The Model Tenancy Act is being hailed as a major revolution in the rental segment. The Indian realty sector has been plagued in the recent past by several factors including distortions in the land category, zoning that has been inflexible, protected tenancies for more years and also rent control. The previous Rent Control was an attempt towards doing away with tenants being exploited by their landlords. Yet, these regulations have turned obsolete over the years, leading to several unwanted scenarios including reducing investments in the rental housing space along with reducing revenues from property tax for municipalities.
With the shortage of housing being a reality and the Government’s mission of Housing for All by 2022, there was a strong need to actually give a boost to the rental housing market with a few incentives. In the first Union Budget for FY2019-20 presented by the new Union Finance Minister, Nirmala Sitharaman, she actually talked of how previous rental laws need to be modified since they do not adopt realistic approaches towards managing the relationships between lessees and lessors.
This is where the Model Tenancy Act of 2019 is a major move by the Central Government and may help usher in more modernization for this segment. How does it impact you however? Here are some of the key tenets of this Act and its provisions which will help you get a clearer picture.
- Prospectively Applicable- The Model Tenancy Act will apply in case of premises which have been let out for educational, commercial and residential usage but not for industrial purposes. There will also be no coverage under the Act for lodging houses, hotels and inns among other hospitality businesses. The law will be prospectively applicable without impacting any current tenancies.
- Security Deposit Cap- The new Act attempts at setting down a clear regulation for the security deposit. The Act has proposed a limit to the security deposit at 2 months with regard to residential units and 1 month in case of non-residential units. This may be an issue for landlords, particularly in metro cities where 6-12 months’ security deposit is often the usual practice. Additionally, in case of any damage to the property by the tenant or defaults, a 2 month deposit amount may not be enough for covering expenditure of the property owner.
- Rent increase regulations- The Act attempts at tackling the issue of rent increases. Section 9(2) of the Model Tenancy Act proposes that rent may be raised based on the agreement’s terms and conditions or the land-owner has to provide a written notice 3 months prior to the implementation of the revised rent. This may either be accepted by the tenant or a notice should be given for terminating the agreement. In case of failure of the tenant to reply to the notice for a rent increase, he/she will be deemed to have given acceptance to the rent increase as proposed by the property owner.
- Intimation to the Authority- There is a form covering information of the tenancy as notified in the first schedule for the law, which has to be filed with the requisite Authority in tandem with the KYC (know your customer) documents of the property owner and tenant alike within 2 months of the agreement. A digital platform will be established in the local vernacular language of the State for tenancy agreement submissions and KYC papers. The Act proposes that information filed with the Authority will be treated as evidence of the facts of the tenancy. In case of any information being absent, the agreement will not be received solely as evidence in any court of law.
- Vacating the Premises- The Act will be imposing hefty fines on tenants who do not vacate the premises of the landlord in a timely manner. Under Section 22 regulations, landowners can get compensation which is double of the monthly rent amount for 2 months and 4 times of the monthly rent amount afterwards for the occupation and usage of his/her premises by the tenant who does not vacate even after the termination of the tenancy as per the agreement/notice/order.
- Grievance Redressal- In case of any disputes between tenants and owners, the Model Tenancy Act mandates a mechanism involving the Rent Court, Rent Authority and Rent Tribunal in particular zones for dispute settlement within a period of 60 days. An officer, at least of the rank of Deputy Collector will be the Rent Authority with approval from the Rent Court, Rent Tribunal and State Government and presiding officers with a background in judicial services have already been vested civil court powers under the Code of Civil Procedure, 1908.
- Adherence by States- The Central Government remains confident of the State Governments and Union Territories supporting the Model Tenancy Act of 109. States have already inked MoUs (memorandums of understanding) and based on the same, they will either be implementing this Act or aligning their current rental laws with the same.
What is interesting to note is that land is always a State subject. Hence, whether or not State Governments fully implement the Model Tenancy Act of 2019 is something that only time will tell. In case this is suitably implemented, the rental housing market in India will receive a major boost as per several experts.
So, if you’re thinking of renting out your second home to a tenant or thinking of renting any property from a landlord anytime soon, these are the provisions that you should set store by.