Personal Finance

What Model Tenancy Act could mean to you

Meera Siva | Updated on July 14, 2019 Published on July 13, 2019

It sets limits on security deposits and provides for speedy dispute resolution

Budget 2019 signalled a perceptible shift in the government’s approach to housing: in addition to the traditional focus on home ownership, this time there was mention of home rentals as well. And as was mentioned in the Budget, the Model Tenancy Act, 2019 was published soon after. It works as a template for a Tenancy Act that States can bring in, with perhaps a bit of discretion to tweak it on the margins.

The reason for acknowledging home rentals as one of the channels to solve the housing shortage is logical. An estimated 11 million homes are said to be vacant, according to Census 2011. In urban areas, the share of people living in rented homes has come down from 54 per cent in 1961 to 28 per cent, according to the Economic Survey 2017-18. Over 10 per cent of the housing stock in major cities is unoccupied. Finding ways to make them available will help improve housing availability.

While this may be deemed to be a good situation for tenants, the change also gives homeowners some reason for cheer.

Status quo

Why is a new Act required to get more homes in the rental market? One, the housing rental market has been a Wild West with no enforceable rules. For instance, only rental agreements for periods of over one year had to be registered, and 11-month agreements were used to circumvent the provision.

Two, the current laws that govern rental properties were generally considered tenant-friendly. For example, rent control was imposed on properties at very low rates. Also, the owner could not evict the tenant or take any action if the agreement terms were not adhered to. Prolonged court cases, loss of rent and possession, and possibly the erosion in value owing to poor maintenance by tenants: these were the grim possibilities that led owners to keep their house locked up rather than rent it out.

Three, many regulations that relate to property rental are quite confusing. States have different Acts for short-term stay, lease and long-term rental. Four, regulations varied from State to State and often did not cover many important aspects of the owner-tenant relationship. For instance, the role of a property manager was not recognised.

Key features

For a landlord, the Model Tenancy Act has some key benefits. For one, there is no ceiling on rent, and it is left to market forces to determine this. There is even a provision for increasing the rent after you renovate the house. If structural and other improvements have been made, the landlord will have the right to ask for a higher rent. If the tenant does not vacate the premises after the rent agreement term expires, the landlord can charge double the monthly rent for two months and four times the monthly rent after that.

The tenant must give one month’s notice before vacating the premises, and cannot sub-let it without the written permission of the owner.

Owners can secure possession of the home for repair, rebuilding, alterations or demolition. The circumstances under which a tenant can be evicted have also been laid out: if there are rent defaults for two consecutive months or there is misuse of property.

Tenants, too, have provisions that protect their interest. For instance, a tenant can ask for a rent reduction if the building structure has deteriorated and the owner does not undertake renovations.

And the days when an owner comes unannounced to the rented premises at odd hours will be gone: owners must give tenants written or electronic notice of at least one day in advance to enter the premises, and schedule a visit only between 7 am and 8 pm. Also, the owner cannot cut off or withhold any essential supply or service without proper cause.

Under the Model Tenancy Act, landlords must give a written receipt for any payment made by tenants; failing to provide this is a punishable offence. Deposits are capped at two months’ rent in for residential property, and one month’s rent in the case of non-residential property.

Resolving disputes

One of the points of interest to both parties relates to the mechanism and deadlilnes for dispute resolution. Civil courts will no longer hear rent-related cases , which would be handled by a Rent Authority. New Rent Courts and Rent Tribunals will be formed and tasked with resolving rent-related disputes. The Act stipulates that cases must be resolved in 60 days.

The Act requires that all agreements must be registered within two months. The Act also defines the role and responsibilities of a property manager.

Some caveats

One big concern is that the model guidelines are not binding on the States. Two, even if the States do adopt it, as happened with the Real Estate (Regulation and Development Act (RERA), it takes a long time for ground-level changes to take effect. Three, while the Act governs most properties, there are some exceptions. For instance, the provisions do not apply to buildings owned by governments, educational institutes, companies and religious or charitable organisations and a few other categories. So, tenants must check this aspect and can perhaps ask the owner to include the property under the Act by informing the Rent Authority.

The author is an independent financial consultant

Published on July 13, 2019

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