This article has been written by Aditya Saurabh pursuing the Diploma in Business Laws for In-House Counsels from LawSikho.
Table of Contents
Introduction
In India, adequate housing has been a problem for a long time. The elimination of physical insufficiency of housing, which includes homelessness, overcrowding, and insufficient space, as well as slum redevelopment, has been a major concern of Indian housing policies, with rental housing facilities emerging as the most viable alternative. Despite the exponential rise of population, many homes remain vacant, indicating reluctance on the part of property owners to rent out their properties for fear of repossession and overstaying by tenants, as well as a fear on the side of tenants of paying high rent.
Each state has its set of rent control laws that manage the rental housing market; nevertheless, the current laws have failed to address, let alone remove, the scarcity. According to the 2015 proposed rental housing policy, these laws resulted in lower rental yields and increased litigation, discouraging landlords from investing in rental units.
The Model Tenancy Act, 2021 (“MTA Act”) was approved by the Union Cabinet on 2nd June 2021, with a novel approach to reviving the inactive possibility of the rental market and the real estate sector by legally structuring the rental housing market to utilise the potential of vacant houses and eliminating lack of trust between the parties through balanced provisions. As a result, exploitative behaviours are no longer tolerated. ‘The Model Tenancy Act’ is a model law that the states or the union territories can use to create their own laws because ‘land’ is a state list subject matter under point 18, list ii of schedule seven of the constitution; where states and union territories have the choice of adopting the law, amending it for adoption, or not adopting it at all.
Need for the Model Tenancy Act, 2021
In India, self-owned housing is residence to 95 percent of rural households, while rental housing is mostly an urban phenomenon. Between 1951 and 2011, India’s urban population increased sixfold, accounting for 31 percent of the country’s overall population as of 2011. By 2036, this is expected to increase to 40%. However, between 1961 and 2011, the proportion of people living in urban rental housing fell from 58 percent to 27 percent.
The proposed ‘National Urban Rental Housing Policy’ from 2015 claimed that there is a substantial housing scarcity in urban areas, which cannot be solved by house ownership. The urban housing deficit was predicted to reach 1.9 crore units in 2012 by a technical group researching the issue. Rental housing was thus considered a vital strategy to solve informality and shortages, as per the economic survey (2017-18), because it allows for mobility and affordability for low-income sectors who may not be able to purchase housing.
Rental housing today continues to be regulated by state governments using a variety of legislative mechanisms, including rent control laws. These regulations set a rental cap and place restrictions on evictions to prevent landlords from charging extravagant rents and to ensure affordable homes. Furthermore, existing rent control legislation in several states lack an efficient and time-bound dispute resolution framework and are skewed in favour of tenants leading to increased litigation. Rent control laws, according to the 2015 draft Policy, inhibit private investment in rental units.
As a result, a large portion of the rental demand had to be met through alternate means, such as leave and licence agreements and informal leases. The initial version of the Model Tenancy Act was released in 2015, and Tamil Nadu was the first state to implement it. However, 20 states, including Karnataka, Maharashtra, and West Bengal, still have rent control laws in place as of 2021.
In order to curb these challenges, the Union Cabinet recently passed The Model Tenancy Act, 2021, which aims to provide a quick adjudication process for dispute settlement, regulate the renting of properties, and protect the interests of landlords and tenants. The Model Act seeks to assure affordability, formalisation, and increased private involvement in the rental housing industry, among other things. In the face of sustained governmental cooperation and initiative, the Model Tenancy Act has the ability to maximise the rental return by dissolving the age-old price structure of rental housing and leaving space for negotiating the conditions of the agreement.
Key features of MTA, 2021
Applicability
MTA applies to residential, commercial, and properties for the use of educational institutions (including vacant land), however it does not apply to hotels, lodging houses, dharamshalas, inns, or industrial properties. Furthermore, unless otherwise agreed to by the parties and informed to the rent authority, MTA will not apply to premises owned or promoted by the Government or local authority; premises owned by a company, university, or organisation and let out to its employees as part of a service contract; and premises notified by the Government in this regard from time to time. Furthermore, the Model Tenancy Act will take effect prospectively and will not impact existing tenancies.
