How Model Tenancy Act Can Impact the Rental Real Estate Scenario
The MTA is a proposed model for all states/UTs to use in revising existing local rent control laws to meet the current needs of the real estate market. Here's a brief on the model tenancy act. The Act was published in 2019 and approved by the Union Cabinet on June 2, 2021. The Pradhan Mantri Aawas Yojana (PMAY-U) and the 2011 Census report supposed the move. The housing scheme (PMAY-U) aims to provide affordable housing to various groups of people, and one way to achieve this goal is to unlock vacant houses across the country. According to the 2011 census report, there were approximately 24.67 million empty houses in India, with about 11.09 million in urban areas. Over 1.1 crore houses in urban areas were vacant, and making these houses available for rent would complement the government's vision of "Housing for All" by 2022. Introduction to the law The MTA is a proposed model for all states and territories to amend their existing local rent control laws to meet the current real estate market needs. Model Tenancy Act 2021 which states that the States and union territories will legislate or amend existing rental laws according to the memorandum of understanding signed between the states and union territories under PMAY-U. However, the MTA is prospective and only applies to new tenancy agreements, not existing ones. How to enter a tenancy agreement? The most significant change brought about by MTA is the requirement that tenants and landlords sign a Tenancy Agreement. Both parties must jointly notify the Rent Authority by submitting the form found in Schedule 1 of the MTA and the required documents to the Rent Authority's website/digital platform. The said submission must be made within two months of the agreement's execution date. If the parties fail to notify each other jointly, they must do so separately within one month of the two months expiring. The rent authority shall provide a unique identification number to the parties and upload the details of the tenancy agreement on their website in the vernacular language or the language of the State/UT within seven working days after receiving information on the execution of the said agreement along with the documents. Rent: The tenant is responsible for paying the rent according to the terms of the agreement. The Landlord is unable to change the rent without the tenant's consent. The Security Deposit must be paid in advance and cannot be more than two months' rent for residential properties and six months' rent for non-residential properties. After making the required repairs, the Security Deposit will get refunded to the tenant on the date of taking over vacant possession of the premises. Rights and duties of tenants Rights To obtain a receipt/bank acknowledgment for rent payment. To pay the rent to the Landlord via postal money order or to the Rent Authority if the Landlord refuses to accept rent. After giving the Landlord 15 days' notice to vacate the uninhabitable premises Duties Maintenance of the premises, such as drain cleaning, changing tap washers and taps, washbasin repairs, switch and socket repairs, and so on (Schedule 2) Take reasonable care of the property and notify the Landlord if anything goes wrong. Rights and duties of landlords Rights 1. To collect rent and other fees as agreed upon in the tenancy agreement. 2. After 24 hours' notice, enter the premises for inspection, maintenance, or reasonable cause, but not before sunrise or after sunset. 3. If the tenant fails to maintain the premises, charges will get deducted from the security deposit. Duties Structural repairs, wall whitewashing, plumbing pipe replacement, electrical wiring maintenance Provide essential services to tenants Need for the Act
Vacant houses are increasing In recent years, the number of vacant houses in urban India has increased exponentially. The lack of appropriate legislation for the rental housing market stakeholders could motivate the government to pass the aforementioned bill. The percentage of vacant houses in India's major cities remains very high. While Gurugram has 25.8% of the total vacant homes in India, Pune is second with 21.7%, and Mumbai is third with 15.3% of the total vacant stock in India. Once the bill receives approval from all states and UTs, the vacant stock can be brought under the purview of organized rental housing, as stakeholders – tenants and landlords – may find it easier to bridge the trust gap and unlock the actual utility of this housing stock. Role of property managers The MTA is not silent on the role of rental housing intermediaries/brokers/property managers/rental agents, and it defines them, their roles, and the consequences of violation. Any person or legal entity authorized by the Landlord to manage the premises or acts on behalf of the Landlord, tenant, or both in a renting premises transaction and receives remuneration, fees, or other charges for his services will be included here. Furthermore, the MTA establishes accountability for property managers, requiring them to provide name, address, PAN number, Aadhar number, and contact information for submission to rent authorities. Property managers welcome the MTA because it will provide them with more opportunities in the residential sector in the future. The new dispute resolution framework Tenancy disagreements between landlords and tenants are common in India. Even though rent control laws exist in every state, conflicts are unavoidable. The lack of regulation has been one of the most significant deterrents to landlords renting out their