India: The Model Tenancy Act, 2021: Addressing The Inadequacies Of Rent Control Laws

Land falls under the State List of the Seventh Schedule and according to Article 246 of the Constitution, the state governments have exclusive power to make laws on subjects in the State List. Hence, the central government issued Model Tenancy Act, 2021 (Model Act) was recently approved by the Cabinet and circulated to all the States and Union Territories for their adoption. The Model Act aims to establish a Rent Authority to regulate renting of premises and to protect the interests of landlords and tenants and to provide speedy adjudication mechanisms for resolution of disputes and connected matters.

In 2008, a report drafted by a Task Force for Rental Housing was published. Later in 2015, it was decided by the government that 20% of the two crore houses to be created should be exclusively for rent because affordable rental housing "addresses the issues of the underprivileged and inclusive growth, in an even more direct manner than affordable ownership housing". Later, the Housing for All by 2022 Mission aka the Pradhan Mantri Awas Yojana was launched. The Model Act takes forward what was proposed in the Draft Model Tenancy Act, 2015. This law is a welcome change, as analyzed below, from the existing rent control acts which have been in operation for a long time.

ANALYSIS OF THE MODEL ACT

The scheme of the Model Act is as follows:

Applicability: The Model Act applies to any building, which is let on rent for the purpose of residential or commercial use except hotel, lodging house, dharamshala, inn and for industrial use but includes garden, garage or closed parking area, vacant land, grounds and out houses, if any, appertaining to such building or part of the building and fitting to such building or part of the building for the more beneficial enjoyment thereof.¹ The Act does not apply to government-owned premises, or premises owned by religious or charitable institutions, or to premises owned by organizations given on rent to its employees as part of service contract.² The Model Act will apply prospectively and will have no effect on the existing tenancies.

Tenancy Agreement: The Model Act prescribes that any letting out or taking on rent of a property shall only be done through a written agreement which must be informed to the Rent Authority within a period of two months from the date of the tenancy agreement.³ The Rent Authority, based on the tenancy agreement, will provide a unique identification number to both the parties, and upload details of the tenancy agreement on its website in local language.⁴ The Rent Authority is also tasked with developing a digital platform where the parties can submit the documents required under the Model Act easily.

The tenancy agreement shall govern the duration of tenancy and the same can be extended at tenant's request through a new agreement. If the tenant fails to vacate the property at the end of the tenancy period, it shall be liable to pay twice the monthly rent for the first two months and four times the monthly rent thereafter till the tenant continues to occupy the said premises.⁵ In force majeure situations, the landlord shall allow the tenant to possess the premises till a period of one month from the date of cessation of the force majeure event.

Rent payable and any revisions thereof shall also be governed by the tenancy agreement. Any dispute relating to the revision of rent shall be resolved by the Rent Authority. In cases where the landlord refuses to accept rent or refuses to give a receipt for rent for two months, the tenant may deposit the rent with the Rent Authority. The Model Act limits the security deposit to be paid by the tenant to a maximum of two months' rent in case of residential premises and a maximum of six months' rent in case of non-residential premises.

The Model Act prohibits the tenants from subletting or transferring its rights in the tenancy agreement. In cases where the subletting or the transfer is done by way of a supplementary agreement, the same must be informed to the Rent Authority within a period of two months.

Rights and Obligations of Landlord and Tenant: The Model Act clearly specifies the rights and obligations of both the parties which should be helpful in resolving any dispute. It prescribes that the structural repairs, whitewashing of walls and painting of doors and windows, changing and plumbing pipes, internal and external electrical wiring, and related maintenance shall be the obligation of the landlord.⁶ The tenant, on the other hand, shall be responsible for periodic repairs like changing of tap washers and taps, drain cleaning, water closet repairs, wash basin repairs, bathtub repairs, geyser repairs, circuit breaker repairs, switches and socket repairs, repairs and replacement of electrical equipment, kitchen fixtures repairs, replacement of knobs and locks of doors, cupboard, windows etc., replacement of fly-nets, replacement of glass panels in windows, doors etc., maintenance of gardens and open spaces let out to or used by the tenant.⁷ The tenant is also expected to take reasonable care of the premises during the subsistence of the tenancy and shall not intentionally damage the premises.⁸ Where common facilities are shared by the parties, the repair and maintenance of such facilities shall be determined by the tenancy agreement. If either the tenant or the landlord fails to carry out the necessary repairs, the costs incurred can be deducted from the security deposit or the rent, respectively. The landlord however is prohibited from withholding any essential supply or service in the premises occupied by the tenant.⁹

The landlord has been permitted under the Model Act to engage a property manager, whose duties can include collection of rent, inspecting the premises, carrying out repair, among others. The landlord must provide all relevant details about such manager to the tenant including name and purpose for which the property manager is authorised.¹⁰ In case the property manager acts against the instructions given by the landlord, he can be removed, and the tenant can be compensated for any loss incurred. Under the Model Act, both the landlord and the property manager have the right to enter the premises on the condition that a 24-hour notice before the entry would be given to the tenant.

