The Union cabinet approved the Model Tenancy Act 2021 on Wednesday 2nd June to bridge the trust gap between owners and tenants by making compulsory tenancy agreement, rights and obligations of owner and tenant much more transparent across the country.
The Model Tenancy Act 2021 is same as the draft model released by the Ministry of Housing and Urban Affairs last year during october month which has 47 sections and 2 Schedules.
In a note attached to the draft Act, the MOHUA had approved the act as a step towards PM’s ‘Housing for All’ by 2022 vision.
It is said that the model law “has been framed with the objective of balancing the interests and rights of both the owner and tenant; and to create an accountable and transparent ecosystem for renting the premises in a disciplined and efficient manner”.
How does this Model Tenancy Act propose to change things for Owners and Tenants?
This law sets to balance the owner’s interests with tenants, who have enjoyed protection against eviction and rent hikes under laws that were drafted previously and mostly with the intent of preventing exploitation of tenants by landlords.
- Compulsory rent agreement – The Model Tenancy Act makes it compulsory to have a written agreement in place for all tenancy agreements entered into after the law is notified. This agreement is required to be communicated to the rent authority appointed by state govt’s by the landlord and the tenant jointly within two months.
- Rent and security deposit – Under the act, a tenant must pay 2 months of security deposit to rent a residential property. Whereas to rent a commercial property, a tenant must pay 6 months of security deposit. After payment of rent every month, the landlord or his property manager needs to provide a signed rent receipt to the tenant. But if the payment has been made electronically, the bank acknowledgement would be conclusive proof of payment.
- To increase the rent, the owner must inform the tenant three months before – The revision of the rent cannot be arbitrary, under the act. Although there has not been a financial parameter set to determine the value of increased rent, but the owner must notify the tenant three months before revising the rent. A written notice must be given to the tenant three months before the revision of the rent.
- Tenant cannot overstay after the end of tenancy period – After the end of the tenancy period as mentioned in the agreement between owner and the tenant, if a tenant refuses to vacate the concerned premises, the owner will be entitled to compensation double the monthly rent for two months. If even after two months of tenancy expiration, the tenant doesn’t vacate then under the Model Tenancy Act, the owner will be entitled to compensation four times the monthly rent.
- Owner can’t withhold essential supply, must make structural repairs – Under the act, no landlord can withhold any essential supply to the premises occupied by the tenant, such as electricity/water supply.
Unless agreed in the tenancy agreement, the act says, the owner will be responsible for activities like structural repairs except those necessitated by damage caused by the tenant, painting of walls and painting of doors and windows, changing plumbing pipes when necessary and internal and external electrical wiring and related maintenance when necessary.
The returns from residential realty have remained very low. The prices of owning a house have gone beyond the cusp in most large cities in India but the corresponding rental income is still in the range of 1.5 to 3 percent of the capital values.according to a report in Moneycontrol
What is ‘Model’ law?
Model Tenancy Act, which is applicable to both residential and commercial properties, is just a “model” law. This means that it provides a prototype of a law that states and Union Territories can adopt completely or with changes or not adopt it at all.
State bodies has to set up separate rent authorities, courts and tribunals in every district to ensure speedy dispute resolution and establishing a fair mechanism to revise rents to protect tenants against arbitrary hikes while also keeping in view the owners’ economic interests.
For an NRI investor, it is a great assurance that the tenant of their property is bound by legal terms. Further, the act defines the timeline within which any rental disputes will be resolved. With the regulated framework for rental homes now been strengthened and more transparent, it is the perfect time for NRIs to invest in Indian real estate for sustained rental income.