The draft Model Tenancy Act (MTA) put out by the housing ministry in 2015 and approved by the Union Cabinet in 2021 is a step in the right direction, but there are still several gaps that need to be addressed before enacting it into law.
The model law was intended to replace the various archaic rent control laws that capped rentals, resulting in landlords getting a pittance for properties in prime localities. Codified legislation dealing exclusively on rent-related matters in the real estate market has long been ignored in India and this lack of exclusive legal framework is one of the reasons for hampering growth of the rental housing sector.
There are two notable changes introduced in this draft that will possibly have a positive impact on the rental housing sector in India. Firstly, it lays down the rules for setting up of a ‘Rent Authority’, to promote transparency, fix accountability and promote fairness in all legal transactions between the landowner and the tenant. Secondly, it outlines a process for speedy dispute resolution between landowners and tenants, wherein timelines have been provided, to avoid the long-drawn out disputes that are presently handled by the civil courts. Other salient features of the Act are covered in detail in Moneylife Foundation’s Rental Housing Report and can be read
here.
Experts consulted for Moneylife Foundation’s report have pointed out that the draft in its present state is deficient in some aspects and lacks clarity in others.
Deficiencies That Need To Be Addressed
MTA is applicable to any building which is let out on rent for the purpose of residential or commercial use, except hotels, lodging houses, dharamshalas, inns, and for industrial use. There is no clarity on the treatment of premises that provide paying guest facilities. MTA is also not applicable to government-owned premises, or premises owned by religious or charitable institutions, or to premises owned by organisations and given on rent to its employees as part of a service contract. According to this condition, premises acquired by public sector banks (PSBs) and insurance companies are also not covered under MTA.
As consumer activist AV Shenoy points out, while rents for such properties are presently governed by the rules under rent control laws, eviction is illegally being carried out under the Public Premises Act. MTA provides no clarity on the applicability of the Act to such premises.
The draft also makes no reference to the overriding effect its implementation will have on existing laws on tenancy, leases signed under the Transfer of Property Act and licences under the Indian Easements Act, 1882. There is no clarity whether properties leased or licensed under old legislation will be required to uphold the objectives of MTA.
Section 47 of MTA implies that all present rent control laws will be repealed after the enactment of MTA. However, the repeal of such laws can be governed by political exigencies and may not be easy in cities like Mumbai where tenants have occupied residential properties in prime areas for a pittance.
The draft, as it stands in its present state, largely addresses the formal rental housing market and tends to exclude the informal market. The proposed mechanism for registration of tenancy agreements may not appeal to the informal rental market, especially for lower-income groups. Furthermore, there is no penalty for not registering an agreement with the Rent Authority and the provisions of MTA are applicable only to tenancy agreements that are registered under the Act. Thus, the informal rental housing market will be completely bypassed.
Furthermore, while the introduction of a mandatory digital platform in the local vernacular language has been provided to facilitate registration, problems with digital literacy and access are bound to be present, especially in the informal rental housing sector. The sample form for registering agreements (provided in Schedule I of the Act), also requires submission of irrelevant documentation such as Aadhaar and PAN card. This provision could be seen as violating the right to privacy as noted by the Supreme Court in KS Puttuswamy vs Union of India.
The apex court had ruled that mandatory requirement of Aadhaar numbers may be made only for expenditure on a subsidy, benefit or service incurred from the Consolidated Fund of India. No subsidy is being provided presently for which an Aadhaar card would be required, nor is there any legal provision for an amount of rent which requires submission of a PAN card. Mandatory submission of such information will create unnecessary paperwork and potentially violate privacy as such information will be uploaded to the digital platform.
The requirement of having details of tenancy agreements uploaded on a digital platform in the local vernacular language might also prove to be detrimental to tenants who are primarily migrants from their home state.
The draft Act also fails to address and protect tenants from rental discrimination commonly experienced by various groups such as bachelors, unmarried couples, religious minorities, non-vegetarians and others. This issue needs to be addressed, since the objective is to ensure adequate access to rental housing for all and this may only be possible through a socially inclusive housing market.
