The Draft Model Tenancy Act, recently placed in the public domain by the Union Ministry of Housing and Urban Poverty Alleviation, seeks to strike a balance between the rights of tenants and landlords. The objective of bringing about the Act is clear as was highlighted by Union Finance Minister Nirmala Sitharaman during her budget speech in Parliament on July 5: that of doing away with archaic laws governing the rental market and introducing reform measures through a new legislation that addresses the relationship between the tenant and the landlord.
A model tenancy act for the country was long felt as the need of the hour with housing and the real estate sector in boom particularly in Tier-I cities of the country, including Delhi, NCR, Mumbai, Bengaluru, Hyderabad and Chennai. The rental sector has witnessed a rise too with concepts of co-working and co-living fast catching up with companies and employees.
Landlords have always been wary about handing out properties on rent for the fear of not getting repossession in time and damages incurred upon the house by the tenant. On the other hand, tenants have always remained wary about high security deposits apart from arbitrary hike in rents and eviction from premises.
At the outset, the model tenancy act seeks to address these basic concerns of landlords and tenants, respectively. Irrespective of the city in which the property is located, the act proposes to fix a maximum security deposit equivalent to two months of the basic rent upon the tenant. The threshold has been fixed as rent equivalent to one month for commercial properties.
For the landlord, relief comes in the way of imposing high penalties upon tenants for non-payment of rent within the stipulated deadline and not handing over the property after expiration of the tenancy agreement.
Landlords are not without concern though about the clause of maximum security deposit of two months' rent to be mandatory upon tenants. In case of heavy physical damages incurred upon the property by tenants, two months' or one-month security deposit might be too little to suffice for the costs as the case may be.
The provision of two months' rental as security deposit comes as a huge relief to prospective tenants in cities like Bengaluru or Pune where landlords charge as much as ten months' security deposit to be paid back without any interest at the time of vacation. The investment of a large amount of money in terms of fixed capital towards security deposits in these cities has always been a huge deterrent for rent seekers.
The Act, however, will help landlords revise rents periodically-and with due notice to the tenant-in tune with the prevalent rental rates in the real estate market.
The proposed rent Act comes at a time good enough for the real estate market in the country as the Union government led by Prime Minister Narendra Modi is committed to provide Housing for All by 2022 under the Pradhan Mantri Awas Yojana. A lot, however, depends on how individual states and union territories in the country formulate their own rules to the Model Tenancy Act.
The Act specifies a universal rent agreement form that has to be mandatorily filled out by the landlord and the tenant before handing out a property on rent. Further, the Act also makes it mandatory for the setting up of a Rent Authority that would regulate renting of properties in an efficient and transparent manner. The Rent Court and the Rent Tribunal have also been proposed as mandatory authorities to adjudicated upon legal disputes between tenant and the landlord. Once the Act comes into force, it is a must upon both landlord and tenant to inform to the Rent Authority about the agreement on tenancy within a period of two months.
For tenants again, it is a matter of great relief that every amount paid in terms of rent or security deposit has to have a written receipt from the landlord. This might be seen as a burden upon landlords who often desist from providing rent receipts in order to escape the tax ambit. The Act is again tilted towards the tenant because the landlord will have the right to enter the rented premise only after notifying in a written manner or through the electronic medium at least 24 hours in advance. The reason for entry has to be specified and the time of entry has to be restricted within 7 am and 8 pm.
At present, the general practice amongst landlords and tenants has been to enter into mutually decided rent agreement that are then ratified by a local notary, a person authorised under law to perform legal formalities like certifying contracts or deeds. These notary-certified contracts hardly suffice to stand the test of law in case of legal disputes between landlords and tenants. This practice of notary contract in the rental market, which is highly skewed against both tenants and landlords, will be a thing of yore once the Act comes into force.
(By Rajat Goel, Joint Managing Dirtector, MRG World)