether they would get good tenants or whether the tenants would keep their property in good shape. This problem with rent arrangements in India has been there for the past 60 years. 

At the same time, the tenant has always been skeptical about the landlord; whether he (landlord) will give the house in good condition or as promised, or if he will let him continue to stay there as long as he requires it, and so on. As a result of this trust deficit, a large number of properties remain vacant. 

The 2011 Census declared that more than 1 crore properties are vacant in urban areas in different cities across the country and more than one crore housing units are required. The Model Tenancy Act, 2021 (hereinafter, the Act) was approved by the Union Cabinet of India on June 2nd, 2021, and is now for the states and union territories to adopt. The law seeks to take care of all the confusing points that have proliferated over the years and streamline the process of resenting property in India, and aid the economy in the real estate sector. After the enforcement of this Act, no person shall let or take on rent any premises except by an agreement in writing. 

Scope of the Act

The Model Tenancy Act is the government’s effort to enable the institutionalization of rental housing by gradually shifting it towards the formal market. This Act will apply to premises let for residential, commercial, or educational use, but not for industrial use. It will not cover hotels, lodging houses, inns, etc. this model law will be applied prospectively and will not affect the existing tenancies, meaning that owners who have not been able to evict tenants due to the provisions of the previous laws will get no relief unless the state in which they own a property specifically provisions for it.  It seeks to cover both urban as well as rural areas. 

As land is a state subject the MTA is not mandatory for the states to implement; states can adopt the new Act by fresh legislation, or they can amend their existing rent acts suitably to factor in the new Act. it is still a matter of choice for states and union territories to repeal or amend their existing Acts, and as one expert puts it, amounts to a great deal of work on their part.  

How is it different from the Rent Control Act?

Because of the 1948 Act’s restrictive and pro-tenant clauses, the housing market has continued to struggle to grow in some areas. Some rented properties have been paying the same rent since 1948, despite inflation and rising property values. The Central Government attempted to amend the Act in 1992 through a proposed model to make sure that property was not undermined. Unsurprisingly, the existing tenants objected to the changes, so they did not take effect.  

The ultimate purpose of each Rent Control Security is to ensure tenants are safeguarded from inappropriate eviction and to resolve disputes between landlord and tenant. However, one significant disadvantage of these laws is that the majority of them have not been amended in over two decades, trying to ensure that the rent ceiling continues to remain capped at levels prevalent in the late 1990s. Due to the low capital returns, this has undoubtedly demotivated property owners from renting out their estates, which has also lessened investor appetite for acquiring second or third homes. It has not even positively impacted low- and middle-income groups, as designed.

Despite their positive motives, the provisions of the MTA stand in contrast to the archaic Rent Control Act 1948, different versions of which remain to govern tenancy in India’s states. In India, tenancy and leasing operations are strictly regulated by the Rent Control Act, which is implemented in various forms in all states. Maharashtra, for example, has the ‘Rent Control Act 1999,’ while Delhi has the ‘Rent Control Act 1958,’ and Chennai has the ‘Tamil Nadu Buildings (Lease and Rent Control) Act 1960. 

States would be hesitant to adopt the rules since they are not legally binding, and personal ambition may be a factor. Besides that, the law intends a three-tiered grievance redressal system, with a district-level judge supervising dispute resolution. This implies that the state will have to invest a lot of time, resources, and effort to establish these establishments, as well as free up human resources from an already overburdened lower judiciary system.

Key Features of the Model Tenancy Act

This Act will enable the creation of adequate rental housing stock for all income groups, thereby addressing the issue of homelessness. Rental housing is a preferred option for students and migrant workers. It is aimed at bridging the trust deficit between tenants and landlords by clearly delineating their obligations. The landowner cannot cut power and water supplies in the event of a dispute. 

According to the government, the following are the aims of the Act:

  • Formalize the shadow market of rental housing,
  • Unlock vacant properties,
  • Increase rental yields,
  • Ease or remove exploitative practices,
  • Reduce procedural barriers in registration,
  • Increase transparency and discipline,
  • Help in reposing confidence in investors in the sector, besides improving the quality of rental housing stock. 

Tenancy Agreement

A written agreement between the owner and the tenant is required before renting any property. The agreement must specify: 

  1. the rent payable, 
  2. the tenancy duration, 
  3. the terms and period for rent revision, 
  4. the security deposit to be prepaid, 
  5. reasonable reasons for the landlord’s entry into the premises, and 
  6. obligations to maintain the premises. The Rent Authority must be notified of the agreement within two months of its signing. This will apply to all residential, commercial, and educational properties.

