Nishant Nigam, Partner and Arushi Jain, Associate
The Model Tenancy Act, 2021 (“MTA”) is a progressive step in matters related to rent and rental housing in the Indian real estate sector. It seeks to promote rental housing, as “Housing for all by 2022” is the government’s goal. The MTA will help protect the rights of both tenants and property owners by combining a number of clauses covering aspects from security deposits to rental tribunals.
Some key highlights of Model Act that need to be taken note of are as below:
- Tenancy Agreement- The MTA mandates that no person shall let or take on rent any premises except by an agreement in writing, which is informed to the rent authority by the landlord and tenant within two (2) months of signing the tenancy agreement. After receiving information about the tenancy agreement’s execution, the rent authority shall assign each party a unique identification number and post the tenancy’s details on its website in the local vernacular language or the state/union territory’s official language.
- Security Deposit and Compensation- The Act limits the security deposit in the case of residential property to two (2) months’ rent. The deposit cannot exceed six (6) months’ rent in the case of non-residential property. If the tenant does not vacate the premises within two months of the landlord terminating the tenancy via an order, notice, or as specified in the rent agreement, the landlord is entitled to compensation equal to double the monthly rent for the first two months and four times the monthly rent thereafter. However, the landlord is prohibited from interrupting essential services such as water and electricity to the tenanted premises.
- Rent Increase- The landlord may increase the rent only after giving notice to the tenant. The landlord must provide three (3) months’ notice for any rent increase. The landlord is not permitted to increase the rent during the term of a lease. Tenants are required to respond to such notices with an acceptance or non-acceptance. If the tenant does not respond, it is presumed that the tenant has accepted the landlord’s proposed rent increase
- Withholding Essential Supply or Service- Neither the landlord nor the property manager(s) shall withhold any essential supply or service in the premises occupied by the tenant, either directly or indirectly through another person. In the event of a violation and upon receipt of an application from the tenant, the rent authority may, after conducting an investigation, issue an interim order directing the restoration of the essential service. The rent authority shall conduct an investigation into this matter within one (1) month of receiving the application. Additionally, after a reasonable opportunity to be heard, the rent authority may order the landlord/person responsible for withholding the supply to pay compensation equal to two (2) months’ rent. Additionally, if the rent authority receives any frivolous applications, the tenant shall be assessed a penalty equal to twice the monthly rent.
- Successor’s Rights and Obligations- The MTA proposes that the terms of the agreement entered into between the landlord and tenant be binding on their successors in the event of the landlord’s or tenant’s death. In this case, the successors of the deceased landlord or tenant, as the case may be, shall have the same rights and obligations as set forth in the tenancy agreement for the remainder of the tenancy period.
- Sub-Letting- Following the effective date of the MTA, no tenant may sublet in whole or in part the premises held by him/her as a tenant, nor may he/she transfer or assign his/her rights under the tenancy agreement without first entering into a supplementary agreement to the tenancy agreement. Additionally, upon execution of the supplementary agreement, the landlord and tenant shall jointly notify the rent authority of the sub-tenancy within two (2) months of the agreement’s execution date.
- Eviction- A tenant shall not be evicted during continuance of tenancy agreement except when:
- Tenant refuses to pay the rent
- Tenant has not paid the arrears of rent and other charges for two (2) consecutive months
- Tenant relinquished possession of whole or any part of the rented premises
- Misuse of premises after receipt of notice from landlord
- Necessary to repair/construct/rebuild/alter/demolish premises or any part
- Written notice to Tenant to vacate and landlord contracted to sell the premises
- Tenant carried our any structural change or erected any permanent structure
- Rent Authority- With the prior approval of the State Government/Union territory, the district collector or district magistrate shall appoint an officer not below the rank of deputy collector as the rent authority within his jurisdiction. The rent authority shall have the powers conferred on a rent court by the MTA in relation to proceedings brought under the sections relating to the tenancy agreement, rent revision, determination of revised rent in the event of a dispute, rent deposit with the rent authority, property repair and maintenance, property manager’s duties and the consequences of breaching those duties and withholding essential services. The rent court’s and rent tribunal’s procedures shall be followed in this instance. Additionally, a person aggrieved by a rent authority order may appeal to the rent court with territorial jurisdiction within thirty (30) days of the date of the rent authority order.
- Rent Courts and Rent Tribunals- The district collector or district magistrate may appoint an additional collector or additional district magistrate, or an officer of equivalent rank, to serve as the rent court for the purposes of the MTA within his jurisdiction, with the prior approval of the State Government/Union territory administration. The State Government/Union territory administration, in consultation with the jurisdictional High Court, may appoint a district judge or additional district judge in each district as a rent tribunal by notification.
The Ministry of Housing and Urban Affairs (“MOHUA”) has uploaded the Model Tenancy Act with the goal of establishing a more efficient and transparent system for renting residential and commercial properties, except for those used for industrial purposes. However, the provisions of MTA, though well-intentioned, stand out in stark contrast to the outdated Rent Control Act, 1948 the various versions of which continue to govern the tenancy in India’s states.
Model Law/Act(s) can be intended to be enacted verbatim, with minor modification or to serve more as guides for the legislatures. States are free to use the Model Acts as templates for further reproduction or replication.
Each State will have to enact a legislation based on this Model Act as “Land” is a State Subject.
If properly implemented by the States, the MTA has the potential to strengthen the country’s tenancy laws and stabilise the rental and housing markets. What remains to be seen is how far the States will adhere to the Centre’s guidelines. Given that the general public does not enter into written agreements and that landlord-tenant disputes, which are quite common, frequently result in lengthy litigation, the proposed guidelines via MTA would aid in ensuring the swift resolution of tenancy disputes and system transparency.