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Tuesday, July 05, 2022

Draft Model Tenancy Act: what govt proposes for house owners, tenants

The Model Act lays down the obligations of tenants and landlords, and provides for an adjudication mechanism for disputes.

Written by Shalini Nair | New Delhi |
Updated: July 15, 2019 9:50:55 am
Draft Act is an effort to regulate rental housing. (File photo for representation)

Last week, the Ministry of Housing and Urban Affairs (MHUA) released the draft Model Tenancy Act, 2019, which aims to regulate rental housing by a market-oriented approach. Its objective and features:

Why an Act

Pointing to the Census 2011 count of 1.1 crore houses lying vacant, an MHUA statement said the Model Act would bring these into the rental market, and would promote the growth of the rental housing segment: “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.”

Broad outlook

The Model Act lays down the obligations of tenants and landlords, and provides for an adjudication mechanism for disputes. It is intended to be an Act “to balance the interests of owner and tenant by establishing adjudicating mechanism for speedy dispute redressal and to establish Rent Court and Rent Tribunal to hear appeals and for matters connected” to rental housing. Its stated aim is to promote the creation of a rental housing stock for various income segments including migrants, formal and informal sector workers, students, and working professionals, mainly through private participation. The Act mandates that no person will let or take any rental premises without an agreement in writing, in both urban and rural areas. Within two months of executing such an agreement, the land owner and tenant are required to intimate the Rent Authority, who will issue a unique identification number to both parties. Agreements can be submitted through a dedicated digital platform.

What changes, what does not

The Model Act, if adopted and enforced by the states, will lead to a better regulated private rental housing market for the middle and higher income segments. What it is not likely to do, however, is ensure a robust rental housing stock that caters to all groups, including large numbers of people in the cities who are forced to live in informal settlements; nor is it likely to increase the social rental housing supply.

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In 2015, before the Housing for All by 2022 Mission (Pradhan Mantri Awas Yojana-Urban) was launched, it was decided that 20 per cent of the two crore houses that were to be created should be exclusively for rent. The decision was based on a 2013 report by a Union government 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 even cleared an outlay of Rs 6,000 crore for a rental component in PMAY-U; the Centre would bear 75 per cent of the expenses incurred to create rental housing stock, while the rest would be borne by states, urban local bodies, or through NGOs or CSR activities of the private sector.

However, when it was rolled out in late 2015, the mission promoted only ownership housing — with no mention of rental stock. In subsequent years, the MHUA worked on a draft National Urban Rental Housing Policy, but this did not have the monetary backing of a PMAY mission. The draft provided for incentives like exemptions from stamp duty, registration charge, and property tax, and had provisions for homeless shelters, social rental housing for the urban poor, need-based rental housing for migrant labour, single women and men, and student hostels and paying guest accommodation for the working class.

Tenant and landlord rights

The Model Act lays down various rules, including that the security deposit to be paid by the tenant should not exceed two months’ rent for residential property, and should be a minimum of one month’s rent for non-residential property. It 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. The Rent Court can allow repossession of the property 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.

Model Act, existing Acts

While announcing the Model Act in her Budget statement, Finance Minister Nirmala Sitharaman termed the existing rent control laws as archaic. The Model Act states that all state rent control Acts stand repealed, a reform that has been a condition set for many World Bank-funded projects in India. However, since land and urban development are state subjects, the central Model Act is not binding on the states unless they draft their legislation based on it. MHUA officials said states and Union Territories will choose to repeal or amend their existing Acts. The MHUA also clarified that the Model Act would be applicable “prospectively and will not affect the existing tenancies”.

Repeal of rent control Acts has been a politically sensitive issue in the cities, especially in South Mumbai, where old properties in prime locations have been occupied for decades by residential and commercial tenants at negligible rents. The Model Act has been in the making since 2015, but has been held up on this point. The new Act will be applicable only to fresh tenancies. The draft has been circulated to all states, and they are expected to give their suggestions by July 26.

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