Tenancy Agreements
All tenancy arrangements must have a written rental agreement, according to the model tenancy law. This agreement must be informed to the rent authority by both the landlord and the tenant within two months of the tenancy started. The tenancy shall be valid for the period agreed upon and stipulated in the tenancy agreement between the landlord and the tenant.
The Rent Authority must provide a unique identification number to the parties and upload the details of the tenancy agreements on its website within seven working days of receiving the information regarding the execution of the tenancy agreement and the relevant documents. The terms of the agreement will be binding on the parties’ successors, and the agreement will expire at the end of the time period mentioned in the agreement.
Role of Rent Authority, Rent Court and Rent Tribunal
As per the MTA Act a Rent Authority is required to be appointed, which would be an officer with at least the rank of Deputy Collector who would be appointed by the District Collector or District magistrate with the State Government’s or Union Territory Administration’s prior authorisation. Within three months of its appointment, the rent authority must set up a digital platform in the local vernacular language or the language of the State/Union Territory to allow for online document submission. The Rent Authority has the authority to bring legal action in cases involving disputes over rental agreements, rent revisions, correct repair and maintenance, and the withholding of necessary supplies or services.
According to the MTA, Rent Courts will be established, with the Additional Collector or Additional District Magistrate, or an officer of similar status, appointed by the District Collector with the State Government’s or Union Territory Administration’s prior authorisation. Any person who is dissatisfied with the Rent Authority’s decision may file an appeal with the Rent Court, which must issue a decision within 60 days of receiving the complaint. Following the physical establishment of Rent Courts in India, civil courts will no longer have jurisdiction over issues relating to rented housing.
The Rent Tribunal, which will be a District Judge or Additional District Judge chosen by the State Government/Union Territory Administration in collaboration with the jurisdictional High Court, will hear appeals from the Rent Court’s orders. The Rent Tribunal’s decision is final, and there is no right of appeal or reconsideration. The MTA states that the Rent Courts and Tribunal will not be constrained by the Civil Procedure Code of 1908, but will instead be guided by the ideology of natural justice and have the authority to determine their own procedure.
Time-Bound Dispute Adjudication Mechanism
To ensure rapid dispute resolution, the MTA establishes certain timeframes for adjudicating issues between the parties. According to the MTA, the rent court or rent tribunal must seek to resolve disputes within 60 days (90 days for certain specific disputes) of the date of receipt of the application or appeal, and may not grant more than three adjournments at the request of a party during the proceedings unless there is a reasonable and sufficient reason.
Furthermore, in cases where the tenant has given up possession of the premises without the landowner’s consent or has continued to misuse the premises despite receiving a cease-and-desist notice from the landowner, the MTA requires the rent court and tribunal to resolve the dispute within 30 days of receipt of the application.
Rent Deposit
The MTA contains no provisions relating to a monetary ceiling on rents, enabling the parties to negotiate and mutually decide the details of the agreement, with rent payments accepted by the landlord or agent with a signed rent receipt at the end of the month or year, and for virtual and digital payments, the bank affirmation held as definitive evidence.
If the landowner refuses to take such payment or provide a receipt in that regard for two months in a row, or if the tenant is unable to determine to whom the rent is payable, the MTA permits the tenant to deposit the rent and/or additional charges with the rent authority. The latter is especially important in situations when the lessor has passed away and the person who is entitled to the rent is unknown. In such cases, the rent authority will decide who will pay the rent and give instructions to that effect.
The increase in rent will only come into effect after the landlord has given the tenant three months’ notice of the proposed changes. The landlord is not allowed to raise the rent during the tenancy. If a tenant fails to send a notice of tenancy termination, he is presumed to have agreed to the new terms proposing the rent increase.
Security Deposit
The amount of advance security deposit is limited by MTA to two months’ rent for residential uses and six months for non-residential reasons. On the day the owner takes ownership of the premises from the tenants, the security deposit will be refunded to the tenant.
Conditions for extended Tenancy period
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. If the tenant fails to evacuate the premises at the end of the tenancy or upon an order terminating the tenancy, he will be responsible to pay twice the monthly rent for the first two months and then four times the monthly rate until the owner reclaims the premises.