properties. With the introduction of the MTA, a three-tier dispute resolution structure comprised of Rent Authority, Rent Courts, and Rent Tribunals was created, which would help reduce the burden on the Civil Courts by diverting the load on these authorities. Rent Courts/Tribunals with personnel not below the rank of Additional Collector/Additional District Judge shall make every effort to resolve cases expeditiously and within 60 days of receipt of the application or appeal. Challenges faced by the Act Force majeure The definition has included any situation of war, flood, drought, fire, cyclone, earthquake, or other natural calamity affecting the tenant's habitation in the premises rented out. Although the model tenancy act 2021 which states the residential and commercial tenancy, it is unclear how the definition has finally linked to the residential tenancy after expressing the types of events. The states must make some changes and clarify who is responsible and bears the risk during force majeure events. Digitalization The MTA allows uploading information and documents submitted by applicants/parties to the Rent Authority's portal. So, according to the statute, every district would have a Rent Authority and thus would be required to set up a digital platform. Instead of having a different portal for each Rent Authority, there is undoubtedly a need for a unified portal across the country. The Central Government should organize to save time and money. The availability of information is a well-established tenet of informed decision-making in the digital age. Any delay in establishing digital platforms or Rent Authorities could have serious consequences. Exclusion of certain property The MTA excludes property such as premises owned or promoted by the Central Government/State Government/Union Territory Administration/local authority/ Government undertaking/ enterprise/statutory body/ Cantonment Board/ company/ University/organization/ religious institutions notified by state government/ charitable trusts/ Auqaf under Waqf Act, 1995, or any building specifically exempted for the public interest. Such exclusion will keep a large portion of vacant stock out of the regulatory framework, requiring stakeholders to rely on other legal resources for dispute resolution. Under what circumstances can the Landlord break the agreement and evict the tenant? The Landlord cannot evict the tenant while the tenancy agreement is still in effect. However, the Landlord can apply to the Rent Authority for eviction on the following grounds: 1. If the tenant refuses to pay the rent according to the tenancy agreement terms 2. If the tenant has not paid the rent and other fees for two months in a row 3. If the tenant takes possession of any part of the premises without the Landlord's written permission 4. Even after receiving notice from the Landlord, the tenant misuses the property (including immoral, illegal, and public nuisance activities). 5. If the Landlord needs to do some construction work on the property, that cannot be done without vacating the property. 6. If the tenant has given a written notice to vacate the premises, the Landlord stands to lose money if possession is not granted. 7. If the tenant has made any structural changes without the Landlord's written permission Can a tenant or a landlord file a complaint against the other? Yes, both parties can file an application or appeal with affidavits and documents before the Rent Court or Rent Tribunal, as the case may be. The Rent Court/Tribunal acts under the Code of Civil Procedure for various purposes, including summons issuance, affidavit evidence, witness examination, and so on. The Court/Tribunal, on the other hand, is guided by natural justice principles and is free to regulate its own procedure. Does the agreement become null and void if the Landlord dies? Yes, in the event of the Landlord's death, the legal heirs of the deceased Landlord can file an eviction application with the Rent Court. Suppose the court determines that the applicant/legal heirs have a bonafide need for the premises. In that case, an order will be issued against the tenant for handing over vacant possession of the premises to the legal heirs of the deceased Landlord. What if the Landlord makes structural changes and raises the rent during the tenancy? Frequently, the Landlord begins construction work during the tenancy period and incurs costs for alterations, improvements, and structural changes that are not necessary repairs to be carried out in the premises occupied by the tenant, putting pressure on the tenant to request a rent increase. In such cases, rent can only get increased if the Landlord and tenant sign a written agreement before the work begins, according to Section 9(2) of the MTA. In addition, the said rent would be applied one month after completing work. To Conclude: The central government's intention appears to be toward progress and the formalization of the real estate market. The Model Tenancy Act’s goal is to make the country's rental housing market vibrant, sustainable, and inclusive. It will help alleviate stakeholders' concerns and enable landlords to unlock vacant properties and create adequate housing stock for all income groups, thereby addressing the issue of homelessness. However, the Act is still in its early stages and must deal with time-consuming procedures before implementation. The identification and appointment of personnel for Rent Authorities, Rent Courts, and Rent Tribunals would be a time-consuming process requiring adequate time for the MTA's on-the-ground implementation.