Real Estate Industry

Only 4 States adopt Model Tenancy Law

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Model Tenancy Act

Mains level : Read the attached story

More than a year since the Union Housing and Urban Affairs Ministry circulated the Model Tenancy Act (MTA), only four States had revised their tenancy laws to be in line with the MTA.

What is the Model Tenancy Act?

  • MTA is aimed at opening up of the vacant housing stock for rental housing purposes and helping bridge the trust deficit that exists between tenants and landlords by clearly delineating their obligations.
  • The housing and urban affairs ministry had floated the draft model tenancy law in July 2019.

Major provisions of MTA

(1) Rent Court and Rent Tribunal:

  • To ensure speedy redressal of disputes, the Act calls for establishing a separate Rent Court and Rent Tribunal in every state/UTs to hear appeals for matters connected to rental housing.
  • Only the rent court and no civil court will have the jurisdiction to hear and decide the applications relating to disputes between landowner and tenant and matters connected with it.
  • It calls for the disposal of complaints and appeals by the Rent Court and Rent Tribunals within 60 days.

(2) Tenancy Agreements:

  • It also seeks to establish an independent authority in every state and Union Territory for the registration of tenancy agreements.
  • Under the Act, unless otherwise agreed in the tenancy agreement, the landlord will be responsible for activities like structural repairs except those necessitated by damage caused by the tenant etc.
  • On his part, a tenant will be responsible for drain cleaning, switches and socket repairs, kitchen fixtures repairs, replacement of glass panels in windows, doors and maintenance of gardens and open spaces, among others.

For residential and commercial properties

  • The Act will apply to premises let out for residential, commercial or educational use, but not for industrial use. It also won’t cover hotels, lodging houses, inns, etc.
  • This model law will be applied prospectively and will not affect existing tenancies.
  • It seeks to cover both urban as well as rural areas.
  • The Act says that a security deposit equal to a maximum of two month’s rent in the case of residential premises and a maximum of six month’s rent in the case of non-residential premises would have to be paid by the tenants.

How will states implement it?

  • As per the MoU signed under PMAY-U, the states and union territories would legislate or amend the existing rental laws on the lines of the MTA.

Why was a need felt to bring this on?

(1) For a rental economy

  • Without a well-rounded rental policy and the proper implementation of the rental contracts, there was no sound mechanism to resolve tenant-landlord conflicts.
  • Property owners find it challenging to evict tenants if they misuse the property.
  • To steer clear of such complications, such property owners often chose to keep these homes vacant instead of renting them out.

(2) Unattractive rental yield

  • In India, the rental yield for residential property is quite low, even in bigger cities. It is in the range of 1.5% to 3% of the capital values.
  • This has disincentivized people from investing in second or third homes which could be rented out.
  • Often, they also prefer to leave their properties vacant in case they return to India.
  • NRIs avoid leasing their residential properties for fear of squatters and dealing with the legalities of eviction.

How will MTA help?

(1) Unlocking homes

  • It will unlock vacant houses for rental purposes
  • It will enable the creation of adequate rental housing stock for all the income groups thereby addressing the issue of homelessness.

(2) Helping migrants

  • Rental housing is a preferred option for students and migrants.
  • It will balance the rights of both landlords and tenants.

(3) Effective negotiations

  • There is no monetary ceiling under MTA, which enables parties to negotiate and execute the agreement on mutually agreed terms.
  • It will give confidence to landlords to let out their vacant premises, the housing ministry said.
  • The Act also tries to address how a renter can legitimately increase the rent.

(4) Control over encroachments

  • It has proposed limiting the advance security deposits to two months’ rent and has also suggested heavy penalties for tenants who decide to overstay.
  • Those who do may have to shell out double the rent for two months and even four months.

(5) Rights of tenants

  • The landowner cannot cut power and water supplies in case of a dispute and would have to provide a 24-hour notice to tenants to carry out repair work.
  • Should the landlords wish to increase the rent, they will need to provide a three-months notice to the tenants.
  • These measures would go a long way in protecting the rights of a tenant as it regulates the rent hikes that tenants have had to face.

Challenges ahead

While the proposals of the Act have been widely welcomed, their implementation may not be very simple.

(1) Not binding nature

  • The Act is not binding on the states as land and urban development remain state subjects.
  • Like in the case of RERA, the fear is that states may choose not to follow guidelines, diluting the essence of the Model Act.

(2) Issues over paltry rents

  • Also, the Model Act is prospectively applicable and will not affect the existing tenancies.
  • The repeal of rent control Acts can be governed by political exigencies.
  • This may be a complicated process in cities like Mumbai, where tenants have occupied residential properties in prime areas for absurdly low rents.

 

 

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