Rights and Duties of Tenants and Landlords
The Act prohibits the tenant from subletting the premises or any portion of the premises, unless the landlord and the tenant agree to a supplementary agreement, the contents of which must be sent to the rent authority within two months of the sub-tenancy agreement’s signing.
Both the tenant and the landlord are responsible for the upkeep and repair of the premises. The act’s second schedule also specifies the division of obligations for premise maintenance between tenants and landlords. In the event that the tenant fails to make repairs, the landlord may do so and take the cost of the repairs from the security deposit.
The Act prohibits the landlord from denying any essential supply or service in the premises inhabited by the tenant, and if this occurs, the tenant may file a complaint with the rent authority, which, after investigating the situation, may issue an interim order initiating the restoration of the services.
The Act prohibits the tenant from making structural changes to the premises unless the conditions of the lease agreement allow for such changes in exchange for a higher rent.
The tenant cannot be evicted by the landlord throughout the life of the tenancy agreement, unless there is a stipulation in the agreement that states otherwise or there is a legitimate requirement of land by the landlord or the landlord’s heirs in the event of the landlord’s death. The tenant, but at the other side, is required to offer a month’s notice to end the tenancy.
The Rent Courts have the authority to evict a tenant on the basis of the tenant’s unwillingness to pay rent, the tenant’s ongoing misuse of the premises despite the landlord’s notice to stop, or the tenant’s uninvited structural modifications without the landlord’s authorization, among other reasons, where an application has been made by the landlord to the rent courts.
Issues and challenges before MTA, 2021
It is necessary to examine the provisions of the ‘Model Tenancy Act, 2021’, because the Act, despite its well-intentioned efforts to develop a law that would eradicate all existing rental housing issues, falls short in some areas.
These areas are:
- Prospective operation of the Act
The MTA is prospective in nature, meaning it only applies to new lease agreements and has no bearing on existing leases. In layman’s terms, this means that existing rental agreements will be exempt from the MTA’s jurisdiction. As a result, the scope of implementation will be limited.
For instance: The pagdi system that was legalised by the Maharashtra Rent Control Act of 1999, gave tenants co-ownership and inheritance rights once they rented a property by paying a principal amount and took the property for a particular period of time. Thereafter they continued to pay a monthly rent that was often significantly less than the market rate. More than 7.5 lakh properties in Mumbai are believed to have been rented out using the pagdi system today. The MTA, if accepted by Maharashtra, will be prospective in nature, meaning it will not affect homes that are now rented out under the pagdi system.
- Excluding informal tenants
The MTA’s current standards are designed to address formal rental space while excluding informal tenants. The recommended registration systems, as previously stated, are unlikely to appeal to the informal rental market, particularly among lower-income groups. There is no penalty for failing to register an agreement, and all following provisions apply solely to agreements that have been registered. As a result, the informal rental market will be completely ignored. To address all types of rental accommodation, the MTA’s scope and coverage should be expanded.
- Adaptation of provisions by the States/Union Territories
The MTA, 2021 is only a model law that is not legally enforceable and is open to adoption by states and union territories, which might take years to fully implement if left to the states. Furthermore, states/UTs may choose not to follow the provisions because they must enact new legislation or change existing rental laws to meet their specific needs. Previously, in the case of the ‘Real Estate (Regulation and Development) Act of 2016’, once the central act was notified, the States either reduced numerous key elements or chose not to give effect to the central act’s mandatory provisions.
- Reducing flexibility for the parties
The MTA aims to achieve a balance in the tenant-landlord relationship by defining the rights and responsibilities of both parties. It does, however, set a limit on how much a tenant can pay as a security deposit to the landlord. In addition, a suggested framework for the rental agreement provides specifics on who is responsible for repairs and maintenance. These specifications, if formalised, may limit the flexibility with which tenancy agreements are framed.
