Union Cabinet approves Model Tenancy Act

The Cabinet on June 2 approved the Model Tenancy Act for circulation to the States/Union Territories for adoption. It will facilitate unlocking of vacant houses for rental housing purposes.

As per Census 2011, more than 1 crore houses are lying vacant in urban areas across the country. The existing rent control laws have been restricting the growth of rental housing and discouraging owners from renting out their vacant homes due to fear of the tenant to vacating the premises.

The Act seeks to balance the rights of both landlords and tenants to promote rental housing. MTA will be applicable prospectively and will not affect existing tenancies. Rent and duration of tenancy to be fixed by mutual consent between owner and tenant through a written agreement.

The Union Cabinet, chaired by Prime Minister Narendra Modi on June 2 approved the Model Tenancy Act for circulation to all States / Union Territories for adaptation by way of enacting fresh legislation or amending existing rental laws suitably, the government said in a statement.

It will help overhaul the legal framework with respect to rental housing across the country, which would help spur its overall growth, it said.

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The Model Tenancy Act aims at creating a vibrant, sustainable and inclusive rental housing market in the country.  It will enable creation of adequate rental housing stock for all the income groups thereby addressing the issue of homelessness.  Model Tenancy Act will enable institutionalisation of rental housing by gradually shifting it towards the formal market, a government statement said.

It is expected to give a fillip to private participation in rental housing as a business model for addressing the huge housing shortage.

The housing and urban affairs ministry had floated the draft model tenancy law in July 2019. It seeks to establish an independent authority in every state and Union Territory for registration of tenancy agreements and even a separate court to take up all tenancy-related disputes.

“The Model Tenancy Act provides a model for urban and rural properties and a template for residential and commercial properties. It will apply to future transactions and lead to specific contract arrangements between landlords and tenants. It would be a written agreement with the terms and conditions to be determined by the landlord and the tenant,” said housing and urban affairs minister Hardeep Puri.

“MTA provides an overall regulatory framework and seeks to bring more empty and vacant units into the productive, economic sphere,” he said.

Puri said that the states and union territories that have existing rules and legislations would be free to decide whether they want to amend their existing legislations or enact a new set of rules and regulations. “This is only a template/model,” he told reporters.

He said that with the implementation of the Act, more landlords will feel confident to put their premises on rent readily. Their assets that have been lying dormant, would become active, productive assets. More economic activity would mean that the country would benefit.

“MTA would ensure formalising the shadow market of rental housing, unlock vacant properties, increase rental yields, ease/remove exploitative practices, reduce procedural barriers in registration, increase transparency and discipline, which would help in reposing confidence of investors in the sector besides improving quality of rental housing stock,” he said.

MTA is expected to give a fillip to private participation in rental housing as a business model for addressing the huge housing shortage, the ministry of housing and urban affairs ministry said.

MTA Aims to create rental housing for all income groups

It will enable creation of adequate rental housing stock for all the income groups thereby addressing the issue of homelessness. Rental housing is a preferred option for students and migrants.

It will also enable institutionalisation of rental housing by gradually shifting it towards the formal market, the government statement said.

The Act will apply to premises let out for residential, commercial or educational use, but not for industrial use. It also won’t cover hotels, lodging houses, inns, etc. This model law will be applied prospectively and will not affect existing tenancies.

As per the memorandum of understanding signed between the states and union territories under PMAY-U, the states and union territories would legislate or amend the existing rental laws on the lines of the Model Tenancy Act.

After enforcement of the Act, no person shall let out take on rent any premises except by an agreement in writing.

MTA will be applicable prospectively and will not affect existing tenancies. The rent and duration of the tenancy will be fixed by mutual consent between the owner and tenant through a written agreement.

It seeks to cover both urban as well as rural areas.

There is no monetary ceiling under MTA, which enables parties to negotiate and execute the agreement on mutually agreed terms. It will give confidence to landlords to let out their vacant premises, the housing ministry said.

Tenancies to be submitted to a Rent Authority; cases to be tried in special rent courts

MTA mandates for a written agreement for all new tenancies which are to be submitted to a Rent Authority.

A digital platform will be set up in the local vernacular language or the language of the state/UT for submitting the tenancy agreement and other documents.

MTA will balance the rights and interests of both the landlords and tenants. It would avoid disputes by clarifying the roles and responsibilities of landlords as well as the tenants, the ministry said.

Time bound and robust grievance redressal mechanism comprising of the Rent Authority, Rent Court and Rent Tribunal to provide fast track resolution of disputes. The appeals and complaints will have to be disposed of by the Rent Court and Rent Tribunal within 60 days, the MTA says.

Jurisdiction of civil courts has been barred, it said.

The premises can be sublet only with the prior consent of the landlord. No structural change in the premises by tenants will be allowed without the written consent of the landlords, the MTA says.

The tenant will continue to have to pay the rent even during the pendency of the dispute with the landlord.

No tenant can be evicted during the currency of the tenancy period except in accordance with the provisions of the Act.

In case of force majeure event, the landlord will have to allow the tenant to continue in possession until a period of one month from the date of cessation of such disastrous event on the terms of existing tenancy agreement, it said.

A security deposit equal to a maximum of two months’ rent in case of residential premises and a maximum of six months’ rent in case of non-residential premises, it said.

Real estate experts welcome the move

MTA seeks to transform the property market into a more transparent and a consumer focused one which in turn will help attract best institutional investors and developers for greater participation in the country’s realty sector.

“Once implemented in all fairness across states, it will go a long way in formalising and stabilising the rental market. It would also revive the fortunes of not just the rental market but the housing sector at large. However, while the Model Tenancy Act is a step in the right direction by providing a clear roadmap for states to follow, it will remain to be seen to what extent the states will toe the central government’s line,” said Anuj Puri, Chairman - ANAROCK Property Consultants.

Shishir Baijal, Chairman & Managing Director, Knight Frank India said that the Model Tenancy Act has provisions to regulate the rights and duties of both the landlord and tenant and this shall balance the scale between both these counter parties.

“We believe this law is a step in the right direction and are glad to see that in just under two years since the introduction of model law, and amidst the pandemic, this will become a ground reality,” he said.

Builders too welcomed the move. Niranjan Hiranandani, National President, NAREDCO said that there was a need for a new law, which would make things easier for all stakeholders – tenants, landlords and investors – to transact and deal in rental housing. MTA will help overhaul the legal framework with respect to rental housing across the country, which in turn would help spur its overall growth.