The Union Cabinet approved the Model Tenancy Act for circulation to all States and Union Territories, for adaptation by way of enacting fresh legislation or amending existing rental laws suitably. The government says the Act it will facilitate unlocking of vacant houses for rental housing purposes. It is also expected to give a fillip to private participation in rental housing as a business model for addressing the huge housing shortage. In addition, it aims to bridge the trust deficit between tenants and landlords by clearly delineating their obligations. It will also help overhaul the legal framework with respect to rental housing across the country. The government had first released the draft of the act in 2019.
Highlights of the Model Law:
- Applicable prospectively and will not affect the existing tenancies.
- Written agreement is a must for all new tenancies. The agreement will have to be submitted to the concerned district ‘Rent Authority’.
- The law also speaks about roles and responsibilities of landlord and tenants.
- No landlord or property manager can withhold any essential supply to the premises occupied by the tenant.
- If tenancy has not been renewed, the tenancy shall be deemed to be renewed on a month-to-month basis on the same terms and conditions as were in the expired tenancy agreement, for a maximum period of six months.
- Compensation in case of non-vacancy: On the expiry of extended period of six months of agreed tenancy period or the termination of tenancy by order or notice, the tenant shall be a tenant in default and liable to pay compensation of double of the monthly rent for two months and four times of the monthly rent thereafter.
- A landowner or property manager may enter a premise in accordance with written notice or notice through electronic medium served to the tenant at least twenty-four hours before the time of entry.
It is an important piece of legislation that promises to ease the burden on civil courts, unlock rental properties stuck in legal disputes, and prevent future tangles by balancing the interests of tenants and landlords.
Need for a law in this regard:
- Young, educated job seekers migrating to large metropolises often complain of onerous tenancy conditions and obscene sums of money as security deposits that they are asked to fork out to lease accommodation. In some cities, tenants are asked to pay security deposits amounting to 11 months of rent.
- Also, some house owners routinely breach tenants’ right to privacy by visiting the premises unannounced for sundry repair works.
- Whimsical rent raises are another problem for tenants, many of whom complain of being squeezed as “captive customers“.
- Besides, Tenants are often accused of “squatting” on the rented premises, or trying to grab the property.
Issues with housing sector in the country:
- According to the data from Ministry of Housing and Urban Poverty Alleviation, there is a shortage of 18.78 million housing units, of these the Economic and weaker section (EWS) alone accounts 56.2 percent.
- It is evident that there is a mismatch in the demand and supply in the housing market, as the Census of India shows that 11.07 million houses were vacant in 2011 in Urban India. Housing Surplus is in the higher income groups while 95% of the deficit is in the Economically Weaker Section (EWS) and Lower Income Group (LIG) categories.
- Scarcity of developed and encumbrance free land, increased cost of construction, lack of private sector participation, absence of viable rental market, inaccessibility to home loans by poor are some of the challenges which need to be addressed for development of the affordable housing market.
- The technological Innovations in low cost building material and construction practices lack popular acceptance in the market.
- Certain regulatory constraints such as long and cumbersome approval process, environment clearance, lack of clarity in building by-laws and implementation of the master plan.
- The housing shortage for 2012-17 is estimated to be 18.78 million units in rural areas.
- Delay in Projects: The major problem consumer facing is delay of projects which may happen due to various reasons like court intervention in land issues, finance, approval etc. The consumer had to suffer because customer is paying rent where resides and paying EMI for home loan at same time due to delay of projects.
- Lack of clear land titles: The land titles are not clear because of poor record keeping and division of land in many parts till independence. The slow pace of modernization of land records is further aggravating the problem.
- Speculation in Land and Real Estate Prices:The prices of land and real estate in India has increased exponentially in last decade and causes overpricing of commercial or residential property. In recent times, the real estate is the most favourable destination for investment in India and far ahead than equity or gold. Further real estate agents or brokers buy or sell property frequently with their own investments and cause of surging prices in property.
- Sources of Finance:Finance is the key for development of any industry. Due to poor image of Real Estate sector, banks are becoming reluctant to provide loans and making regulation tougher to avoid the bad loans. Alternate sources of finance are very costly and ultimately impact total cost of the project.
- High Input Cost: The real estate is a capital and labour intensive industry; thus rise in cost of labour and construction material due to inflation poses many problems to real estate industry. Further real estate builders many times raise a question about unfair practices in cement industry for rise of price more than 50% in quick time.
- The Act isnot binding on the states as land and urban development remain state subjects.
- Like in the case with RERA (Real Estate (Regulation and Development Act), the fear is that states may choose not to follow guidelines, diluting the essence of the Model Act.
- Multiplicity of Laws to govern tenancy as there is already Rent Control Act 1948 to govern tenancy laws.
- It heavily penalises the tenant if s/he doesn’t vacate the house in prescribed rent period even during emergency situations – This clause lack clarity.
- Law envisages a three-tier grievance redressal system with a district-level judge in charge of dispute resolution. This means that states will have to invest time, resources and efforts to set up these institutions and also spare human resource from an already burdened lower judiciary system.