Model Tenancy Act: Resolving Rental Housing Issues

On June 2, the cabinet passed The Model Tenancy Act, 2021, a new codification of law that modifies the present law and streamlines rental housing in India. By explicitly establishing the parties’ responsibilities, the act aims to lessen disagreements and includes a comprehensive framework for speedy dispute settlement.

To promote rental housing, the Model Tenancy Act tries to safeguard and protect the rights and objectives of both owner and tenant. It enables the creation of acceptable rental housing laws for people of all income levels. It promotes private firms to use rental property as a business strategy to meet the huge shortage.

What is the Model Tenancy Act?

The state government regulates rental housing, as the State List of the Constitution governs land and land development. These regulations established a ceiling on the rental amount and set criteria for eviction to prevent landowners from charging exorbitant rents and ensuring people find safe and stable homes.

According to the 2015 Model Rental Housing Policy, the rules resulted in low rental yields and discouraged landlords from investing in rental properties. These skewed game plans favoured the residents. Thus, making it more difficult to evict them, resulting in more litigation and, as a result, destroying landowners’ faith in the organisational system.

On June 2, 2021, the Union Cabinet authorised the Model Tenancy Act, 2021, for distribution to all States and Union Territories for adjustment to adopt new legislation or appropriately change current rental regulations.

According to a press release issued by the government, the Act aims to “create a vibrant, sustainable, and comprehensive rental housing industry in the country” by encouraging the formation of sufficient rental housing for people of all income levels.

The purpose of the Act is to emphasise three goals:

• To create a rental authority to oversee the rental of properties.
• To protect the interests of the owner and tenant.
• To give a quick adjudication system for resolving disputes and related issues.

Evolution of Model Tenancy Act

The Act is a recommended tenancy law by the Indian government to overhaul the country’s tenancy market.

Finance Minister Nirmala Sitharaman announced the Model Tenancy Act in her first budget speech in 2019, stating that the country’s archaic rental laws “do not identify the connection between both the lessor and the lessee pragmatically and fairly.” By 2022, the Act aimed to address the housing shortage and contribute to Housing for All.

Assam is the first state to adopt the Model Tenancy Act. So, the bill repealed the Assam Urban Areas Rent Control Act of 1972.

The new law promotes the growth and advancement of a fair and accessible rental market and strikes a balance between the demands of owner and tenant. States and union territories can now introduce new legislation or alter their existing rental rules to comply with the Act.

Features of the Tenancy Act

1. As per Chapter 2, Section 4 of the Act, a formal agreement between the owner and tenant is essential. The tenancy agreement should include the following components:
   • The amount of rent that the renter is obligated to pay
   • The tenancy’s required duration,
   • The security fee must be paid upfront.
   • Landlord’s entry into the premises due to noise
   • Responsibilities for the upkeep of the premises

   According to the policy, within two months of implementation of the agreement, the interested party must notify the Rent Authority of the contract.

   NOTE:– The act would only apply to residential, commercial, and educational properties, not those held by Auqaf recognised under the Waqf Act, 1995, or any trust registered under the State/Union Territory’s public trust law.

2. Section 5 of Chapter 2 of the Act requires renters to obtain a contract renewal or extension from their landlord. The Act further stipulates that the renter will be responsible for paying increased rent on meeting the following conditions:
   • The tenancy has come to an end and has not got extended,
   • The renter does not quit the property after the agreed time frame. If this occurs, the tenant must pay the following:
     • during the first two months, double monthly rent
     • four times the monthly rent till occupying the property.
3. Chapters 6 and 7 of the Act deal with quasi-judicial responsibilities, including:
   • The Deputy Collector is in charge of the Rent Authority, responsible for settling disputes, issuing temporary orders, and granting compensation.
   • The Rental Court hears the appeals against the Rent Authority’s orders, presided over by the Additional Collector or District Magistrate.
   • The Rent Tribunal hears the Pleas against the Rental Court’s orders, presided over by a District Judge or an Additional District Judge.
4. In the case of eviction, the Model Tenancy Act stipulates that in an attempt to remove a tenant, the owner must first seek permission from the Authority. The Rental Authority has the power to issue an eviction order if the tenant:
   • refuses to pay the agreed-upon rent
   • rent is not paid for longer than two months
   • misappropriates the premises despite obtaining written warnings to stop
   • without clear and specific approval, makes structural or permanent alterations
5. Section 11 of the Act regulates security deposits, which must not exceed two months rent for residential properties and six months for non-residential properties. The deposit must get refunded after abandoning the premises.
6. The Act also prohibits leasing unless the parties have entered into a contract and the owner and tenant have cooperatively informed the Rental Authority.

Applicability of the Tenant Law

The Model Tenancy Act applies to residential and commercial properties, which include vacant land, except

• hotels,
• lodging houses,
• Dharamshala,
• inns,
• industrial properties,
• assets owned by the Central/State Government,
• properties rented to staff members as part of their service agreement,
• properties owned by charitable/religious institutions,
• aqua enrolled under the Waqf Act, 1995, or
• any trust registered under the public trust law

The Act is only applicable to new tenancies, not existing ones.

Importance of Model Tenancy Act

• Vacant houses on the rise: There has been a dramatic increase in many unoccupied houses in metrological India in recent years. The lack of appropriate regulations for parties in the rental housing industry drives the government to adopt the measure.

