The rental market in India has long been fragmented and underdeveloped, invariably creating pressure on the real estate market. The leasing and renting of residential properties still falls under the purview of the Rent Control Act, with each state having its own version. In the absence of proper legislation, tenant-landlord conflicts are quite common, leading to lengthy litigation.
Despite an acute housing shortage, more than 1.10 lakh homes are lying vacant in urban areas. And the absence of a sound rental policy is the key reason for this. Therefore, the immediate implementation of a sound rental policy is a must.
The Model Tenancy Act, 2020 aims to bridge the trust deficit between tenants and landlords by clearly delineating their obligations. To ensure speedy redressal of disputes, it also proposes to establish rent court and tribunal.
The creation of rental housing stock will help students, working professionals and the migrant population (especially in COVID-19-like exigencies) to find accommodation. Once implemented, it will benefit one and all.
Why India needs a rent law
While there is an acute housing shortage in India, the vacancy levels of homes are riseing. According to the National Census, vacant houses accounted for around 12 percent of the urban housing stock. These vacant homes can feed the rental market but various factors come in the way. These include:
- Lack of a sound rental policy
- Low rental yield accrued from residential properties, averaging not more than 3 percent in major cities
- Lack of demand in far-flung areas due to connectivity and physical infrastructure issues.
- COVID-19 saw lakhs of migrant workers return to their hometowns. The key reason for their return was the non-availability of affordable accommodation in cities amidst almost zero income.
Atmanirbhar Bharat–rental housing for migrants
Acknowledging the plight and mass exodus of countless workers from cities during the lockdown, finance minister Nirmala Sitharaman unveiled a new scheme for the urban poor under the PMAY—Affordable Rental Housing Complexes (ARHC).
Due to ample employment opportunities, a large number of people move to the cities. However, the absence of affordable rental housing led to a mass exodus of these migrants who had zero income during the lockdown. Thus, the government had to shift the gears of their Housing for All initiative to include affordable rental housing.
Under the scheme, the government-funded housing in cities is being converted into ARHC via the public-private partnership (PPP) model and government housing complexes lying vacant will be converted and rented out to migrants at concessional rates.
To begin with, the government plans to use around one lakh unused units built under the JNNURM and the Rajiv Awas Yojana (RAY)—the previous government’s urban upgrade and housing programmes)—to provide rental housing. The monthly rentals ARHCs homes are likely to be fixed between Rs 1,000 and Rs 3,000.
Besides addressing the woes of urban migrants)—a person or group of people/ families of EWS/ LIG categories)—it will also aid in fulfilling the government’s ambitious initiative of Housing for All by 2022.
ARHC will be implemented through two models:
- By utilising existing government-funded vacant houses by converting them into ARHCs under public-private partnership.
- Construction, operation and maintenance of ARHCs by private or public entities on their land.
Individual or groups may book their requirement via government website (i.e. www.arhc.mohua.gov.in). Concessionaire or an entity may also tie-up with other organisations and also get migrant labours or urban poor through aggregators. The scheme is an attempt to bridge the shortfall in dwelling units across the country. It will also add another asset class to be considered by developers.
Salient features of the draft Model Tenancy Act, 2020
The government has proposed guidelines that enforce rental contracts and protect the rights of landlords as well as tenants. Some of the notable features of the draft Model Tenancy Act, 2020, are:
- After commencement of the act, all premises (residential or commercial) shall be rented only after a written agreement on mutually agreed terms.
- The act will provide for a fast-track quasi-judicial mechanism for adjudication of disputes.
- Security deposit has been capped to a maximum of two months’ rent for residential property. In the case of non-residential property, it shall be as per the terms of the tenancy agreement subject to a maximum of six months’ rent.
- Security deposit to be refunded by the landlord at the time of taking over vacant possession of the premises after making due deductions, if any.
- The landlord is entitled to get a compensation of double the monthly rent for two months and four times the monthly rent if a tenant does not vacate the premises after tenancy has been terminated by order, notice or as per agreement.
- If the term of the tenancy ends at the time when the locality (where rented premises is situated) experiences any force majeure event, the landlord shall allow the tenant to continue possession of premises for one month from the cessation of such force majeure event on the same terms of the prevailing tenancy agreement.
- The tenant cannot sublet a part or the whole property or carry out any structural change without execution of the supplementary agreement between landlord and tenant.
- The proposed rent authority must be informed about the rental agreement within two months of its signing.
- An officer of the rank of deputy collector or higher will act as rent authority to adjudicate any issue arising out of a rental disagreement.
- Additional collector or additional district magistrate or an officer of equivalent rank shall be the rent court for the purposes of this act, within his jurisdiction. A district judge or additional district judge to be appointed as rent tribunal in each district.
Not without hitches but the right step
While proposals of the act have been widely welcomed, their implementation could be a challenge. The act will not be binding on the states, as land and urban development are state subjects. It is still a matter of choice for states and Union Territories to repeal or amend their existing acts. Like in the case with RERA, the fear is that states may choose not to follow guidelines, diluting the essence of the Model Act.
Another pain-point could be the cap on the security deposit, which is unlikely to find favour with many landlords. In cities like Bengaluru, the norm is a 10-month security deposit as a two-month deposit is unlikely to cover any damage to the property or a default in rent payment.
Despite these challenges, the draft tenancy act must be lauded and is a step in the right direction. It provides a clear roadmap for states to follow and tweak according to local conditions and market.
It remains to be seen to what extent the states will toe the Centre's line. A fair and balanced tenancy law protecting the rights of all parties will go a long way in formalising and stabilising the rental market. If enforced by states in letter and spirit, it could revive the fortunes of not just the rental market but the housing sector at large.