UIN

According to the Act, parties to a rental agreement must now provide a copy of the tenancy agreement to the rent authority within two months.

Following that, the parties will be given a unique identification number (UIN), and the tenancy agreement specifications will be posted online on the Rent Authority website. All information contained in the tenancy agreement will be considered as evidence of facts pertaining to the tenancy and related matters.

The Model Act also calls for each state that adopts the Model Act to create an online “platform” for submitting tenancy agreement documents. Furthermore, it calls for the state to create an online “database” where all tenancy agreements can be accessed.

Security Deposit

The Act also puts a cap on security deposits for residential properties, making sure that tenants are forced to invest hefty sums at the start of the tenancy, as is the norm in several large cities such as Mumbai and Bengaluru. As per the Act, the security deposit to be made by the tenant should not exceed two months’ rent for residential property and should be a minimum of one month’s rent for non-residential property, whereas the current norm in metro cities ranges from five to 12 months. 

Tenancy Period

The tenant may ask for the renewal or extension of the tenancy period by the and the tenant will  be responsible for paying for increased rent if:

  1. A tenancy period has not been renewed even on expiry
  2. A tenant fails to leave the property even after the expiry of the tenancy.

The tenant will be liable to pay if, even after the expiry of the tenancy or on an order of termination of the tenancy, he does not leave the premise:

  1. Two times the monthly rent for the initial two months
  2. Four times the monthly rent after he continues to occupy the property. 

Rent Amount

There is no monetary ceiling under the new law, which enables parties to negotiate and execute the tenancy agreement on mutually agreed terms. Tenants will continue to pay the rent even during the pendency of a dispute with a landlord. The landlord will have to give a notice in writing to the tenant, three months before the revised rent comes into effect. 

Duration of Tenancy

If the tenant refuses to vacate, the landlord can claim double the monthly rent for two months, and four times the monthly rent thereafter. In the event of a “force majeure” event, the landlord shall allow the tenant to continue in possession for a period of one month from the date of the cessation of such a disastrous event on the terms of the existing tenancy agreement. 

Sub-letting

Subletting of premises can only be done with the prior consent of the landlord, and no structural change to the premises can be made by the tenant without the written consent of the landlord. Misuse of the premises, as defined, includes public nuisance, damage, or its use for “immoral or illegal purposes”. Unless otherwise agreed in the tenancy agreement, the landlord will be responsible for activities like structural repairs, except those necessitated by damage caused by the tenant; whitewashing of walls and painting of doors and windows; changing and plumbing pipes when necessary, and internal and external wiring and related maintenance when necessary. He is responsible for providing a 24-hour notice to the tenants before carrying out the repair work. 

The tenant will be responsible for drain cleaning, switches, and socket repairs, kitchen fixture repairs, replacement of glass panels in windows and doors, and maintenance of gardens and open spaces, among others. 

Eviction

An application by the owner must be made to the Rent Authority for the eviction of the tenant. An eviction order may be issued for any of the following reasons:

  1. If the agreed rent is not paid,
  2. Rent is not paid for more than two months
  3. A part or the entire property’s possession is being parted without the written consent of the owner,
  4. Incorrect usage of the property even after receiving written notice by the owner to cease such mishandling,
  5. If the tenant makes some structural changes to the property without the consent of the owner.

Various Authorities & their Powers as proposed in the Act

States will set up grievance redressal mechanisms comprising of Rent Authority, Rent Court, and Rent Tribunal to provide fast-track resolution of disputes. Disposition of complaints or appeals by the Rent Court and Rent Tribunal will be mandatory within 60 days. 

If a dispute arises between the owner and the tenant, they will have to first approach the “Rent Authority”. If any party is not satisfied with the rent authority’s order, the “Rent Court” can be approached, followed by a final and then the “Rent Tribunal”.

The Act says that no landlord or property manager can withhold any essential supply to the premises occupied by the tenant in the event of a dispute or on any other pretext. They have to provide a 24-hour notice before carrying out any work or changes on the premises.

The type of issue and the time allotted to adjudicate it 

The following types of cases are adjudicated within 30 days after the application is filed.

  1. The illegal invasion of the entire or a portion of the premises without the landlord’s written permission
  2. Misuse of the property despite the owner’s cease-and-desist notice

The following types of cases are adjudicated within 60 days after the application is filed.

