Model Tenancy Act has been approved by the Union cabinet on Wednesday, June 2, 2021. The main trigger for this is the 1.1 crore vacant houses that were found to be locked and empty in the 2011 census. Chances are that this number must have risen in the past 10 years. This model law now has to be accepted and adapted by all the states and Union territories which will notify the law according to their state’s requirements.
The new tenancy law is a model Act created by the Union and each state and Union territory has to enact its own version. It mandates that all tenancy agreements will be registered with the authority with a unique registration identity. The registration agreements would be uploaded on the website of the Rent Authority with such documents as it deems fit.
There will be special tenancy and adjudicating authorities at the district level and Rent Courts as well. This may shorten the period of dispute. In fact, in the case of overstay, the tenant has to pay twice the rent for two months and then four times the rent for upto 6 months. This can be enforced by the Rent Authority.
The law is prospective and will address future problems. There is specific reference to property managers who can work on behalf of the landlords and tenants. This is an interesting feature which has the potential to create a layer of services to both the landlord and the tenant. It is beyond the property brokerage services, as is prevalent today.
The Rent Agreement will be signed in duplicate and landlord and tenant will retain an original copy each. Landlords are to provide receipts for rent and other payments. In the case of electronic transfers, bank slips will suffice.
The period of tenancy is left for agreement between the tenant and landlord. Renewal has to be within the period of tenancy. There is a three-month notice period for both tenant and landlord. Subletting is allowed only with a supplementary agreement. The rent enhancement has to be on the grounds of tenancy contract. The landlord can ask for enhanced rent for alteration, repairs or enhancement from tenants who lived before the start of the work, on mutually agreed terms.
The advance rent that a tenant has to pay the landlord has been capped at two months for residential and six months for commercial premises. This is to be paid back to the tenant after deductions for tenant liabilities.
The Rent Authority can determine the rent in case of a dispute between landlord and tenant.
If the landlord refuses to accept the rent during a dispute, the tenant can send it by money order for two months, after which it can be deposited with the Rent Authority. If the tenant is unclear whom to pay the rent to, it can be deposited with the Rent Authority to determine whom to pay it to. Withdrawal of an amount equivalent to the agreed rent does not become an admission against the landlord, no matter what claims are made by the tenant.
Responsibility of maintenance of the property in the same condition as at the start of the tenancy lies with both the landlord and tenant. Repair and maintenance of common areas should be documented in the tenancy agreement. The management and maintenance of the premises during tenancy is the tenant’s responsibility. If the tenant fails to undertake agreed repairs, the landlord can do the repairs out of the deposit amount. The tenant has to pay it back within a month of the notice issued by the landlord.
If the landlord defaults on repairs, the tenant can undertake those repairs and deduct from the rent, provided it is less than 50% of the rent for any month. If the premises are uninhabitable and the landlord refuses to repair it, the tenant can vacate within 15 days of giving a written complaint to the landlord.
If the premises become uninhabitable due to a force majeure situation, the landlord cannot charge rent till he makes it habitable. If this is not possible, rent advance and security deposit has to be refunded within 15 days of expiry of the notice period, after deducting tenant liabilities.
Landlords have to give 24 hours notice to inspect the premises or undertake repairs or for any other reason specified in the tenancy agreement. The notice has to define the reasons for entry. This entry cannot be before sunrise or after sun down. During emergency situations such as floods or fire, this condition is waived off.
There is a detailed section in the Model Act about the role of the property manager. This is new in the Indian context.
Essential services cannot be withheld by the landlord. This includes water, power and piped cooking gas supply, common area lighting, lifts, parking, communication and sanitary links. If he does so, the Rent Authority can give orders to restore it. However, an inquiry has to be held and concluded in a month. If the tenant’s
objection is valid, the landlord may be asked to pay two months rent as compensation for withholding essential services. If the objection is frivolous, the tenant has to pay two months rent to the landlord as penalty.
Eviction is an important issue in restoring landlord confidence to bring vacant stock into the rental market. Eviction orders can be served by the Rent Court on the plea of a landlord if :
- The tenant does not pay the rent agreed in the Tenancy Agreement
- The tenant does not pay the two months rent and interest, as applicable, including service charges, within a month of serving notice
- If the tenant gave away possession of part or whole of the premises without the landlord’s written consent
- If the tenant continues to misuse the premises even after being served a notice by the landlord
- If the premises have to be altered, repaired or redeveloped. Tenants can only come back if a fresh Tenancy Agreement is registered with the Rent Authority. If the landlord agrees, the tenant can be allowed to stay in part of the premises
- Tenants can be evicted if they gave a written notice of vacation after which the landlord scheduled sale or repair of the premises or if they created a permanent structure without the landlord’s permission.
