A new model tenancy law has been introduced in India to replace the old rental laws operative in India and overhaul the legal framework that gives them their legal effect. In her maiden budget speech, India’s Finance Minister Shrimati Nirmala Sitharaman has talked about this new law, explaining that it was a measure to promote rental housing. With the old rental laws growing increasingly archaic, India needs this new law for keeping pace with the rapidly growing real estate segment.
The demand and supply of affordable housing have increased substantially and this new rental law will help regulate the sector and balance the interests of the landlords and the tenants. With the Government of India’s initiative called Housing for All aiming to provide housing to all the citizens by 2022, this law could not have come at a better time. Experts view this law as a measure to address questions related to property rights and the ineffective implementation of rental contract laws.
This article seeks to highlight certain facts about the Model Tenancy Act, 2019 that a landlord and a tenant should know.
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Important facts about the Model Tenancy Act, 2019
This law has been drafted by the Indian Ministry of Housing and Urban Affairs and aims to provide adequate and affordable rental housing in the country. Due to the law requiring implementation at the state level, it is under review by different states and union territories. The land is a state subject found in the State List in the Seventh Schedule of the Constitution of India. It is for this reason why the model law is subject to state approval or rejection.
The important facts about this law are as follows:
- In a move that is bound to benefit the tenants, the model law aims to cap the security deposits asked by landlords at two months rent for housing properties and one month’s rent for other properties. This move may adversely affect landlords in metropolitan cities who ask for substantial sums of security deposits from tenants for assurance. The two months rent capped deposit may not provide enough to cover major damages to the property due to the tenant’s misuse of the property or negligence This well-intentioned move is pro-tenant.
- The model aims to heavily fine tenants who refuse to leave the rental property and premises despite the stipulated or agreed-upon tenancy tenure’s end. The landlord can levy twice the monthly rent for two months and four times monthly rent after that for availing compensation! This move is bound to put to rest the landlords’ apprehensions over letting out their properties to tenants.
- The model imposes the obligation on landlords to provide essential facilities and amenities to tenants in rental properties.
- The model also states that once the enactment is in force, without a written agreement, no one can enter into a tenancy transaction.
- It is required for the parties to a tenancy transaction to intimate the Rental Authority established under the law about the tenancy within two months of executing the rent agreement. The Rental Authority will issue a unique identification number to the parties to denote their tenancy.
- The model law states that the landlord cannot increase the rent without giving three months notice to the tenant before raising the rent. The landlord also cannot raise the rent in the middle of the tenancy term.
- After the model law comes into operation, a tenant without the prior consent of the landlord will not be permitted to sublet the whole or part of the premises, or transfer or assign his proprietary rights in the tenancy agreement or any part of these rights.
- The terms and conditions of the rent agreement executed between the parties to the tenancy transaction will be binding upon their successors with these successors also entitled to the tenancy rights for the remainder of the tenancy period.
- The application of the model law will be prospective which means that the existing tenancy relationships will not be impacted by its operation.
- Despite the Act being formulated by the Centre, it is a model law subject to modification and adoption at the state level. The provisions of the Act will be modified according to the adopting state’s requirements and then implemented by that state.
The model law provides for the establishment of Rental Authority at the state level which will exercise the requisite powers and perform the functions that will allow it to enforce the provisions of the state’s new tenancy law. With the migrant workers and lower strata of the society caught in the throes of this pandemic with many being displaced, rendered jobless and leaving their rental accommodation to return to their home states, this new law is needed to provide the migrant labor and urban poor access to housing and affordable residential facilities. There will also be guidelines on the Affordable Residential Housing Complexes (ARHC) for migrant workers and urban poor.
There are several archaic rental enactments that the Model Law will repeal. These laws are obsolete for they keep rents absurdly low that does not account for property rates that have risen tremendously over the years. These laws are also rigid and prevent house owners from spending money on the maintenance of old structures. As a result, they stifle the growth of rental housing.
With the market rates of property not reflected in the low rents paid under the provisions of the old rental enactments, house owners are disincentivised from spending money on the maintenance of rental properties. This has led to both tenants and landlords losing out and the mushrooming of illegal housing and slums. Laws like the Maharashtra Rent Control Act need a serious overhaul or need to be repealed by statutory enactments like the Model Rental Law to allow urbanization to have a healthy growth. On the other hand, we have to adopt a “wait and see” approach to find out the reaction of the States in India towards this new model law.
The Model Tenancy Act, 2019 is a move by the Central Government to revamp the legal tenancy framework in India. There appears to be an imbalance between the tenant and landlord’s interests which this new law is trying to rectify. However, this law cannot be implemented on the national level. It requires the approval of the different states and union territories in India and these provisions need to be enforced on a state level. They can be modified and adopted by the states and union territories.
The model law has some pro-landlord measures and pro-tenant measures and envisages the regulation of the largely unregulated rental housing sector. With measures like the requirement of a written agreement to govern the relationship of the parties to the transaction and the issue of a unique identification number to the tenancy to ensure the formalization of the transaction. This law is a great step towards the modernization of tenancy laws and it requires to be seen as to how the states and union territories of India receive this law.