Thursday Brief

The Union Cabinet, chaired by Prime Minister Narendra Modi, on 02.06.2021 approved the Model Tenancy Act (MTA) under which separate rent authorities, courts, and tribunals would be set up in districts to protect the interest of both the owner and the tenant.

States and Union territories can adopt the Model Tenancy Act, 2021 by either enacting fresh legislation or amend their existing rental laws.

The Govt has further stated that the MTA has been enacted to facilitate the unlocking of vacant houses for rental housing purposes and to give a fillip to private participation in rental housing as a business model for addressing the huge housing shortage. It would also act as means of streamlining the rental market and establishing trust between Landlords and Tenants.

This Act impacts the residential, commercial, and education leasing sectors.

IMPORTANT HIGHLIGHTS OF THIS ACT

• The MTA shall be prospective and shall not impact existing tenancies.
• State and Union Territories (UT) can adopt this act by enacting new legislation or amend their existing rental laws.
• The Act shall be applicable to all tenancies for all premises let out for residential, commercial, and educational use. It does not bring within its ambit premises for industrial use. It also excludes premises such as hotels, lodging houses, Dharamshala, or inns from its scope.
• The Act shall not be applicable to premises owned by Central or State Govts; Govt Undertakings; Statutory Bodies; Companies, Universities or Organizations that have rented out premises to its employees as part of their contract of service and premises owned by religious or charitable institutions, including premises owned under the Waqf Act or any Trust registered under the public trust law of the State/UT.
• The Act now clearly defines the responsibilities of a Landlord and a Tenant under a tenancy.
• The Act now clearly stipulates that a Tenancy Agreement has to be in writing.
• The information of the Tenancy Agreement has to be informed to the Rent Authority (to be established) by the Landlord and Tenant jointly in the specified form provided in the First Schedule of the Act, within 2 (Two) months from the date of the Tenancy Agreement. In case of failure to inform within the period of 2 (Two) months, the Tenant and Landlord would have an additional 1 (One) month to inform the Rent Authority.
• The Rent Authority must, within a period of 3 (Three) months from the date of its appointment, set up a website for an easier submission process.
• The Act provides for all disputes qua revision of rent to be heard by the Rent Authority. In case of refusal to accept the rent, the Tenant has the option to deposit the rent with Rent Authority.
• A Tenant is now required to pay a security deposit subject to a cap of such deposit being equivalent to 2 (Two) months’ rent in case of residential premises and 6 (SoixO months’ rent in case of non-residential premises.
• The Act lays down definite parameters for compensation on account of failure to vacate the premises.

• Under the Act, in case of the expiry of the fixed term of the tenancy or termination of the tenancy, if the Tenant fails to vacate the premises, in such an eventuality, the Tenant shall be liable to pay enhanced rent to the Landlord i.e., twice the monthly rent for the first 2 (Two) months and thereafter, 4 (Four) times the monthly rent till the date of vacation of the premises.

• The Act also provides for the establishment of Rent Authority, Rent Control, and Rent Tribunal.
• A Landlord is entitled to enter the premises after serving a notice to the Tenant, at least 24 hours before the time of entry. Such entry by the Landlord can be made only for carrying out repairs or replacement, carrying out the inspection of the premises to ensure that the premises are in a habitable condition, and/or for any other reasonable cause, stated in the Tenancy Agreement.
• A Tenant may be evicted for non-payment of rent or non-payment of arrears and other charges for 2 (Two) consecutive months, including interest for delayed payment or if the Tenant has parted with the possession of the whole or part of the premises, without obtaining the consent of the land and misused the premises, despite receipt of notice from the Landlord.

• A Tenant is required to serve written notice, in terms of the Tenancy Agreement or a notice period of 1 (One) month before handing over the possession of the premises to the Landlord.

The MTA is evidently trying to bring coherence to the landlord-tenant issues which generally languish in courts for years and in many cases, for decades. The stipulation of a time period of sixty days for adjudication of applications and appeals by rent court and tribunal is intended to bring urgency to the resolution of cases in a timely manner. Further, the mandatory requirement of reporting of all tenancy arrangements and management of such relationships is intended to create discipline to the otherwise fractured rental housing market in the country. The creation of rent authority, rent court, and rent tribunal to deal with operational and day-to-day management issues including non-payment of rent, delay in undertaking repair and maintenance, and eviction of tenants is step in the right direction. The proposal to impose punitive rent on tenants on non-vacation of property post expiry of the tenure or termination of the agreement, limit on the security deposit by the landlords, accountability on undertaking repairs by the landlords in a timely manner is intended to boost the rental housing sector.

Overall a very welcoming step by govt which was overdue for a long time. Earlier all the rental acts were in favour of tenants and hence so many of landlords were reluctant to give their premises on rent or lease. The Act when enacted by States and UTs will help in bringing lakhs of locked premises in the market for rent, which will definitely benefit the housing sector.

Let us wait when the States and Uts enact this Act whether in the present form or with some amendments, to see the impact of this law.

Waiting for your comments/views.

Anil Malik

Mumbai, India

24^th June 2021