Will the proposed model tenancy act have teeth and make it easier to rent properties?
The Indian realty market continues to suffer from the strange dichotomy of a huge pent-up demand for homes and staggeringly high inventories of unsold dwellings due to unaffordable prices. At the same time, those who have purchased apartments, as an investment, hesitate to rent them out. This is because the rental housing market has been destroyed over the decades by laws and municipal rules that are biased in favour of tenants.
Even in cities like Mumbai, where short-term leave-and-licence agreements afford a degree of protection, most property-owners are unwilling to risk having tenants. Consequently, thousands of apartments lie vacant in a city that is starved of residential premises. Many of these are owned by realty ‘investors’ or developers who cannot find buyers. The numbers are staggeringly high in all metros, especially Mumbai, NCR (National Capital Region) and Bengaluru.
In theory, the government accepts the need for sensible rental agreements, but little has happened in that direction. Now that high property prices have slowed down new sales, it is time the government acted quickly to make vacant dwellings accessible to people, by reforming tenancy laws.
The National Democratic Alliance (NDA) has reportedly decided to revive the Draft Model Tenancy Act, 2015, which will replace the Rent Control Act of 1948, in an attempt to revive the rental market. Ironically, this is yet another move that the United Progressive Alliance (UPA) began, and abandoned, four years ago. The question is: Will it be good enough to encourage property-owners to safely rent out apartments?
Ashwinder Raj Singh of Jones Lang Lasalle, a property consultant, writes that the draft tenancy Act is well-balanced. It will allow landlords to charge market rates and also revise rents periodically or have the property vacated without long and expensive legal battles. At the same time, he says, “There will be a rent ceiling which will be fixed in consultation with the state government to avoid arbitrary hikes.” Also, the security deposit paid by tenants will be capped at three times the monthly rent and the conditions under which landlords will be able to evict tenants will form a part of the written agreement. Further, Mr Singh says, “Tenants can claim a reduction in rent if the quality of services available deteriorates in any way.” It is not clear how this ‘model’ rent agreement will allow landlords to avoid any of the issues that exist today. Any law that allows the government to ‘fix’ a ceiling, instead of allowing market forces to decide rentals, will only perpetuate the current distorted market.
Instead, if the government makes it safe for landlords to rent apartments, to be able to collect the rent on time or evict recalcitrant tenants, thousands of apartments in all Indian cities will immediately come to the market for use. The free and easy availability of rented property will automatically keep rentals as well as deposits in check without government intervention or interference.
It remains to be seen what rules will be framed to prevent arbitrary eviction of tenants; but any ‘model agreement’ that requires the landlord to obtain a court order to evict a tenant is a non-starter because of the excruciatingly slow and expensive judicial process. The NDA’s solution apparently is to have special courts to handle disputes. If these are, indeed, set up (and not just announced on paper, as is usually the case), the rental market may look up. But the government has a poor track record in setting up ‘special’ courts. In fact, if the consumer court system had delivered results in three months, as was promised by the Consumer Protection Act, there would be no need for such special courts.
Moreover, all the good intentions of legislation are defeated as far as grievance redress is concerned. As Ashwinder Raj Singh points out, land is a state subject and any model agreement cannot be binding on them unless specifically adopted. A clue to how this Act will be received lies in the fact that 12 chief ministers did not bother to attend a meeting called by NITI Aayog, presided by the prime minister, in July. But even if the BJP-ruled states were to adopt this model tenancy Act, it would require a lot more than good intent to actually make it work.