New Tenancy Act
Updated: Jun 12, 2021
Model Tenancy Act: what changes for property owners and tenants
In absence of a model law, there are informal agreements with arbitrary clauses and often litigation arising out of disputes. What is the MTA and how does it change this?
After releasing the draft in 2019, the Union Cabinet on Wednesday approved the Model Tenancy Act (MTA) to streamline the process of renting property in India and aid the rent economy in the estate sector.
Why this Act
As per Census 2011, more than 1 crore houses were lying vacant in urban areas. “The existing rent control laws are restricting the growth of rental housing and discourage owners from renting out their vacant houses due to fear of repossession. One of the potential measures to unlock the vacant house is to bringing transparency and accountability in the existing system of renting of premises and to balance the interests of both the property owner and tenant in a judicious manner,” says the new Act, piloted by the Ministry of Housing and Urban Affairs.
States can adopt the Act as it is with fresh legislation, since it is a state subject, or they can amend their existing rent acts to factor in the new MTA. States and Union Territories have MoUs with the Centre under the Pradhan Mantri Awas Yojana-Urban which has this provision.
The government says the Act aims to formalise the shadow market of rental housing, unlock vacant properties, increase rental yields, ease/remove exploitative practices, reduce procedural barriers in registration, and increase transparency and discipline.
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How it was conceived
In 2015, before the Housing for All by 2022 Mission (Pradhan Mantri Awas Yojana-Urban) was launched, it was decided that 20% of the two crore houses to be created should be exclusively for rent. The decision was based on a 2013 report by a Task Force for Rental Housing, which held that affordable rental housing “addresses the issues of the underprivileged and inclusive growth, in an even more direct manner than affordable ownership housing”. The Expenditure Finance Committee cleared an outlay of Rs 6,000 crore for a rental component in PMAY-U; the Centre would bear 75% with the rest borne by states, urban local bodies, or through NGOs or CSR activities of the private sector.
Where it applies
After enforcement of this Act, no person can let or take on rent any premises except by an agreement in writing. Repeal of local rent control Acts has been a politically sensitive issue in cities with high-value rent markets, such as especially South Mumbai, where old properties in prime locations have been occupied for decades by tenants at negligible rent. The Model Act has been in the making since 2015, but has been held up on this point.
The new Act will be applicable prospectively and will not affect existing tenancies.
The Act seeks to cover urban and as well as rural areas.
States will set up a grievance redressal mechanism comprising of Rent Authority, Rent Court and Rent Tribunal to provide fast-track resolution of disputes. Disposal of a complaint/appeal by the Rent Court and the Rent Tribunal will be mandatory within 60 days.
There is no monetary ceiling. At present, in many old properties let out under archaic rent-control Acts, such ceilings have left landlords stuck with outdated rent amounts.
A digital platform will be set up in the local vernacular language or the language of the State/Union Territory for submitting tenancy agreement and other documents. Rent Authority will keep a tab on these agreements.
Verbal agreements will be out of the picture, as the MTA mandates written agreement for all new tenancies which is to be submitted to Rent Authority. Tenant will continue to pay the rent even during the pendency of a dispute with a landlord.
Subletting of premises can only be done with the prior consent of the landlord, and no structural change can be done by the tenant without the written consent of the landlord.
The security deposit to be paid by the tenant should not exceed two months’ rent for residential property (six months’ rent in case of non-residential property), and should be a minimum of one month’s rent for non-residential property.
The Act lists the kinds of repairs each party would be responsible for, with the proviso that money for repairs can be deducted from the security deposit or rent, as applicable, if a party refuses to carry out their share of the work. No arbitrary eviction of a tenant can be done during currency of the tenancy period, except in accordance with provisions of the Act.
The Rent Court can allow repossession by the landlord if the tenant misuses the premises, after being served a notice by the landowner. Misuse of the premises, as defined, includes public nuisance, damage, or its use for “immoral or illegal purposes”. If the tenant refuses to vacate, the landlord can claim double the monthly rent for two months, and four times the monthly rent thereafter.
In case of a force majeure event, the landlord shall allow the tenant to continue in possession until a period of one month from the date of cessation of such disastrous event, on the terms of existing tenancy agreement.