  1. Appeals to the Rent Court and Rent Tribunal

The following types of cases are adjudicated within 90 days after the application is filed.

  1. Failure to pay the agreed-upon rent.
  2. Non-payment of rent for at least two months in a row.
  3. Carrying out required repairs, construction, rebuilding, or demolition.
  4. In the event of a change in land use.
  5. Inability to leave premises after written notice when the landlord would suffer grave consequences if the premises were not in its control.
  6. Death of the landlord and the legitimate need for premises for his legal heirs.

Powers of the Rent Authority

  • Set up a digital platform to allow tenants to submit tenancy-related documents as defined.
  • Give each party to the tenancy agreement a unique identification number (UIN) and upload the agreement details within a week of receiving them.
  • In such cases, they resolve rent revision conflicts and ascertain modified rates.
  • Accept rent for up to two months if the landlord does not accept rent or if the tenant cannot decide who the rent is payable; also perform inquiries on who the rent is payable in such cases.
  • Remove or penalize the property manager if he violates the Act or goes against the owner’s instructions.
  • Pass interim orders restoring important services and awarding compensation.

Powers of the Rent Court

  • Decide appeals from rent authorities’ orders.

On an application filed by any party, the Rent Court shall execute an order of a Rent Court or a Rent Tribunal or any other order made under this Act in the manner prescribed by– 

(a) granting possession of the premises to the person in whose favor the decision has been made; or 

(b) attaching one or more bank accounts of the opposing party in order to recover the amount mentioned in such order; or 

(c) appointing any advocate or other qualified person, including officers of the Rent Court, local administration, or local body, to carry out such order.

  • The Rent Court may seek assistance from the local government or a local body, or from the local police, in carrying out final orders; provided, however, that no applicant shall seek police assistance unless he pays such costs as the Rent Court may determine.

The Rent Court shall conduct the execution proceedings in relation to its order, an order of a Rent Tribunal, or any other order passed under this Act in a summary manner and shall dispose of the application for execution within thirty days of the date of service of notice on the opposing party.

  • Order for eviction and repossession of premises

Powers of the Rent Tribunal 

  • Decide on appeals from Rent Court orders.

The Rent Tribunal shall issue a notice, along with a copy of the appeal, to the respondent and set a hearing date not later than thirty days from the date of service of the notice of appeal on the respondent, and the appeal shall be disposed of within sixty days of such date of service.

If the Rent Tribunal believes it is necessary for the interests of reaching a just and appropriate judgment, it may permit documents at any stage of the appeal proceedings. However, no such document may be permitted more than once during the hearing.

During the pendency of the appeal, the Rent Tribunal may make such interlocutory orders as it sees fit.

While hearing the appeal, the Rent Tribunal may confirm, set aside, or alter the Rent Court’s order after recording the explanations for doing so.

  • Although the rent tribunal’s decisions are final, the high court’s writ jurisdiction, which is guaranteed by the constitution remedy, remains available.

Key Issues not addressed by this Act

  1. Affordable housing

The Model Act does nothing to enhance the affordability of rental housing. At the moment, the rental housing market in India is widespread, with middlemen and brokers taking advantage and charging excessive fees in addition to the rent and security deposit required for a room. There have been no steps taken in this regard.

As previously stated, developing an online database would also aid in resolving the intermediary conundrum. A prospective tenant who has access to such a database can search for potential rental properties and contact the owner of the property directly.

  1. Man-made calamities

A force majeure clause has been added to a couple of provisions in the Model Act. This clause covers “scenarios of war, flood, drought, fire, cyclone, earthquake, or any other natural calamity.” The clause, besides this, excludes man-made disasters such as epidemics, pandemics, terrorist attacks, and other man-made disasters. The current situation, in which we are dealing with a pandemic, should make the government realize that man-made calamities can have an impact on the outcome of a duty or obligation and the exercise of a right as complex as that under a natural calamity. Even with this reality, the force majeure clause excludes natural disasters from its coverage.

  1. Time period 

The Model Act also introduced time limits for the resolution of disputes (under Sections 35 and 37). Regrettably, the problem with the Model Act’s time periods (of 30, 60, and 90 days) is that they are extremely unrealistic. This is especially true given the existing pending cases in Indian courts and the lengthy time it takes for cases to be resolved in India. The government should consider the reality on the ground and modify these time frames or devise another process that ensures timely adjudication and disposal.

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