By: Ramesh Vaidyanathan and Aanal Desai
The Ministry of Housing and Urban Affairs of the Government of India has introduced a draft Model Tenancy Act, 2019 (“the Act“). It is felt that the current rental laws are outdated and do not address the relationship between the landlord and the tenant realistically and fairly.
The Act, which has now been placed in the public domain for feedback, will be a model law that states and union territories are free to adopt with changes as they deem necessary.
1. The Constitutional Scheme on Property and Renting:
Land is a state subject under point 18 in List II – State List of the Seventh Schedule of the Constitution. Accordingly, states that are inclined to make changes to their tenancy law can either adopt the model law or amend their existing laws.
At present, nearly every state has its own law governing matters of rental housing in the form of Rent Control Acts. However, these rent control laws have completely failed to solve the problems in the rental housing sector in the country. A fair and balanced tenancy law protecting the rights of all parties will go a long way in formalising and stabilising the rental market. If the model law is adopted by the states and union territories, it could revive the fortunes of not just the rental market but the housing sector as a whole.
2. Key Features of the Act:
The Act aims to unlock the potential of more than 11 million vacant houses and energise the rental housing market. It is also intended to bring transparency and accountability to the existing system of renting so as to fulfil the Government’s goal of “Housing for All” by 2022.
The key provisions of the Act are briefly discussed below:
Rent Authority: Currently, rent agreements are registered at the sub-registrar’s office. In order to bring in transparency, the Act proposes the setting up of a Rent Authority. The Act makes it mandatory to rent premises only by way of a written agreement. Within two months of executing the rental agreement, both landlord and tenant are required to intimate the Rent Authority about the agreement. The Rent Authority will provide a Unique Identification Number to the parties and upload the details of the tenancy agreement on its website. The terms of the agreement will be binding on the successors of the parties and the tenancy agreement shall continue for the remaining period of tenancy.
Security Deposit and Compensation: The Act caps the security deposit to a maximum of two month’s rent in the case of residential property. In the case of non-residential property, the deposit cannot be less than one month’s rent. If the tenant does not vacate the premises after the tenancy is terminated by the landlord by way of an order, notice or as per the rent agreement, the landlord shall be entitled to compensation of double the monthly rent for the first two months and four times the monthly rent thereafter. The landlord is however barred from cutting essential supplies like water and electricity to the tenanted premises.
Increase in Rent: For any rent increase to take effect, the landlord must give notice of three months. The landlord cannot hike the rent in the middle of the tenure. If a tenant, who has been given notice of the intended rent increase, fails to send a notice to terminate its tenancy the tenant shall be deemed to have accepted the increase in rent as proposed by the landlord.
Duties of Tenant and Landlord: A tenant cannot sublet the premises or transfer or assign his rights in the tenancy agreement without the prior consent in writing of the landlord. It will be the landlord’s responsibility to rectify structural damages and maintain the property.
Unless agreed otherwise, the tenant can give a one month notice for terminating the tenancy.
Non-Applicability: The Act is not applicable to: (a) premises owned or promoted by the Central or State or Union Territory Government or Local Authority or a Government undertaking or enterprise or a statutory body or cantonment board; (b) premises owned by a company, university or organization given on rent to its employees as part of service contract; (c) premises owned by religious or charitable institutions as may be specified by notification; (d) premises owned by any trust registered under the Public Trust Act of the State; (e) premises owned by Wakfs registered under the Wakf Act, 1995; and (f) other buildings specifically exempted in public interest through notification.
3. Dispute Redressal Mechanism:
The Act establishes Rent Courts and Rent Tribunals for speedy dispute redressal. Civil courts shall not entertain disputes between the landlord and tenant. The jurisdiction of the Rent Court is limited to the tenancy agreement and does not extend to disputes on title and ownership of the tenanted premises.
Rent Court or the Rent Tribunal has to decide disputes within 60 days.
Applications filed by the landlord against the tenant for recovery of possession of the tenanted premises shall be decided within 90 days.
An Appeal from the final order passed by the Rent Court shall lie with the Rent Tribunal and is to be filed within 30 days.
An order of the Rent Court or Rent Tribunal shall be executed as a decree of a civil court.
The Rent Court shall apply the provisions of applicable substantive laws like the Transfer of Property Act, 1882 and the Indian Contract Act, 1872. The Rent Court/Tribunal shall be guided by principles of natural justice and shall not be bound by the Code of Civil Procedure, except where it is specifically provided.
4. Applicability and Transition:
The Act is prospective in nature and does not apply to existing tenancies. It provides that the pending proceedings under the prevalent rent control legislation will continue. Plaintiff can choose to withdraw any suit or appeal pending under the repealed legislation and file fresh application under this Act. Limitation for such fresh applications will be 270 days from the commencement of the Act.
5. Criticism of the Act:
Even though the Act tries to strike a balance between the needs of the tenant and the landlord, there are some inherent challenges:
(i) A two-month security deposit may not be viable for the landlords where much larger security deposits have been the norm, especially in cities like Mumbai. A two-month security deposit will also not be enough to compensate the landlord for significant damage caused to the property by the tenant. Though the Act has recognised the need for a higher security deposit for non-residential premises, the cap for residential premises does not appear practical.
(ii) Lodging houses and hotels are kept outside the scope of the model law. Application of the law to premises providing paying guest facilities is unclear.
(iii) Successor-in-interest has not been included in the definition of the term ‘tenant’. However, the law does provide for successors of the tenant to come into the shoes of tenant in case of his/her death. This provision creates the anomaly that after the death of the tenant, the landlord may repudiate the tenancy agreement on the ground that the successor in interest is not covered within the definition of the term ‘tenant’.
The model law is a welcome step in rental matters and the time limits set for speedy redressal under the Act, though ambitious, are laudable. Though the law appears to be well intentioned, it is to be seen whether the states choose to adopt the model law. It will also be important to ensure that the provisions of the model law are not diluted by various states, as it happened in the case of RERA.