- Affecting the right to privacy
The MTA mandates that all landlords and tenants submit a rental agreement to the rent authority along with a defined form. Both the tenant and the landlord must provide their Aadhaar numbers on the form, as well as self-attested copies of the card. This may be in violation of the Puttaswamy verdict from 2018, which specifies that the Aadhaar card or number can only be required for expenditure on a subsidy, benefit, or service provided by the Consolidated Fund of India. Because these are not required for registering a tenancy agreement, making the Aadhaar number necessary may be in violation of the Supreme Court ruling.
After filing a rental agreement, tenants and landlords would be given a unique identification number, according to the Model Act. The agreement’s details, as well as other documents, will be posted on the Rent Authority’s website. It’s unclear whether the parties’ personal information, such as their PAN and Aadhaar numbers, which must be given with the agreement, will also be made public. If these are shared on the internet, it may infringe on the parties’ right to privacy. The right to privacy has already been declared a fundamental right by the Supreme Court.
- Complex institutional framework
The MTA lacks a clear institutional framework and is plagued by a slew of overlapping and perplexing processes. It proposes the establishment of a rent authority, whose primary function would be to register lease agreements, which is still done by sub-registrars under the ‘Registration Act of 1908’. Why the MTA creates a new mechanism and distinct authority rather than changing the old one is puzzling.
With the introduction of a rent court and a rent tribunal sitting in appeal over the court, the multiplicity of authorities persists, however the rent authority is given congruent powers with the court. As a result, the Act calls for the establishment of a complicated grievance resolution system; which would necessitate funding, committed effort, and human resources, all of which could deter states from quickly implementing it.
- No time-bound dispute redressal for certain disputes
The MTA’s preamble aims to develop a quick adjudication procedure for tenancy-related conflicts. The MTA establishes deadlines for resolving instances involving eviction and rent payment. In certain cases, however, timelines have not been established. For example, there is no time limit set for the rent authority to resolve a dispute over the withholding of basic services or the modification of rent, among other things.
- Equitable market access is still a dream
The MTA does not do enough to ensure that tenants have equal access to the market. While the requirement of a “digital platform in the local vernacular language” may be meant to make registration easier, it is unclear how it would address gaps in digital literacy and access, particularly in the informal sector. In addition to requiring irrelevant documentation such as Aadhaar and PAN (regardless of the amount of rent), the form for registering agreements creates extra paperwork. The requirement of vernacular language may also operate against migrant tenants.
Apart from these procedural flaws, the MTA also fails to adequately protect tenants from renting discrimination, which is frequent among unmarried couples, bachelors, religious minorities, non-vegetarians, transgender people, dalits, and sexual minorities. It’s critical to solve this because a socially inclusive housing market is the only way to ensure that everyone has appropriate access to rental homes.
In addition, the vast majority of rental dwelling spaces are acquired through middlemen. The role of intermediaries in a deal is not defined under the Act. Furthermore, the MTA makes no mention of the MTA’s overriding effect on current legislation on tenancy, lease under the TPA, or licence under the Indian Easements Act, 1882 in order to achieve the MTA’s goals.
Conclusion
Over the last few decades, a dramatic change from a desire for ownership to a need for accessibility has resulted in the growth of rental housing as the most realistic and practical option. Despite the increased reliance on rental housing, the market has yet to see an expansion in the amount of money invested. The ‘Model Tenancy Act of 2021’ aims to close that gap by formalising the rental housing sector and establishing a standard legislative framework targeted at reducing housing shortages and increasing rent yields.
The MTA also ensures that any disputes that may arise throughout the tenancy time are resolved more efficiently and quickly. The law also protects the interests of both tenants and landlords in tenancies, and it outperforms its predecessor in a number of ways. The government hopes that after the states and Union Territories implement this legislation, it would increase private engagement in rental housing, alleviate the massive housing shortage across all income categories, reduce homelessness, and revitalise the ailing rental housing market.
Despite its commendable aspects, the law’s success, like those of other model policies, remains largely questionable. The lack of institutional backing, enough resources, and devoted efforts, the states’ prerogatives, combined with their likely refusal to adopt the policy, could diminish it’s effectiveness. The lack of investor interest in the housing sector could potentially be deadly to the law’s aim of a “Housing for All” strategy.
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