- GS-2: Government policies and interventions for development in various sectors
- GS-3: Indian Economy and issues relating to planning, mobilization, of resources
Model Tenancy Act
Context: After releasing the draft in 2019, the Union Cabinet has approved the Model Tenancy Act (MTA) to streamline the process of renting property in India and aid the rent economy in the estate sector.
States can adopt the Act as it is with fresh legislation or they can amend their existing rent acts to factor in the new MTA.
Why this Act?
- Restrictive Laws: As per Census 2011, more than 1 crore houses were lying vacant in urban areas. 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.
- Large scale informalisation in sector: 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.
- Lack of Uniformity: Since it is a state subject, states have enacted their laws and it differs from one state to another.
- Housing Poverty: 2013 report by a Task Force for Rental Housing held that affordable rental housing “addresses the issues of the underprivileged and inclusive growth, in an even more direct manner than affordable ownership housing”. Model Tenancy Act helps bring investment in the sector as the sector provides better safeguards.
Where it applies
- After enforcement of this Act, no person can let or take on rent any premises except by an agreement in writing.
- The new Act will be applicable prospectively and will not affect existing tenancies.
- The Act seeks to cover urban and as well as rural areas.
What’s new in Model Tenancy Act?
- Dedicated Institutions: States will set up a grievance redressal mechanism comprising of Rent Authority, Rent Court and Rent Tribunal to provide fast-track resolution of disputes.
- Time Bound Resolution: Disposal of a complaint/appeal by the Rent Court and the Rent Tribunal will be mandatory within 60 days.
- No monetary ceiling on rents: At present, in many old properties let out under archaic rent-control Acts, such ceilings have left landlords stuck with outdated rent amounts. This will be done away with in new model act.
- A digital platform will be set up in the local vernacular language or the language of the State/Union Territory for submitting tenancy agreement and other documents. Rent Authority will keep a tab on these agreements.
- Proper Documentation: Verbal agreements will be out of the picture, as the MTA mandates written agreement for all new tenancies (prospective) which is to be submitted to Rent Authority.
- Clarity on Subletting: Subletting of premises can only be done with the prior consent of the landlord, and no structural change can be done by the tenant without the written consent of the landlord.
- Guidelines on Security Deposit: The security deposit to be paid by the tenant should not exceed two months’ rent for residential property (six months’ rent in case of non-residential property)
- Provision for eviction: The Rent Court can allow repossession 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”.
Merits of MTA
- Formalise the shadow market of rental housing
- Protects interests of both tenant and owner
- Faster resolution of disputes
- Unlock vacant properties
- Increase rental yields
- Ease/remove exploitative practices
- Reduce procedural barriers in registration
- Increase transparency and discipline.
- Attracts private investment into the sector.
Connecting the dots: