The Model Tenancy Act 2021 (hereinafter referred to as ‘TMT Act’) was approved on the 2nd of June 2021, by the Union Cabinet headed by the Hon’ble Prime Minister. This law comes with a long-term aim to enhance real estate growth and modernize the existing legal framework of rental housing across all states, keeping in view the present scenario. To begin with, the TMT act aims to establish separate rent authorities, tribunals/courts in districts for protecting the interests of both landlords and tenants. The States and Union Territories can either choose to amend the existing laws of their respective states and UTs or bring in fresh legislation.
This important law in India aims to enable an organizational legal model for rental housing. It also strives to unlock vacant houses on a rental basis and to give a push to private sector participation in the rental model of housing. The TMT Act is progressive, hence there will be no impact on operations under existing agreements. This law aims to have an impact on the most important sector in India i.e. commercial and residential leasing sector in a positive manner.
The brief highlights of the Act are explained below:
- The TMT Act shall be prospective and shall not impact any existing tenancies.
- The TMT Act covers all tenancies for all premises rented or leased out for residential, commercial, and educational use. It does not bring within its ambit premises for industrial use. However the TMT Act does not apply to any premises that are owned by Central or State Governments; Government Undertakings; Statutory Bodies; Companies, Universities or Organizations that have rented out premises to its employees as part of their contract of service and premises owned by religious or charitable institutions or trust registered under the law of the State/U.T.
- TMT Act defines the responsibilities of a Landlord and a Tenant under a tenancy under the definition clause section 2 of the Act.
- It also mandates for a Tenancy Agreement to be in writing. The information pertaining to the Tenancy Agreement has to be made available to the Rent Authority by the Landlord and Tenant jointly in the specified form provided in the First Schedule of the Act, within 2 months from the date of the Tenancy Agreement. In case of delay, they are also granted a month’s extension for the same.
- The Rent Authority, within 3 months from the date of its appointment, shall be responsible to set up a website for a hassle-free submission process.
- The TMT Act provides for all disputes with respect to revision of rent to be heard by the Rent Authority. In case of refusal to accept the rent, the Tenant has the option to deposit the rent with the Rent Authority.
- A Tenant is now required to pay a security deposit of 2 (Two) months’ rent in case of residential premises and 6 (Six) months’ rent in case of non-residential premises.
- It also lays down provisions for compensation in the event of failure of a Tenant to vacate the premises. In case of the expiry of the fixed term of the tenancy or termination of the tenancy, if the Tenant fails to vacate the premises, in such an eventuality, the Tenant shall be liable to pay enhanced rent to the Landlord i.e., twice the monthly rent for the first 2 (Two) months and thereafter, 4 times the monthly rent till the date of vacation of the premises.
- A Landlord is entitled to enter the premises after serving a notice to the Tenant, at least 24 hours before the time of entry on such premises. Such entry by the Landlord shall be solely for carrying out repairs or replacement, carrying out an inspection of the premises to ensure that the premises are in a proper condition and/or for any other reasonable cause, stated in the Tenancy Agreement.
- A Tenant may be evicted for non-payment of rent or non-payment of arrears and other charges for 2 consecutive months, including interest for delayed payment or if the Tenant has parted with the possession of the whole or part of the premises, without obtaining the consent of the Landlord and misused the premises, despite receipt of notice from the Landlord.
- A Tenant is required to serve written notice, in terms of the Tenancy Agreement before handing over the possession of the premises to the Landlord.
The tenancy and leasing aspects are regulated by Rent Control Act in various forms in all of the states of India. Roughly looking at all of the laws governing the protection aspect, unfair eviction and dispute settlement, all of these laws have remained unchanged for over two decades; as such they don’t meet present-day demands and requirements which proves to be a serious drawback in the country’s fast-paced development hindering the infrastructure development at large. This has drastically demotivated property owners from renting out property and has also dampened investor interest for purchasing second or third homes in the form of investments due to low capital returns. On the other hand, it has not helped the lower and middle-income groups either, which it originally intended to do.
If the TMT Act comes into force, it will attract the private sector to pitch investments for developing new housing projects for rent purposes and also bringing vacant properties into the rental market. Government estimates from the past show over 1.1 crore fit-for-renting properties lying vacant across urban India due to the lack of transparency and a slow dispute resolution system. Property owners shy away from letting out their premises fearing squatting. This leads to limited supply, resulting in sky-high rents. The Model Tenancy Policy would help the rental housing segment reach its true potential by addressing these issues. When landlords have confidence in the regulatory regime, they will unlock the rental housing inventory lying with them. When the supply increases, rents will rationalise in top metropolitan cities in India such as Mumbai, Chennai, Bengaluru and Delhi where finding good rental accommodation within budget, is often a problem.
The land is a subject matter of states. The TMT Act isn’t mandatory for the states to implement; states and union territories are free to adopt the TMT Act by enacting fresh legislation or they can amend their existing rental laws suitably. As the rules are not binding, it is difficult to say how many states would actually enact it. Furthermore, the law warrants a three-tier grievance redressal system with a district judge in charge of the dispute resolution. This implies that states will have to invest time, resources and efforts to set up these institutions and also spare human resources from an already burdened lower judiciary system.
- Draft of The Model Tenancy Act, 2020. Can be retrieved here: http://mohua.gov.in/upload/uploadfiles/files/3%20ENGLISH.pdf
- Explainer: Model Tenancy Act and how it is different from Rent Control Act of 1948. Can be retrieved here: https://www.firstpost.com/india/explainer-the-model-tenancy-act-and-how-it-is-different-from-the-rent-control-act-of-1948-9680131.html
- Draft Model Tenancy Act: All you need to know. Can be retrieved here: https://www.proptiger.com/guide/post/10-things-landlord-renters-must-know-about-model-tenancy-act