  In India’s biggest cities, the ratio of unoccupied houses is still relatively high. While Gurugram has 25.8 per cent of India’s total unoccupied housing stock, Pune comes in second with 21.7 per cent, while Mumbai comes in third with 15.3 per cent.

  Once all states and UTs approve the bill, the unoccupied stock can get placed under the umbrella of organised rental housing. And the stakeholders, owner and tenant may find it simpler to overcome the trust gap—uncovering the actual value of the housing stock.

• The new dispute resolution framework: In India, tenancy disputes between landlords and tenants are prevalent. Even though every state has enacted rent control legislation, conflicts inevitably arise.

  One of the significant barriers for landlords to rent out their buildings has been the lack of legislation.

  With the introduction of the Model Tenancy Act, a three-tier conflict resolution structure was established, consisting of the Rental Authority, Rental Courts, and Rental Tribunals, helping relieve the workload on the Civil Courts by directing it to these agencies.

  Rent Courts/Tribunals with staff not below the grade of Additional Collector/Additional District Judge must try to resolve matters within 60 days of receiving the request or appeal.

• Property managers have the following responsibilities: The Act does not ignore the involvement of middlemen/brokers/Property Managers/Rental Agents in rental housing.

  The Act states the violations, their duties, and the repercussions. It includes any person or legal organisation permitted by the owner to:

  • maintain the property or
  • operate on behalf of the owner, tenant, or both in the process of renting any property and earns remuneration, fees, or other costs for these activities

In case of any violation, Property managers will be held liable under the Model Tenancy Act. They will need to provide information such as their name, address, PAN number, Aadhar number, and contact details to the Rental Authority. Property managers welcome the Act with open arms since it allows them to go further in the residential market.

Challenges in Model Tenancy Act

1. Event of Force Majeure: The definition includes any scenario of warfare, flood, drought, fire, hurricane, earthquake or other natural calamity impacting the tenant’s occupancy in the properties rented.

   The act talks about the tenancy in residential and industrial properties but not on the domestic tenancy. During force majeure occurrences, the governments must make some amendments in the act and clarify who is responsible and who bears the risk.

2. Digitalisation: The Model Tenancy Act allows applicants/parties to upload information and documents to the Rental Authority’s portal.

   According to the statute’s language, every district will possess a Rent Authority and put up a digital portal.

   Instead of having a separate portal for each Rent Authority, there is a clear need for a uniform gateway across the country, organised by the Central Government to preserve time and money.

   Access to data is a cornerstone of informed decision-making in the digital era. Any lag in creating digital portals or Rental Authorities could have major consequences.

3. Certain properties are excluded: Property owned or promoted by the following are not included in the act:
   • the Central Government,
   • State Government,
   • Union Territory Administration/local authority,
   • Government undertaking/ enterprise/ statutory body,
   • Cantonment Board/ company,
   • University/organisation
   • religious institutions notified by the state government
   • charitable trusts
   • Auqaf under Waqf Act, 1995, or
   • Any building specifically exempted from public interest

As a result of this exclusion, a significant portion of unoccupied stock will remain outside the regulatory framework, and stakeholders will have to rely on other legal means for conflict resolution.

Rights Under the Tenancy Act

The Act clearly states rights and obligations of both parties, which should aid in resolving any disputes.

It specifies the landlord’s obligations, which are as follows:

• Repairs to the structure
• Whitewashing of the walls while painting of doors and windows.
• Pipe replacement and plumbing
• Electrical wiring on both the inside and outside of the building
• The landlord is also responsible for any relevant upkeep.

The tenants are liable for:

• Replacement of tap washers and taps regularly
• Cleansing of drains
• Repair of toilets, washbasins, bathtubs, geysers, circuit breakers, and kitchen fittings.
• Repairs of switches and sockets
• Electrical equipment maintenance and replacement
• Replacement of door, cupboard, window knobs and locks, etc
• Fly-nets are getting replaced.
• Repair of glass panes in windows, doors, and other similar structures

The tenant is also responsible for the upkeep of the gardens and open spaces rented to him or her.

During the tenancy term, the renter is obligated to take due care of the property and not willfully harm them. When the parties share common amenities, the tenancy agreement will govern the maintenance and repair of those facilities.

If the owner or tenant fails to make necessary repairs, the costs paid for the repairs can be removed from the deposit or the rent. On the other hand, the landlord cannot delay any necessary supply or service in the tenant’s rental properties.

The Model Tenancy Act allows the landlord to hire a property manager, whose responsibilities include collecting rent, inspecting the facilities, and doing repairs, among other things.

The landlord must furnish the tenant with all pertinent information regarding the property manager, including the identity and objective for which the manager is permitted. If the property manager disobeys the landlord’s instructions, he can be fired, and the renter gets the payment for any losses suffered.

Under the act, both the owner and the property manager have the authority to access the premise, but only if the tenant is given a 24-hour notice before the entry.

Conclusion

The Model Tenancy Act of 2021 provides for smooth operation. It makes easier to keep track of data such as the number of rented properties and the rental yield from those properties. So, this can aid in setting policy and understanding the real estate market’s development, thereby eliminating informal contracts. There may be a drop in vacant dwelling stock due to this.

However, the precise specifications provided in the Model Tenancy Act to establish a lease agreement are not required because this information is already defined in existing state legislation, including Maharashtra’s, in rental agreements. Rather than primarily serving the interests of landlords, the Act should have focused more on rental housing policies for renters, such as dealing with the issue of tenants being capable to avail rental housing by offering tax exclusions to low-income groups.