The new Model Tenancy Act 2020, which is currently under discussions at the Centre, aims to bridge the trust deficit between tenants and landlords by clearly delineating the obligations of tenants and landlords. The draft Act seeks to ensure speedy redressal of disputes by proposing to establish rent courts and rent tribunals to hear appeals for matters connected to rental housing. For the first time in decades, the government has given rental housing its due attention which may help it fulfil its vision of housing for all.
The draft model tenancy law has proposed capping the advance security deposits to two months of rent, and has also suggested heavy penalties for tenants who decide to overstay. Those who do so may have to shell out double the rent for two months and even four times. Since land is a state subject, the Act will not be binding on the state governments.
While speaking at a Moneylife
event on 5 January 2021, Deepak Parekh, chairman HDFC Ltd had predicted
that the next thrust for India’s real estate sector would come from rental housing and that the Union minister of state for housing & urban affairs Hardeep Singh Puri had already laid out the plan and guidelines for this. Earlier this week, speaking at the annual press conference, housing and urban development secretary Durga Shanker Mishra said the Model Tenancy Act is at an advanced stage, with the draft having been shared with the state governments and is likely to be taken up by the Union Cabinet in a month and cleared by March 2021.
The ministry has also been holding consultations with the public on the Model Tenancy Act and has received their views. The draft document has been translated into almost all the languages— Tamil, Telugu, Malayalam, Assamese, Punjabi, Gujarati among many others and the ministry again sought public opinion. The ministry is currently said to be analysing the response from the states. The housing and urban affairs ministry had floated the draft model tenancy law in July 2019. It proposes 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.
After the Act gets implemented, 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. 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 will be appointed as rent tribunal in each district.
States can frame their own rules since the draft has been prepared with the objective of balancing the interests and rights of landlords and tenants and to create a more efficient and transparent system for renting premises, both residential and commercial, barring those for industrial use.
The new law will bring into focus the rental housing market addressing key (so far unaddressed) questions such as how safe one is as a tenant and how safe one is as a landlord. Both these questions again depend on where the property is located since some States have laws favouring the tenants and some states have laws favouring the landlords. How safe you are as a landlord depends on whether you are able to evict the tenant at the end of the lease or rental term.
The new Act will help create a rental housing stock, which would enable students, working professionals and the migrant population to find accommodation easily. Once implemented, it will benefit landlords and tenants. The Act promises to take care of all the ambiguity in laws and create a level playing field between landlords and the tenants. Tenant -landlord conflicts are quite common and this is an additional challenge that the sector goes through due to the lack of a regulator and absence of legislation.
Pranay Vakil, founder and chairman of Praron Consultancy says, “For the last many decades, rental housing has been ignored and there is an imperative need that this should be brought under a regulator to bring in some sanity. The rental housing market has been a very fragmented, unorganised, underdeveloped market and there has long been a dire need to bring it to the same level as the Western countries.”
“Did you know that 35% of people staying in any city are floating population i.e. (they don’t belong to the city) and have no intentions of buying a property? They only want to stay in the city for work and rent out a property. This is one third of housing demand for any city and imagine this entire market being neglected,” he says.
Mr Vakil also pointed out “This segment is often subjected to the local brokers whose information and database is so bad that they don’t even know the real owner sometimes. Often the brokers don’t check the titles of the apartments on offer for rent. Many a times large deposits are collected at the time of renting a property purportedly by the owner... this deposit is at stake later and a lot of tenants have run into problems getting back their deposit at the end of the rental term. The person who takes the deposit might not be the actual owner or even if he is the actual owner, he might not return the deposit. There is a tendency to offset the deposit against so-called damage to the property at the end of the term leading to avoidable disputes which drag on over lengthy litigations.”
According to the chairman of Praron Consultancy, this will open up the rental housing market, freeing up unavailable stock and thousands of houses that are locked in Mumbai will be available on rent and rationalisation of prices will happen leading to a win-win situation for everybody.
However, activists from the tenant associations across Mumbai sound a word of caution and say that this new Act, however, needs amendments in certain states (states with rent control regulations) so that the interests of those who are ‘protected tenants’ or those living in ‘pagdi’ buildings are safeguarded.
Such tenants have paid a portion of the property taxes all these years and flat, apartment and shop has been considered and accepted as semi-ownership. Section 47 of the new Model Tenancy Act says that all rent control laws will be repealed when this comes into effect and this they point out is grossly unfair.
AV Shenoy, member Mumbai Vikas Samiti (a think-tank working on Mumbai’s developmental issues) also cautioned that the interests of the old protected tenants (living in pagdi buildings, cessed buildings maintained by Maharashtra Housing and Area Development Authority—MHADA—and protected under the old Rent Control Act) must be safeguarded.
He reasoned “There needs to be a demarcation between the protected tenants and the non-protected tenants. The landlords of such buildings have not spent a single penny on repairs… repairs were done by tenants or MHADA. The old tenants need to be safeguarded. If new rents are overnight applied according to the new law, then it is unfair for the old tenants who have paid a huge sum at one point of time in the 60s or 70s as pagdi.”
“The landlord will not repair the already dilapidated building and will dictate his own terms in case of redevelopment of such buildings with very little scope of negotiation from the tenants. Most of the protected tenants residing in these old buildings are retired and will not be able to afford the new rents based on current market conditions,” Mr Shenoy added.
Mr Vakil concurred with this and said that “Protected tenants should get a one-time right (first right of refusal) to buy off the premises as a certain multiple of the rent that they are paying.”
Over the past two decades, the Maharashtra government has made several half-hearted attempts to amend the Rent Control Act. In 2016, there was a proposal which would have made certain commercial establishments and tenants in residential homes, mostly in the island city, pay market rates as rent to the landlords but the tenants fought it off.
According to the 2011 census, urban households living in rented properties stood at over 21 million, which was around 20% of the total number of houses in urban India. Almost 80% of the rental housing market in the country is concentrated in urban centres.
A report by Savills India, released in August 2020, had said that “Driven by rapid urbanization, migration to cities and the rising cost of home ownership, rental housing in India is likely to see a boom in the next two years.”