Home >Money >Personal Finance >From security deposit to rent hike, what draft tenancy law proposes

Are you living on rent? The government has come up with a draft tenancy law for you and your landlord. So far you must have noticed the focus on buying a property or on home loans from the government. In this Budget, the finance minister spoke about tenancy law, post which the government has proposed a Model Tenancy Law to regulate renting of premises.

“This is not the first time. There have been archaic laws relating to this space. States have their own Rent Control Acts, which are old and not really serving the true purpose," said Ramesh Nair, chief executive officer and country head, JLL India.


According to the new draft Model Tenancy Act, 2019, security deposit has been capped to a maximum of two months’ rent in case of residential property, and a minimum of one month’s rent in the case of non-residential property. The draft imposes penalty for failure to vacate a residential unit. The landlord is entitled to get a compensation of double the monthly rent for two months and four times of the monthly rent thereafter if a tenant does not vacate the premises after tenancy has been terminated by order, notice or as per agreement. Also, the landlord cannot hike the rent in the middle of the tenure.

A landlord cannot cut off or withhold essential supplies or services such as electricity and water under the new Act. The property owner must give prior notice of three months before revising the rent value.

The tenant cannot sublet a part of or the whole property to someone else. The draft also makes it the landlord’s responsibility to rectify structural damages and undertake measures like whitewashing walls and painting doors and windows. “With nearly 30% of households in urban areas staying in rented accommodation, this regulation will have a significant impact on the rental market. The law, if implemented, will have rules for both residential and non-residential premises. It is early to comment on actual implementation process," said Nair.


At first look, the draft rules seem to be favourable for both tenants and landlords.

“However, there are some inherent challenges. The cap on the security deposit can become a pain-point for many landlords in cities such as Bengaluru —a 10-month security deposit (with some scope for negotiation) was the accepted norm. Also, if a tenant defaults or causes significant damage to a property, a two-month security deposit may not cover the expenses the property owner incurs in repairs. While the government lays down the basic policies, the exact rules will likely change within each state since land is a state subject. Like we saw in the highly lopsided rollout of RERA, the Model Tenancy Act, 2019 may lose its real purpose if states do not follow the basic guidelines and dilute them," said Anuj Puri, chairman, Anarock Property Consultants. According to Puri, the Model Tenancy Act, 2019 - like RERA - may well become a process rather than an event, and need several course corrections to reduce regional dilutions before it becomes a force to reckon with.

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