Eviction and Recovery: Under the Model Act, a landlord cannot evict a tenant during the continuance of the tenancy agreement except under the following circumstances: (i) where the tenant refuses to pay rent; (ii) tenant has not paid arrears of rent and other charges payable; (iii) the tenant has misused the premises or carried out any structural change without the consent of the landlord; (iv) where the landlord requires to carry out repair of the premises or part of it which cannot be completed without evicting the tenant; (v) where the tenant has given a notice to the landlord to vacate the premises and in consequence of that notice the landlord contracted to sell the said premises. The legal heirs of the landlord can also move the Rent Court for eviction and recovery of possession of the premises after the death of the landlord where there is a bonafide requirement of the premises let-out on rent by the legal heirs.

Adjudication of Disputes: The Model Act prescribes a separate adjudicatory mechanism for disputes between the landlord and the tenant. The dispute resolution process is spread across three bodies – Rent Authority, Rent Court, and Rent Tribunal.¹¹ The District Collector or the District Magistrate will appoint an officer not below the rank of Deputy Collector to be the Rent Authority within his jurisdiction. He shall also appoint an officer not below the rank of Additional Collector or Additional District Magistrate to be the Rent Court. Rent Tribunal will be appointed by the State Government or the Union Territory in each district where the person appointed will not be below the rank of a District Judge or Additional District Judge.

Rent Authority shall have all the powers that are vested in a Rent Court in respect of any proceedings initiated for tenancy agreement, revision of rent, deposit of rent, repair and maintenance of property, duties of property manager and consequences of violation, and withholding essential supply or service.¹² Any appeal from the Rent Authority will be preferred by the Rent Court and any further appeal shall be before the Rent Tribunal. The Rent Court and the Rent Tribunals are free to regulate their own procedures in terms of filing of application, issuing of notice, filing of reply and rejoinder, etc. The Civil Procedure Code 1908 shall only apply with respect to service of notice and for according the power of a civil court to these bodies.

OVERHAUL OF THE RENT CONTROL ACTS

The Model Act drastically overhauls the Rent Control Laws, which are being enforced by the respective states at present. Most of these laws were formulated in the early 1900s and contain archaic provisions which heavily favour the tenants. While there were pressing circumstances during that time to ensure that the tenants are not exploited by the landlords in terms of high rents and lopsided agreements, the provisions have far outlived their utility. It does not help that these laws have not been amended in over two decades. As per Census 2011, around 110 lakh houses are lying vacant in urban areas, the primary reason for which are the rent control laws which discourage renting.

Existing rent control laws have long drawn legal provisions which result in lengthy litigation to resolve disputes. A ceiling on rent has majorly affected both the quality and quantity of the rental housing stock, resulting in low rental yields, which dissuade homeowners from renting their premises. Statutes like the Maharashtra Rent Control Act, 1999 and the Delhi Rent Control Act, 1958 have created a situation where the tenants of properties controlled by these Acts are paying rent at rates fixed decades ago. The Maharashtra Act provides an annual rent increase of no more than 4% from the date that the standard rate is fixed, protects tenants from eviction on unfair grounds, recognizes the 'pagdi' system where a lumpsum principal amount is retained by the lessor in return for grant of ownership rights, and exempts leave and license agreements from rent control. Other state rental laws largely follow the same framework. The low levels of rent provide no incentive to the landlords to maintain the buildings and as a result, the buildings end up in a dilapidated state. These laws have ignored the impact of inflation on rents, the increasing cost of property maintenance, and the just return on investment for property owners.

The Model Act will precisely address this problem by eliminating any rent ceiling, instead giving precedence to the tenancy agreement in deciding the rental amount. It has been prepared with the objective of balancing the rights and interests of both the tenant and the landlord. By appointing the Rent Authority as an independent record keeper of all the local tenancy agreements, the Model Act will bring in greater transparency and accountability for all the stakeholders. A dedicated dispute resolution mechanism for tenancy related disputes will be helpful in speedy redressal and prevent unnecessary litigation.

These measures will instill confidence in the landlords and nudge them to improve the quality of the rental housing stock while also encouraging many more to open their premises for renting out to interested parties. This will provide more options to the sizable migrant population in our cities to access affordable and flexible accommodation with low entry and exit cost. Another upshot will be the formalization of rental housing market and the reduction in the huge housing shortage. Liberal tenancy laws will also increase investors' appetite and open increased investment in the housing sector. Amidst this backdrop, the Model Act is a step in the right direction.

Footnotes

1. Section 2(d) of the Model Act.

2. Section 3 of the Model Act.

3. Section 4(1) of the Model Act.

4. Section 4 of the Model Act.

5. Section 23 of the Model Act.

6. Annexure B of the Model Act.

7. Idem

8. Section 16 of the Model Act.

9. Section 20 of the Model Act.

10. Section 18 of the Model Act.

11. Section 30, Section 33 of the Model Act.

12. Section 31 of the Model Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.