- Eviction notice cannot be served to non-paying tenants if they paid the entire arrears and the compensation amount within a month of the notice served by the Rent Court. If the tenant defaults again within one year for two successive months, he shall not be given the relief again.
- In case of death of a landlord, where the legal heirs can prove the need of the premises, the tenant may be served eviction notice by the Rent Court.
If the tenant fails to vacate the premises after the term of the Rent Agreement, he has to pay twice the amount per month for two months and four times the amount for the next few months.
When the landlord gains possession of the premises, he has to refund the advances and security deposits after deducting the rent amounts and charges due to him. Failure to do so will attract simple interest on the amount due to the tenant or at the rate that is specified from time to time.
During Rent Court proceedings, if the tenant contests the landlord’s claim, he will have to pay enhanced rent and other charges to the landlord till the settlement of the issue.
If there is a piece of land where additional development is possible for the landlord or his legal heirs, in accordance with the municipal laws, the Rent Court may order the severance of the land from the tenanted property and adjust rent accordingly. The tenant is given a month for adjustments.
Model Acts are guidelines which states may adopt to best address unique circumstances. The Model Tenancy Act 2021 is one such. Land and land related rights, duties and rules are one of the 66 state subjects mentioned in the constitution, under which states have exclusive rights to make or repeal laws. Hence, states can repeal or amend existing rental laws or pass new laws to regulate rental housing, with MTA as a reference.
Important provisions under the Act
- The law is applicable prospectively and will not affect existing tenancies.
- It is not applicable on hotel, lodging house, dharamshala, inn, premises for industrial use; premises owned or promoted by the central and state governments, UT, local authority or statutory bodies, premises owned by a company, university or places given on rent to its employees as part of service contract; premises owned by religious or charitable institutions.
- Rent Authority is to be established to regulate renting of premises and to protect the interests of landlords and tenants
- Written agreement is a must for all new tenancies. The agreement will have to be submitted to the concerned District Rent Authority.
- Amount to be paid as security deposit by the tenant should not exceed two months’ rent for residential premises and six months for non-residential premises.
- Sub-letting of property may be made only with permission of landlord
- The law also spells out roles and responsibilities of landlord and tenants.
- The tenant shall not make any structural changes in the rental premises without the landlord’s consent.
- No landlord or property manager can withhold any essential supply to the premises occupied by the tenant.
- If tenancy has not been renewed, the tenancy shall be deemed to be renewed on a month-to-month basis on the same terms and conditions as in the expired tenancy agreement, for a maximum period of six months.
- Compensation in case of non-vacancy: On the expiry of extended period of six months of agreed tenancy period or the termination of tenancy by order or notice, the tenant shall be in default and liable to pay compensation of double the monthly rent for two months and four times of the monthly rent thereafter.
- The revision of rent between the landlord and the tenant shall be in accordance with the terms of the tenancy agreement.
- A landowner or property manager may enter a premise in accordance with written notice or notice through electronic medium served to the tenant at least 24 hours before the time of entry.
- Rent Courts and Rent Tribunals to be set up at district level to deal with landlord-tenant grievances on a time-bound basis though no specific timeline.
- In the case of force majeure conditions such as earthquake, cyclone, war, flood etc., certain advantages and concession shall be provided to the tenant and if the tenant is in the termination period, then leniency of an extra month shall be given for him to have enough time to vacate the premises. In case the premises has been affected so badly due to force majeure condition that it is impossible to reside in it, then the rent shall not be charged till the time the premises has been restored and made inhabitable.
With the early adoption of the Model Act, many State governments would not only benefit from higher stamp duties/registration fees but will also help clear the unsold residential inventory, which investors/landlords may use for earning rental income. As states adopt the Model Tenancy Act, we expect it to become more efficient, ensuring a level playing field for tenants and landlords. The Act aims to revamp the legal framework for rental properties in India and balance the rights and interests of both the landlords and tenants. This would result in higher economic activities, employment generation and, in the end, higher revenue for State governments.
Although it does not solve all the problems of the realty sector, it is an idea whose time has come. The Model Tenancy Act will usher in more significant economic benefits for the country as a whole. Overall, The Model Tenancy Act is a welcome step, and we should remain hopeful in anticipation of early adoption of the same by the respective State governments.