A vast majority of the rental housing spaces in India are acquired through intermediaries or brokers. MTA does not define the role of brokers in such transactions; this is a serious loophole that needs to be fixed at the state government level. There is a need to establish licensing or certification of agents from a recognised authority, such as RERA, and for framing of rules for leasing transactions undertaken by a property agent.
Comments from Legal Experts
According to advocate Avinash Phatak, former deputy legal head, MHADA, “the Model Tenancy Act is not a pro-tenant Act as it has been touted to be, but is rather a pro-landlord Act. The Act is proficient in listing out conditions for eviction of tenants and completely dissolves the possibility for them to acquire ownership rights, as has been possible on some levels in existing Rent Acts.”
While this is beneficial, in some cases of unruly and non-compliant tenants, MTA fails to address those who fall under the category of pagdi tenants.
Further, as Mr Shenoy points out, in the case of Mumbai “tenants can be granted ownership rights if their building undergoes redevelopment under DCR (Development Control Regulation) 33(7).”
Essentially, tenants who currently live in a ‘cessed’ building (which pays a cess or tax towards a repair fund), are eligible to gain ownership rights to their rented premises once the building undergoes redevelopment. While this helps in providing security of home-ownership to previous tenants, it is actually reducing the stock of rental housing in the city. Cases of redevelopment and the rights conferred on tenants who live in ‘cessed’ buildings are not covered in MTA. Such issues might be present on a local, city or state level, but there is a need for them to be addressed under MTA.
Advocate Phatak also commented on the new quasi-judicial system being introduced in MTA, saying that “the Act prescribes a three-tier system, which is truly not necessary. Instead, it should be a two-tier system of Rent Court/Authority and the Rent Tribunal. Mumbai, for instance, already has a ‘Competent Authority’ who deals with Leave & Licence cases, while the Commissioner handles appeals. When a two-tier system works, there is no need to introduce a third tier to oversimplify things and add additional layers.”
Advocate Divya Malcolm, founder-proprietor of Malcolm & Malcolm, feels that the Model Act can be adopted only prospectively and none of the features of the Model Act appears to be drastically innovative. “The Rent Control legislation of most states provides for a dedicated resolution mechanism. The Model Act only throws up greater questions.”
She points out that “Maharashtra learned to get around its rent control legislation with a wonderful invention called ‘Leave & Licence Agreement’. All big-ticket rental arrangements are on Leave & Licence basis. Certainly, these agreements are not intended to be covered by the Model Act. What beats me is that, although Leave & Licence Agreements are not governed by the Rent Control legislation, arbitration is not tenable for resolution of disputes.”
She also questions whether MTA can actually be the panacea for housing problems that is touted to be. She says: “To think that the MTA is a solution to the urban housing woes is a fallacy. A large majority of the population which is unwilling to let out homes may not change their minds overnight. Gujarat amended its Rent Control Legislation so as to exclude homes built after 2001. Did it change the dynamic of housing? A 3% return on investment may be the real stumbling block. Most of us take housing loans for a roof over our heads and not to profit from a non-existent rental market.”
Overall, MTA is a progressive step in matters related to rent and rental housing in the Indian real estate sector. It formalises the rental housing market, implementing a uniform legislation aimed at alleviating the issue of housing shortage and maximising the rent yield. The law provides for the interest of tenants and landlords in tenancy, faring better on multiple aspects than other legislations preceding it.
Although many provisions offer a win-win situation for tenants and landowners, there is scope for improvement in terms of clarity. Since the effectiveness of its implementation remains in the hands of various state governments, one can hope that the deficiencies in MTA are amended before enactment. However, the states’ prerogatives, coupled with their probable unwillingness to adopt the policy, could dilute the effectiveness of the law mainly in absence of institutional support, proper resources and dedicated efforts.
