This article is written by Sahaja from NALSAR University of Law, Hyderabad. This article highlights the changes that have come up due to the approval of the Model Tenancy Act, 2021 in the realm of landlords and tenant relationships.
Table of Contents
Introduction
On June 2, 2021, the Union Cabinet adopted the Model Tenancy Act, 2021 (‘Tenancy Act’) for distribution to all States and Union Territories for adoption through new legislation or appropriate amendments to existing rental laws. The Tenancy Act aims to revamp India’s legal structure in relation to rental housing and institutionalize it by establishing a Rent Authority to record rental agreements. The Act, according to the government’s news release, intends to “create a vibrant, sustainable, and inclusive rental housing market in the country” to support the construction of enough rental housing available for all income categories.
The Model Act is identical to the proposed Model Tenancy Act, 2020 presented by the Ministry of Housing and Urban Affairs in October last year, with 47 parts and two schedules. The Act addresses issues such as balancing the landlord and tenant’s interests, providing sufficient and affordable rental housing, formalizing the rental housing market, releasing vacant properties for rental purposes, and encouraging private participation in the rental sector.
What is a Model Act
Model laws are laws that are drafted at a central level and then circulated and enacted by multiple legislatures. These laws may be intended to be implemented verbatim, with minor changes, or to serve as more general guidelines for legislators. In the Indian context, this means that it serves as a model for legislation that states and union territories can accept in its entirety, with modifications, or not at all.
The reason for publishing only a Model Act rather than establishing binding legislation in this circumstance is because Parliament cannot pass a binding law. The land is included in the State List of the Seventh Schedule, and according to Article 246 of the Constitution, state governments have sole authority to enact legislation pertaining to the State List.
Due to this reason, nearly all states in our country have their legislation concerning matters of rental housing in the form of Rent Control Acts.
The Act will take effect on the date specified by the State Government or the Union Territory Administration in a notification published in the Official Gazette. This Act’s provisions may be issued on a variety of dates.
Need for the Model Act
In India, self-owned housing is home to 95 percent of rural households, while rental housing is mostly a city phenomenon. Between 1951 and 2011, India’s urban population increased sixfold, accounting for 31 percent of the country’s overall population.
Rental housing is a major strategy to reduce informality and shortages, according to the Economic Survey (2017-18). It was mentioned that rental housing allows low-income segments who may not be able to purchase housing mobility and affordability. It also found that a large share of the urban rental housing stock is vacant, citing ambiguous property rules, weak contract enforcement, and rent control legislation as reasons.
Rent control rules, it was noted, skew arrangements in favour of tenants and lead to greater litigation. Landlords’ faith in the regulatory system has been weakened as a result of this. Alternative arrangements, such as leave and license agreements and informal leases, are used to provide a major portion of the rental demand.
In order to deal with and address these issues, the draft Model Act was proposed in 2020 which was then approved by the Union Cabinet in 2021.
Objectives of the Act
The primary objectives of the Model Tenancy Act are:
- To form a Rent Authority to oversee the rental of properties.
- To safeguard the rights of both landlords and tenants
- To provide a quick adjudication system for resolving disputes and issues related to them.
In addition to its main goals, the Model Act aims to ensure affordability, formalize the rental housing market, and stimulate private investment.
Important features of the Act
Setting up a rent authority
The model law asks for the establishment of a rent authority, a rent court, and a rent tribunal, while also stating that such issues will no longer be heard in civil courts.
Rent court can be led by an Additional Collector or Additional District Magistrate, while the authority can be administered by an officer, not below the rank of Deputy Collector. Both must be appointed by the District Collector or District Magistrate with the state government’s prior consent.
Tenancy agreement
When renting a property, the renter and the landlord are required by law to sign a written agreement. The agreement must state the amount of rent to be paid, the length of the tenancy, and other details. It is mandatory to form a tenancy agreement and submit it to the rent authority.
To facilitate the filling of the agreement, the rent authority is required to create a digital platform in a local vernacular language or the language of the state or UT.
The rent agreement will be signed twice, with one copy kept by the landlord and the other by the renter. Receipts for rent and other payments are required from landlords. Bank slips will suffice in the case of electronic transfers.
Before the introduction of the Act, a rent agreement between the landlord and tenant was not mandatory.
Rent and security deposit
There has been no prescribed price ceiling for rent. The Act gives liberty to the pirates of the agreement to negotiate and mutually agree on the terms of the agreement.
However, the sum of the security deposit cannot exceed two months’ rent in the case of a residential property and six months’ rent in the case of non-residential property, according to the legislation. The security deposit will be repaid to the tenant by the landlord once all deductions have been made at the time of handing over vacant possession of the premises.
Tenancy period
The rent agreement needs to specify the period of tenancy. The renewal of the tenancy period must be done during the period of tenancy. According to the Model Act, the tenant can ask for a tenancy renewal or extension from the landlord. If a tenancy time has finished and not been renewed, or if the tenant fails to depart the premises at the conclusion of such tenancy, the tenant will be liable for increased rent.
