The government of India has recently approved the Model Tenancy Act, which aims to reduce disputes between landlords and tenants. The Act tries to provide housing for all by making the option of renting out easier so that the unoccupied houses can be occupied on rent that is more affordable for the renters looking to find an accommodation.
The new framework offers a renewed transparency and accountability with clear and standardized rules laid down in the written agreement between the owner and the renter.
- The landlord may take a security deposit of upto two month’s rent
- No rules beyond the ones laid down in the agreement can be imposed by the landlord on the tenant
- Increment in rent is to be notified in writing at least three months prior to the date of updated rent
- The scope and limit of nature and expense of repair work is pre-decided to be borne by either party.
- The act is applicable in urban as well as rural areas
- On failure to vacate the premises after the expiration of agreement, the rent of the following two months shall be two times the original rent, and four times thereafter.
- All disagreements and disputes arising will be resolved at three levels, within a cap of 60 days at each level
Some of its top provisions include:
1. The end of (verbal agreements) Ambiguity
Verbal agreements, which dictated the terms of most rental agreements, were often a cause of strife and petty disputes between the stakeholders. To rectify this problem, the Act mandates for written agreement by mutual consent between the owner and the tenant. The agreement will detail the duration of the tenancy, acceptable practices, the rent amount, etc., and submitted to the district ‘Rent Authority.’ To facilitate this, the Act requires the installation of a digital platform in the local vernacular language for the submission of all the important documents.
2. An easier Grievance Redressal process
In line with the provisions of the Act, states that choose to implement it will be required to set up a three-tier grievance redressal system for a more equitable and transparent dispute resolution process. A district-level judge will oversee dispute resolution. In case a dispute arises, the aggrieved party will first approach Rent Authority, before approaching the higher tiers: ‘Rent Court’ and ‘Rent Tribunal’.
The biggest fear any landlord had was that tenant may squat on the property and then he would have to go through a long legal battle to get his property back. But, with a clear timeline of 60 days for solving any dispute, the law gives a lot of confidence to the landlords.
3. Clear Demarcation of Responsibilities
The biggest area of dispute used to be around the maintenance and arbitrary charges deducted by landlord from the security deposit. The new Act has balanced the scales through clear delineation of landlord and tenant responsibilities. Unless agreed otherwise in the written agreement, the landlord will take charge of structural repairs, whitewashing, painting of doors and windows, and plumbing and electrical maintenance, among others. The tenant, on the other hand, will take responsibility for any repairs on damage caused by them, alongside activities including drain cleaning, repair of switches, sockets, kitchen fixtures, replacement of glass panels, maintenance of gardens and open spaces, etc.
The new law also prevents the subletting of property by the tenant without the landlord’s consent. MTA disbars any structural change to the property by the tenant without the landlord’s consent while delineating provisions for vacation of property by the tenants.
4. Provisions for the protection of Tenants’ rights
The Act has lowered the cap on security deposits by a tenant to two months. The Act prohibits the landlords from withholding essential supplies for any reason. MTA also mandates for a 24-hour notice to be served to the tenants before any repair work is carried out on the property that may curtail the supply of utilities, structural repairs by the landlords, etc. In the case a landlord fails to refund the rent, they will have to pay simple interest on the refund amount to the tenant at regular intervals. Furthermore, the law ensures that tenants can’t be evicted during the tenure of their tenancy unless the details of it are furnished in writing by both parties. The Act also mandates a three-month notice before a hike in rentals to safeguard the economic interests the tenants.
5. A much-needed boost to strengthen the rental landscape
Through this law, the government plans to make the real estate sector more conducive to the creation of a migration-oriented society while facilitating a 50-50 distribution between rental and owned property. If followed in letter and spirit, the law can be the key to unlocking a huge stock of vacant properties as a way of bridging the massive housing shortage which disproportionately affects Indians from low- to middle-income groups. It had noted that according to the 2011 census, around 110 lakh houses were lying vacant.
MTA marks a watershed moment in the Indian real estate market. Its implementation can lead to several constructive developments such as uniform legislation across all states; protection of tenant and landlord rights; and a clear demarcation of stakeholder responsibilities and provisions. It is the solution to a problem too long in the tooth and may just prove to be the silver bullet required for the rejuvenation of India’s rental real estate by unlocking the vacant houses for rental purposes.
However, housing and tenancy is a state matter and the new code is introduced by the central administration. Thus, it will be enforced by individual states within their jurisdiction as per individual discretion. It will be enforced similar to how Real Estate Regulation ACt (RERA) was introduced. The enforcement of the act is also anticipated to raise issues of a rent spike in rent-controlled buildings. It is to be noted that this Act will be applicable to new agreements and there are no changes in the existing agreements even after enforcement by the respective state.