Model Tenancy Act is a step forward from the archaic laws governing rent control
The cap on the security deposit can become a pain point for many landlords—in cities like Bengaluru, a ten-month security deposit (with some scope for negotiation) was the accepted norm
The ministry of housing and urban affairs recently came out with the draft Model Tenancy Act 2019. The draft Act is aimed at increasing accountability in the rental home ecosystem. It addresses factors like the need to have a formal rent agreement, how much security deposit should be paid, rate of rent increase and grounds for eviction. While the draft tries to strike a balance between the rights of the tenants and homeowners, there is some debate about whether it promotes the interests of one over the other. Nilanjana Chakraborty asks experts if the draft Act is skewed more in favour of either party.
The draft Act balances problems faced by both parties
—Mani Rangarajan, group chief operating officer, Elara Technologies
Idon’t think that the draft Model Tenancy Act is skewed specifically towards the tenant or the landlord. Rental housing has been a major gap in the Indian real estate market and what has kept investors and buyers from tapping into real estate for rental returns hasn’t just been low returns but the lack of sufficient legal enforcement of the rental agreement. This Act has been brought in to address these deficiencies in the existing rent control laws. If you look at some of the major announcements—like the security deposit being capped to a maximum of two months’ rent, or the heavy penalty on the tenant if he fails to vacate the premises, or how landlords can’t arbitrarily hike up rentals mid-lease without sufficient cause and notice—it is clear that the intention is to balance out the common problems faced by both parties. The real concern here is not so much about whether it is skewed towards one party but about the implementation. What is required for the success of the Act is the complete implementation by all the states.
Need for time-bound dispute resolution mechanism
—Aashish Agarwal, senior director, valuation and advisory, Colliers International India
The Model Tenancy Act is a step forward from the archaic laws governing rent control. While the tenant has a cap on security deposit and protection from arbitrary increases, the landlord is entitled to stiff penalties for failure to vacate and transparent repossession mechanism. However, the draft stops short of addressing the weak contract implementation. In its endeavour to strike a balance, the draft seems to err on the side of caution by tilting the commercial deterrents in favour of the tenant, such as cap on security deposit.
For the past several years, yield on residential investment has not been commensurate with the risks involved with the rental housing sector. The need of the hour is to provide an enabling framework for emerging business models like co-living, while providing a time-bound dispute resolution mechanism for traditional tenancy formats. The government has an opportunity to make this a more comprehensive and enabling legislation to achieve the Housing for All objective by 2022.
At first look, the draft rules do 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 like Bengaluru, a ten-month security deposit (with some scope for negotiation) was the accepted norm. If a tenant defaults or causes significant damage to a property, two-months security deposit may not cover the expenses the property owner incurs.
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 roll-out of Rera, the Model Tenancy Act 2019 may lose its real purpose if states do not follow the basic guidelines and try to dilute them.
For this reason, the Model Tenancy Act, like RERA, may well become a process rather than an event, and may need several course corrections to reduce regional dilutions before it becomes a force to reckon with.
Landlords to be protected from unscrupulous tenants
—Amit Kumar Agarwal, chief executive officer and co-founder, NoBroker.com
The draft aims to bring in transparency in the highly unorganised rental space and leaves little room for either party to take advantage of the other. Among the many benefits that the draft proposes for both sides, we feel it is more tilted in favour of the tenant who is usually treated as the underling by both landlord as well as brokers.
The draft caps the security deposit to a maximum of two months’ rent in case of residential property and to a maximum of one month’s rent in case of commercial property. There is no standardisation of security deposit across cities and this proposal is quite relieving. Issues such as increasing of rent, eviction of tenants, etc. have also come within the ambit of this draft and a landlord cannot increase the rent arbitrarily or ask the tenant to vacate without prior notice. The draft Act also favours the owners in multiple ways. An efficient system is in place to curb challenges faced by them due to unscrupulous tenants who do not vacate in time and do not leave the property in a good shape.