The announcement of the Union Budget 2019-2020 (Budget) by the Finance Minister, Ms. Nirmala Sitharaman, introduced a few changes in the periphery of the real estate sector. On July 10, 2019, the housing ministry put a policy in the public domain for suggestions, which could act as the model act for States and Union Territories to regulate this segment. The Model Tenancy Act, 2019 (Model Act), takes forward what was proposed in the Draft Model Tenancy Act, 2015.
With property prices far beyond the reach of many millennials, renting has the opportunity to become a far more common housing option. The Model Act brings in transparency enabling a two-fold mechanism wherein the landowners will be less vary of a possible threat of repossession and will let-out their homes to yield rent, which will in turn increase the footing for the real estate market. The concept of sharing spaces both living and working viz. a viz. ownership, presently being the market preference, have been covered under the Model Act.
Market research estimates the demand for rental housing in three major cities – Delhi NCR, Bengaluru and Mumbai –will grow to 4.4 million by 2021, up from 2.9 million in 2011, at a compound annual growth rate (CAGR) of 4.3 percent.
Existing rent control laws are restricting the growth of the rental housing segment and discouraging landowners from renting out their vacant premises.
The Model Act aims to promote rental housing as the government is targeting to achieve ‘Housing for all by 2022’. However, it must be noted that the policy is not binding on states/UTs since land is a state subject under the Indian Constitution, and the same is not retrospective. This puts existing rental contracts out of the purview of the policy.
The Maharashtra Government has announced that it will adopt a dual path whereby the Maharashtra Rent Control Act, 1999 will continue to give protection to existing tenanted properties. New constructions, meanwhile, will be governed by the Model Act.
The objective of the Model Act is to, inter alia, bring within its ambit the rules for residential and non-residential premises and further develop the policies to promote balanced rental housing by developing different options like individual units, dormitories, hostels, co-living, co-housing, paying guest and employee housing, and outline the roles of various stakeholders in ensuring housing for all.
The Model Act has two notable changes that will have a positive impact on the renting segment: the first, is the setting up of a rent authority, to bring transparency, fix accountability and promote fairness; and the second is speedy dispute resolution, wherein timelines have been provided in the policy, to avoid a long-drawn-out process, presently taken under the civil courts for reaching a verdict on disputes between landowners and tenants.
Some of the key highlights of Model Act that need to be taken note of are as below:
- It is now mandatory for parties to present the rent authority with a copy of the tenancy agreement within two months from the date of agreement.
- After this, a unique identification number (UIN) will be provided to the parties and the details of the tenancy agreement will be uploaded to the rent authority website. All information provided in the tenancy agreement will be taken as evidence of facts relating to tenancy and connected matters.
- A cap of two months rent has been fixed for payment of security deposit for residential properties and a minimum of one month’s rent for non-residential properties.
- Provision for escalation of rent is to be quantified in the tenancy agreement, in absence of which any increase in rent during the subsistence of the tenancy period will not be taken into consideration.
- In absence of any provision for escalation in the tenancy agreement, the landowner may revise the rent by giving three months prior written notice to the tenant and where the tenant fails to give a notice for termination of the tenancy, the tenant shall be deemed to have accepted the increase in rent.
- If any additional structural alterations or improvements (not including necessary repairs) are undertaken, the landowner may increase the rent one month after completion of such work, by an amount as agreed between the parties.
- If the landowner refuses to accept the rent or other charges payable or give a receipt in respect thereof, the rent and other charges can be sent by postal money order consecutively for two months. Further, if the landowner does not accept the rent within this period as envisaged above, then the tenant may deposit the same with the rent authority.
- No tenants are permitted to sublet (whole or part) of the premises without prior written consent of the landowner. Such subletting or assignment, whether directly or indirectly, cannot be for a rent that is higher than the rent charged by the landowner to the tenant.
- The landowner, tenant or property manager cannot withhold any essential supplies (being supply of water, electricity, gas, lights in passages, lifts, staircase, conservancy, parking, communication links and sanitary services etc.) in relation to the premises occupied by the tenant.
- The landowner is entitled to compensation of double the monthly rent for two months and four times of the monthly rent thereafter, for non-vacancy of the premises by the tenant who does not vacate the premises after his/her tenancy has been terminated by order, notice or as per the agreement.
- The tenant may give up possession of the premises after giving such notice as required under the tenancy agreement. In the absence of any such provision, the tenant shall give at least one month notice before giving up possession.
- A grievance mechanism will be set up, which will include the rent authority, rent courts and rent tribunals.
The grievance redressal mechanism is provided to make people aware that there are dispute resolution forums set up to prevent any unfairness against the tenant and landowners. According to the economic survey of 2017-18, there was a steep increase in the number of vacant homes in the past few years. This is attributable to the rising prices of properties, which in turn is affecting the leasing market and landowners not getting adequate returns from renting homes.
The Model Act is aimed at strengthening the rental laws and providing the landowner a reason to not fear letting out their houses vide leasing. The Model Act offers to make rental laws transparent and provide an assurance to tenants and landowners that there will be mutual, fair and balanced relationship. And, where disputes arise, there will be repercussions and redressal mechanisms to safeguard the same, boosting their confidence in the market.