Model Tenancy Act 2021: Revolutionizing the Rental Market

Introduction

The Prime minister and its council of ministers on June 2 approved The Model Tenancy Act, 2021(MTA)[i] by introducing a new codification of law, thereby altering the existing law. The new model act is expected to improve the existing laws. The act tries to reduce the disputes between the parties by clearly stating the responsibilities between them, it also provides for a robust process for quick dispute resolution. MTA aims to protect and balance the rights and interests of both tenants and landowners to promote rental housing.[ii] It allows the establishment of suitable rental housing for all income brackets and encourages private companies to engage in rental housing as a business model to address the enormous scarcity. It also aims for a speedy dispute redressal mechanism.

Provision of the Model Tenancy Act

Cap on the security deposit will be an utmost of two months of monthly rent for residential premises and six months of monthly rent for Commercial premises. The tenant will not be responsible for the maintenance of the structural property, it is to be governed by the landlord. Another important provision for the tenant is that a landlord cannot cut power, water supply in case of disputes between the owner and the tenant, in such a situation a fine can be imposed on the landlord. The landlord cannot increase the amount of rent within the time period stated in the agreement.

Protection is also given to the tenant if the rent is increased after the agreement is finished, in such a situation three notice in writing is to be given. The landlord has to give the occupant a notice of twenty-four hours prior to entering the property or for occupying the property for repair work. MTA forbids the occupant from sub-letting the property to anyone without the written permission of the landlord. After the end of the agreement period mentioned between the parties, if the landlord refuses to move out or overstays in the property, then the tenant must pay double the rent as fine for the next two months. Two months after the expiry of the agreement the landlord will be entitled to fourfold of rent thereafter. In case of request in resumption or extension of the agreement, the rent to be paid will be in accordance with the market norms. The landlord is now not entirely responsible for the maintenance of the property, minute repairs will have to be looked at by the tenant. Moreover, the occupant cannot change the structural design of the property which is on rent without a written agreement by the landlord. The act covers the rent agreements of the future, it does not hold any provision for precious rent agreements. MTA makes it compulsory for everyone that the agreement will be in a written format and the Rent Authority must be informed about the agreement. The act provides for a three-level dispute resolution mechanism which includes the Rent Authority, Rent Court; and Rent tribunal. The state must establish rent control and rent tribunal in every State or Union Territory. A civil court cannot have jurisdiction over disputes bearing its regulations underneath the MTA. Therefore the Civil procedure is not adopted, it has been given the provisions to adopt its own set of procedures.

Analysis of Model Tenancy Act

The law provides for a structured rental housing market by providing a free open market, it encourages the construction of rental housing for all income groups and eliminates housing shortages. The bill establishes a unified ecosystem that is currently lacking in the rental market, also makes the necessary arrangements and provides specific guidelines. Balancing the rights between the two will ensure transparency and accountability. A transparent renting law is good for both landlords and tenants because it will instil confidence in participants in the rental property market and close the gap between supply and demand. This law may also lead to increased demand from investors who want to use leasing as a profitable business. The law abolishes oral agreements and enforces written agreements, which is positive and may lead to avoiding conflicts. The MTA though is satisfactory and seems to be a well-thought law when it comes to rental housing, but it is inadequate in many other respects. The present rent management and abidance regulations largely tilt in the favour of the tenants, the new model act is expected to change this situation.

The MTA establishes prescribed compensation parameters to prevent tenants from moving out of the house. The capping on security deposit is necessary if looked from the point of view of tenants, many metropolitan cities, the tenant is charged huge amounts of money as the security deposit. But we believe the financials of the rental agreement should have been left to the Market forces as capping on the security deposit will not be ideal for many states where security is more and the rent taken is less. The margin limits on a security deposit for urban and rural areas should also be different. Moreover, the law is applicable for renting for residential and commercial use, and there are no regulations for industrial use. In case of a hike in rent, the provision of providing notice of increase in rent will be provided to the tenant giving an appropriate time to make adequate correspondence in the situation. The excellent takeaway is the procedure of Civil procedure code is not adopted and rent court and tribunal can decide matters according to their own established procedure, this provision can provide speedy resolution in a case of a dispute. Currently, disputes related to renting are resolved by civil courts, considering the number of complaints in civil courts, rendering a judgment is a lengthy process. Since there will be a specific platform to resolve such disputes, finding a solution will be easier and will take less time. The renting authority should also establish a website to facilitate the submission process with the digitization of agreements, the renting industry will be more organized and supervision will be more complete. The meaning of occupant does not include inheritance after the death of the occupant. For a better-renting market, these violations must be resolved in turn.

Another drawback is that the MTA is completely avoiding the handling of leave and license agreements which is considered a major elimination of an aspect. In the term of force majeure the words pandemic, epidemic and lockdown are not included, which is a drawback in the prevailing circumstances. Further, MTA requires the parties in agreement to approach the Rent Authority in regard to the filing of documents. It requires submitting Aadhaar card numbers. This could violate the Supreme Court judgement of Justice K. S. Puttaswamy and Anr. v. Union of India and Ors (2018)[iii] states that requiring an Aadhaar card is necessary only for expenditure purposes. MTA additionally requires uploading details of the agreement on the official website. Therefore the people are unsure if their personal details will be available for the public at large, in doing so the right of privacy will be infringing upon. Also, timelines have not been specified for certain cases.

The Model Act does not specify a timeline within which, the Rent Authority must resolve a dispute on the revision of rent and adjudication of cases around violations by a property manager. The land is a state subject under schedule 7, Article 347 of the Indian Constitution,[iv] as a result, the states and union territories are free to adopt the model act or to avoid making any changes. Furthermore, the law on MTA is applicable prospectively, it will not be applicable to the existing tenancies. This is a huge drawback as there will be no relief provided to the existing tenancy agreement. Once the model tenancy act comes into force there could be an issue of the tremendous amount of cases that could be filed in the rent authority, the rent authority should be capable enough to dispose of them quickly. Further as an overview, the act at large provides provisions mainly for the tenancy agreement, it does not focus on the affordability of rents for the poor.

Conclusion

We believe the model tenancy act is a revolutionary move by the government. It is definitely the way forward. The model act creates the necessary legal framework to promote rental housing. MTA can fuel up the housing supply pipeline by attracting more investors. It can also help people gain accommodation, especially in covid like exigencies. Although the act is a transformative move for the rental region, it doesn’t take into account the realistic angle like the execution of the act by States. There will be some modifications required by states for its improvement. We believe indicative guidelines would have been more convenient. Also, there is a need for incentivizing tenants and landlords through subsidies and tax exemption. The success of the act will eventually depend on external elements of the government.

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[i] Model Tenancy Act, 2021.

[ii] Model Tenancy Act, 2021 Gets Approved By The Cabinet – Key Features

https://www.mondaq.com/india/landlord-tenant–leases/1086586/model-tenancy-act-2021-gets-approved-by-the-cabinet-key-features.

[iii] Justice K. S. Puttaswamy and Anr. Vs Union of India And Ors, Writ Petition (Civil) No. 494 of 2012, (2017) 10 SCC 1.

[iv] Constitution of India, 1950.

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This article is written by Aayush Akar, Student, National Law University Odisha and Aryan Shah, Student, Government Law College, Mumbai.