The draft Act aims to increase accountability and transparency in the ecosystem for renting out the premises in a disciplined and efficient manner. Among various other things, it tries to address the most ambiguous factor—how much security deposit should a landlord ask for? At present, the security deposit amount is, typically, about two or three times the monthly rent in cities like Delhi, but it goes up to 10-12 months of the monthly rent in cities like Mumbai and Bengaluru.
Varun Bhaskar, 28, manager at an e-commerce company, moved to Bengaluru for the first time in 2017, he was shocked to find out that the security deposit was 10-12 times the monthly rent. After a lot of running around, he found a place along with two others in a shared apartment, where he paid five times his rent. The three flatmates paid ₹2 lakh as security deposit for a three-bedroom apartment with a monthly rent of about ₹40,000.
The draft Act proposes to cap the security deposit to a maximum of two months’ of rent in case of residential properties and a minimum of one month’s rent in case of non-residential property.
“The landlord usually enjoys the power of position and this often leads to the tenant being treated as an underling," said Amit Kumar Agarwal, chief executive officer and co-founder, NoBroker.com, a realty portal.
Amount of rent
Though the general practice is to include a clause in the rent agreement related to increase in rent after a certain period at a certain rate, that may or may not always be in line with what the law says. “In case of tenancies, which are governed under the existing rent control legislations, the landlord can’t increase or determine the rent without the approval of the rent control tribunals nor do the rent control legislations envisage escalation of standard rents to market rates," said Abhilash Pillai, partner, Cyril Amarchand Mangaldas, a law firm.
The draft Act tries to address the issue of how rent can be increased. It proposes that rent can either be increased as per the terms and conditions mentioned in the agreement, or the landowner shall be required to give a notice in writing three months before the revised rent comes into effect. On the other hand, the tenant should either accept the increased rent or give a notice for termination of the agreement. If the tenant fails to reply on the notice of increase in rent, the tenant shall be deemed to have accepted the increase proposed by the landlord.
Vacation of house
According to Pillai, most disputes between tenants and landlords get triggered when the landlord increases the rent or seeks vacation of the property. “Further, there are only limited grounds through which a landlord can evict a tenant," added Pillai, who believes the present rules favour tenants more.
Sourirajan, 57, a Chennai-based businessman, rented out his independent bungalow in Chennai in 2007. At that time, he and his family were living in Gurugram. One and half years into the agreement, Sourirajan’s daughter decided to settle down in Chennai. He asked the tenant to vacate his property but the tenant kept refusing to do so on some pretext or the other, and even started delaying the rent. After about eight to nine months, the tenant slapped a legal notice against the eviction. Sourirajan was finally able to lay claim to his house after fighting a five-year court case. In the interim, he ended up foregoing the rent but never contested for it fearing another long court battle.
“Under the extant laws, landlords can seek eviction of non-protected tenants through a civil court by filing a suit for recovery of possession. In case of protected tenancies, the landlords can evict tenants only by approaching the rent tribunal," said Pillai.
Similarly, “the tenants have to approach a civil court or the rent tribunal for seeking protection from eviction or any adverse action from the landlord. This has proved to be a very lengthy adjudication mechanism and, thus, did not yield expected results," said Pillai.
Protected tenants are those who are protected under various state rent control regulations, while non-protected tenants are those whose leases are governed by the provisions of the Transfer of Property Act, 1882. The laws apply depending on the amount of monthly rent and the state you reside in. For instance, in Delhi, if the rent is below ₹3,500 per month, the tenant will fall under the Transfer of Property Act; if the rent is above ₹3,500 per month, the Delhi Rent Control Act will apply.
The draft Act also makes it mandatory for tenants and landlords to enter into a written agreement while taking or giving a property on rent. Moreover, within two months of executing the rental agreement, both the landowner and tenant are required to inform the rent authority about the agreement. Within seven days of doing so, a unique identification number will be issued by the rent authority to both the parties.
To make the process smooth, the draft Act proposes to set up a digital platform in the local vernacular language of the state for submitting the tenancy agreement and other documents. It has also proposed a grievance redressal mechanism comprising of the rent authority, rent court and rent tribunal, in cases of disputes.
Even if the draft Act comes into force, it is unlikely to affect existing rent agreements. “The Model Act is prospectively applicable and will not affect existing tenancies," said Anuj Puri, chairman, ANAROCK Property Consultants Pvt. Ltd, a real estate consultancy.
The draft Act has some proposals that can go a long way in enabling the owners and tenants to live in peace, but there are certain concerns over its implementation. Experts fear this Act, too, may go the RERA (Real Estate (Regulation and Development) Act, 2016) way.
While five states are yet to notify rules under RERA, 10 hadn’t yet launched their websites, as on April 2019, and a few others have diluted the rules, according to information compiled by Anarock Property.
“It is still a matter of choice for states and Union Territories to repeal or amend their existing Acts. Like in the case of RERA, the fear is that states may choose not to follow the guidelines, diluting the essence of the draft Act. It remains to be seen to what extent the states will toe the central government line," said Puri.
Ajit Panda, founder, Spaciya Advisors, a real estate consultant, agreed. “It will be a matter to observe if the government is able to roll it out without state-level dilutions as it has been the case in RERA," he said.
However, as far as the supply and rentals are concerned, experts believe that the draft Act will have a positive impact on the rental market because it will lead to more confidence among owners. “It will affect the tenure and pricing of rental contracts, including rent amount and deposit, in a positive way," said Agarwal.
The copy of the draft Act is available on the ministry’s website (Mohua.gov.in) and is open for comments from the public and other stakeholders till 1 August.