New tenancy law will increase supply of rental property, formalize the segment through a legal framework and protect the interests of both the tenant and the landlord, reports AMIT AGNIHOTRI
In order to regulate the rental housing market in India, increase supply of rental property, formalize the segment through a legal framework and protect the interests of both the tenant and the landlord, the Centre has recently approved the Model Tenancy Act, 2021.
As per Census 2011, nearly 1.1 crore houses were lying vacant in the country while demand for rental housing has been growing since then with people migrating from rural areas to smaller cities and from there to bigger cities in search of better opportunities.
As per the 2011 census, urban households on rent stood at over 21 million, which was around 20 percent of the total number of houses in urban India. Almost 80 percent of the rental housing market in the country is concentrated in the urban centres.
The earlier rent control laws in the country were restricting the growth of the rental housing segment and discouraging the owners from renting out their vacant houses due to fear of repossession.
The model law aims to bring transparency and accountability in the existing system of renting of premises and tries to balance the interests of both the property owner and tenant in a judicious manner.
The new law also aims to address the issue of homelessness by increasing the supply of rental property and curbing arbitrary rental hikes, especially in the metro cities.
The model act further aims to overhaul the legal framework with respect to rental housing across the country and spur overall growth of the segment while creating a vibrant, sustainable and an inclusive market.
The model law is expected to enable institutionalization of the rental housing segment by gradually shifting it towards the formal market and is expected to give fillip to private participation in rental housing as a business model for addressing the huge housing shortage in the country.
Piloted by the Union Ministry of Housing and Urban Affairs, the model tenancy act, 2021 was cleared by the Union Cabinet on June 2.
The act is a model law and is not binding on the states, which can either enact a fresh legislation or amend their existing rules as per the central legislation. According to experts, the model act would help create more options for those looking out to rent a house.
The new law would also help control the rent rates from surging irrationally in the expensive localities of a metro which forces people to move to far-off locations, where the rentals are affordable, and adds to their commute time and cost.
The government had first released the draft act in 2019 with an aim to bridge the trust gap between tenants and landlords by clearly defining their obligations.The new law addresses a host of issues faced by tenants and owners and attempts to spur the rental housing segment yet challenges remain.
There are several owner-friendly guidelines in the model law for transfer of rent agreement,property damages, and curb on sub-letting, which may help the NRIs to rent out their houses.Usually, owners, including NRIs, who have invested in residential property, are apprehensive of renting out their property for fear of losing it to the tenant.Earlier, a tenant who had lived in a rental property for a fairly long period, would refuse to vacate it and claim ownership, and in many cases grab the property through unfair means.
There were also instances of tenants delaying payment of monthly rent and tenants over staying the duration of the agreement.Likewise, there used to be cases where tenants were evicted at short notice or without notice, rents were hiked arbitrarily and tenants had to bear extra costs of maintenance and repairs or struggled to get their security deposits.All these issues have been addressed in the model law.
Earlier, tenants in the metros used to face hardship as security deposit for rental properties was as high as five to 10 months of rent. But as per the new law, security deposit has been fixed at two month’s rent for residential properties with a condition that the owner will have to refund security deposit within a month when the tenant vacates it.In case of non-residential property, the security deposit will have a minimum one month rent and may go up to six months rent.In the new law, tenants who do not follow the rent agreement clauses will be heavily fined. For instance, in case of overstay, the tenant will have to pay double the rent for a two months delay and the amount may go up to four times for the period after that.In a major relief, tenants would not have to bother about all the maintenance and repair work, which will have to be undertaken by the owner of the property.
These responsibilities will cover whitewashing of walls and painting of windows, doors etc. Also, before carrying out any repairs, the owner will have to give a 24-hour notice to the tenant.Further, the owner would not be able to hike rent in the middle of the agreement tenure and before any rental hike, the owner would have to alert the tenant at least three months in advance.
The model act proposes rent and duration of tenancy to be fixed by mutual consent between the tenant and the owner through a written agreement.There would however be no ceiling to determine the financial value of rent.Misuse includes public nuisance, damage, or use for moral or illegal purposes, if a tenant refuses to vacate, the owner can claim double rent for two months and four times monthly rent after that.As per the act, no landlord can withhold any essential supply to the premises occupied by the tenant like electricity or water.
Further, unless agreed in the agreement, the owner will be responsible for activities like structural repairs except those necessitated by damage caused by the tenant, whitewashing of walls, and painting of doors, changing and plumbing pipes when necessary and internal and external electrical wiring and related maintenance when necessary.
The new law will be applicable prospectively and will not affect the existing tenancies. Within two months of executing the rental agreement both the landowner and the tenant are required to intimate to the Rent Authority about the agreement and within seven days a unique identification number will be issued by authority to both the parties.A digital platform will be set up in the local vernacular language of the state for submitting tenancy agreement and other documents.
There will be no arbitrary eviction of tenants during tenancy, except as per law. The Rent Court can allow repossession by landlord if a tenant misuses premises after being given notice by owner.The law aims to set up a robust grievance redressal mechanism through Rent Tribunal, Rent Court or Rent Authority in each state and UT for faster resolution of disputes between the tenants and the landlords.The law will also promote growth of rental housing and investment in the sector and promote entrepreneurial opportunities and innovative mechanisms for sharing of space.
Among the challenges the rental housing segment faces are implementation of the new law in areas where a heavy security deposit is a norm, there is default of rent payment or a damage to property takes place. In some cases, a two-month security deposit may not be sufficient to take care of such costs.As land is a state subject, the shape the new law will take will finally depend on how the respective states merge the model act with their own versions of tenancy laws which have evolved over decades. Also, how soon would the states be able to bring their own tenancy laws in consonance with the model act.Such a practice may create a disparity in the implementation of the new law in different states.
Also, quick resolution of disputes would be an issue with people even for prospective agreements given the time taken for such matters to be resolved by the competent authorities despite sincere efforts.
Rental housing plan
In 2020, as many as 24 states and Union Territories had signed agreements with the central government for implementation of the affordable rental housing complexes (ARHC) scheme mooted by the Ministry of Housing and Urban Affairs.
The initiative emanated from the plight and migration of workers during the lockdown to curb spread of Covid-19.Absence of affordable rental housing in major cities led to mass exodus of migrants that had zero income during the lockdown.