The Act also covers situations of emergency and unprecedented events that might occur. If the premises become uninhabitable owing to a force majeure event, the landlord is not allowed to charge rent until the issue is resolved. If this is not practicable, the rent advance and security deposit must be reimbursed within 15 days after the notice period’s end and after tenant liabilities have been deducted.
Eviction
The new Model Act has a comprehensive list of scenarios wherein the tenant can be evicted at the discretion of the landlord. According to the Model Act, the Rent court has the authority to order the eviction of a tenant based on a landlord’s application under Chapter 5 of the law. The Rent court can issue eviction orders based on a landlord’s plea in the following circumstances:
- Non-payment of the rent by the tenant as agreed and signed in the rent agreement.
- The tenant does not pay the two months’ rent, plus interest and service charges, within a month of the notice being sent.
- The tenant sold away part or all of the property without the landlord’s written permission.
- Even if after the landlord has served the tenant with a notice, the tenant continues to mistreat the property.
- If the property needs to be changed, repaired, or redeveloped. Only once a new tenancy agreement is registered with the Rent Authority can tenants return. The tenant may be allowed to stay in part of the property if the landlord agrees.
- The tenant may be served with an eviction notice by the Rent court if the landlord dies and the legal heirs can substantiate the need for the property.
Maintenance of the property
The landlord and tenant must preserve the premises “in as good a condition as at the commencement of the lease, except for natural wear and tear”, according to Section 15 of the model law. The Model Act’s Second Schedule lays out the allocation of obligations for property maintenance between the landlord and the tenants.
During the tenancy, the tenant is responsible for the management and repair of the premises. If the tenant fails to make agreed-upon repairs, the landlord may use the deposit money to make the repairs. The tenant must repay it within a month after receiving the landlord’s notice.
Another major change introduced with respect to maintenance is that without the landlord’s express consent, the tenant may not make any structural changes, establish any permanent structures, or rent out the premises.
Dispute resolution mechanism
The Model Act proposes establishing a three-tier quasi-judicial conflict resolution system. The District Collector, with the agreement of the state government, will designate Rent Authorities and Rent courts. After conferring with the jurisdictional High Court, the state government may create a Rent Tribunal in each district. No civil court will have jurisdiction over disputes relating to the Model Act’s provisions.
The Rent Authority will be headed by the Deputy Collector. It will be responsible to resolve disputes concerned with the revision of rent and determine revised rates. If the property manager acts in violation of the Act or against the landlord’s orders, he may be fired or fined. The Rent Authority can pass interim orders to restore necessary services and compensate those who have been affected.
The Rent court will be headed by an Additional Collector or Additional District Magistrate. The Rent court will adjudicate appeals against the Rent Authority’s orders. It can pass orders for eviction and recovery of possession of premises.
The Rent Tribunal will be headed by the District Judge or Additional District Judge. This body will adjudicate appeals against the Rent court’s orders.
The procedure for the resolution of the disputes by the three quasi jurisdictional bodies and the timelines for the same is also mentioned in the Model Act.
Analysis of the Model Act
The Model Tenancy Act recognizes areas of contention between the landlord and the tenant, and tackles issues such as the requirement for a documented rent agreement, a security deposit cap, the rate of rent increase, and arbitrary eviction restrictions.
The planned rental court can allow repossession of the premises if the tenant misuses the property after being served with a notice, which will benefit the landlords.
Though the Act has brought about significant positive changes when it comes to the renting of the property, there are certain vague and ambiguous provisions. Some of these are with respect to timelines for certain cases like essential services and revision of rent.
The Model Act further stipulates that the parties will be given a unique identification number after registering with the Rent Authority and that the rental agreement (together with other papers) will be uploaded to the Authority’s website. On the other hand, individuals’ personal information may not serve a public purpose and hence may infringe their right to privacy.
Conclusion
The Model Tenancy Act 2021, has indeed brought about changes that will improve the rental market and ensure the smooth functioning of the same. The Model Act aims to achieve a balance in the tenant-landlord relationship by defining both sides’ rights and responsibilities. The features of the Act covered under the previous sections of this article are some of the major updates and changes brought about in the law regarding landlords.
The necessity to record all lease agreements and the administration of such relationships is intended to bring order to the country’s otherwise chaotic rental housing industry. The establishment of a rent authority, a rent court, and a rent tribunal to deal with operational and day-to-day management issues, such as non-payment of rent, delays in repairs and maintenance, and eviction of tenants are all positive measures.
The proposal to charge punitive rent to tenants who do not vacate a property after the lease term has expired or the agreement has been terminated, limit the chargeability of security deposits by landlords, and hold landlords accountable for timely repairs are all intended to boost the rental housing sector.
When the States and Union Territories pass this law, it will increase private participation in rental housing, address the massive housing shortfall across all income groups, and reduce homelessness.
References
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