What is the Model Tenancy Act and how does it affect home owners and tenants?

There was RERA and now there is the Model Tenancy Act. We’ve heard of RERA as an act that helps builders and home owners with their rights. Model Tenancy Act is such an act that helps both the tenants and owners. We will try and understand how the new Model Tenancy Act-2021 helps and what it means for tenants and owners.

The sources are listed at the end of the document

For several decades, residential and commercial leasing operations in India have been governed by archaic State/Union territories (UTs) tenancy laws. The broad objective of these laws are to protect tenants from unfair eviction and resolve disputes between landlords and tenants. A serious drawback is that most of these laws favour the tenants, are obsolete and have not evolved with times. This has discouraged owners from leasing out properties, leading to a situation where millions of houses are lying vacant in urban areas.

The Union Cabinet, Government of India on 02 June 2021 approved the Model Tenancy Act, 2021 (MTA) with the objective of balancing the interests of both the landlord and tenant. The aims is to create an accountable and transparent ecosystem for renting premises in a regulated and efficient manner. Though the model tenancy law is a step in the right direction, it is not binding on the States/UTs. Land being a state subject, State Governments/UTs have exclusive powers to make laws on it.

The impact of this law on the real estate landscape of the country will only be seen in the years to come.

Why this Act?

As per Census 2011, more than 1 Crore houses were lying vacant in urban areas.

States can adopt the Act as it is with fresh legislation, since land is a state subject, or they can amend their existing rent acts to factor in the new Model Tenancy Act. States and Union Territories have MoUs with the Centre under the Pradhan Mantri Awas Yojana-Urban which has this provision.

The government says the Act aims to formalise the shadow market of rental housing, unlock vacant properties, increase rental yields, ease/remove exploitative practices, and reduce procedural barriers in registration, and increase transparency and discipline.

Where does it apply?

After enforcement of this Act, no person can let or take on rent any premises except by an agreement in writing. Repeal of local rent control Acts has been a politically sensitive issue in cities with high-value rent markets The Act seeks to cover urban and as well as rural areas.

What’s new?

States will set up a grievance redressal mechanism comprising of Rent Authority, Rent Court and Rent Tribunal to provide fast-track resolution of disputes. Disposal of a complaint/appeal by the Rent Court and the Rent Tribunal will be mandatory within 60 days.

There is no monetary ceiling. At present, in many old properties let out under archaic rent-control Acts, such ceilings have left landlords stuck with outdated rent amounts.

A digital platform will be set up in the local vernacular language or the language of the State/Union Territory for submitting tenancy agreement and other documents. Rent Authority will keep a tab on these agreements.

Verbal agreements will be out of the picture, as the Model Tenancy Act mandates written agreement for all new tenancies which is to be submitted to Rent Authority. Tenant will continue to pay the rent even during the pendency of a dispute with a landlord.

Subletting of premises can only be done with the prior consent of the landlord, and no structural change can be done by the tenant without the written consent of the landlord.

Practices enshrined in the Act

The security deposit to be paid by the tenant should not exceed two months’ rent for residential property (six months’ rent in case of non-residential property), and should be a minimum of one month’s rent for non-residential property.

The Act lists the kinds of repairs each party would be responsible for, with the proviso that money for repairs can be deducted from the security deposit or rent, as applicable, if a party refuses to carry out their share of the work. No arbitrary eviction of a tenant can be done during currency of the tenancy period, except in accordance with provisions of the Act.

The Rent Court can allow repossession by the landlord if the tenant misuses the premises, after being served a notice by the landowner. Misuse of the premises, as defined, includes public nuisance, damage, or its use for “immoral or illegal purposes”. If the tenant refuses to vacate, the landlord can claim double the monthly rent for two months, and four times the monthly rent thereafter.

In case of a force majeure event, the landlord shall allow the tenant to continue in possession until a period of one month from the date of cessation of such disastrous event, on the terms of existing tenancy agreement.

FAQs

Q1. What is the Model Tenancy Act or MTA?

Ans. Model Tenancy Law provides for protection of interest of landlords; protection of interest of tenants; and speedy adjudication of disputes between landlord and tenant.

Q2. Will the MTA apply to existing tenancies?

Ans. No, the MTA will not apply to lease agreements entered into prior to its enforcement. All cases initiated prior to the commencement of the MTA shall be dealt with, in accordance with the already existing State/ UT rent control laws.

Q3. Who is a landlord under the MTA?

Ans. A landlord, or in other words a landowner or lessor, means a person who receives rent from or on behalf of a tenant, in respect of a rented premises. Landlord also includes his/her – legal heirs or his assignees; and trustee or guardian of a minor or a person of unsound mind, who receives rent on his/ her behalf;

Q4. Who is a tenant under the MTA?

Ans. A tenant or a lessee means a person by whom or on whose behalf rent is payable to the landlord under a tenancy agreement. A tenant also includes a sub-tenant; and a person who continues to be in possession after the termination of his/her tenancy.

Q5. What premises are covered under the MTA?

Ans. Premises means any building or part of a building, which is let on rent for residential or commercial use. The MTA does not apply to certain premises, i.e., hotel, lodging house, dharamshala, inn, premises for industrial use; premises owned or promoted by the Central Government, State Government, Union Territory Administration, local authorities or statutory bodies; premises owned by a Company, University or Organisation given on rent to its employees as part of service contract; premises owned by religious or charitable institutions; premises owned by a Waqf registered under the Waqf Act, 1995, or by a Trust registered under the Public Trust Law of the State/ Union Territory; and any other category of buildings, specifically exempted in public interest by State Government/ UT administration. However, the landlord and tenant of premises listed above may agree to be governed by the MTA. For doing so, the landlord may inform the Rent Authority of in terms of the MTA.

Q6. What tenancy agreements are enforceable under the MTA?

Ans. Under the MTA, the landlord and tenant are required to enter into a written tenancy agreement specifying the tenancy period, rent payable and security deposit and other related terms. Oral tenancy agreements are not enforceable under the MTA.

Q7. How are tenancy agreements enforceable under the MTA?

Ans. To be enforceable under the Act, the landlord and tenant are obligated to jointly inform the Rent Authority about the tenancy agreement within two months from its execution. If not done, they can separately inform the Rent Authority within one month after expiry of the statutory period of two months. On receiving information about the tenancy agreement, the Rent Authority will provide the parties with a unique identification number; and In case the tenancy agreement is not notified to the Rent Authority, the landlord and/or tenant shall not be entitled to any reliefs under the provisions of the MTA.

Q8. What is the validity period of a tenancy agreement?

Ans. No specific period has been stated under the MTA. A tenancy agreement will be valid for a period as agreed between the landlord and tenant and specified in the tenancy agreement. The tenant may request the landlord for renewal or extension of the tenancy, as agreed in the tenancy agreement.

Q9. How is the rent and security deposit decided under MTA?

Ans. The rent is to be mutually agreed between the landlord and tenant, and recorded in the tenancy agreement. Even the revision of rent will be based upon the agreement between the landlord and the tenant. The security deposit will be mutually agreed between the landlord and tenant and is to be recorded in the tenancy agreement. Such security deposit is to be paid by the tenant in advance. However, the security deposit will not exceed

two months’ rent in case of residential premises; and
six months’ rent in case of non-residential premises.

The security deposit is required to be refunded to the tenant as and when the vacant possession of the premises is taken over by

the landlord or its representative, after making due deduction of tenant’s liability, if any.

Q10. What are the duties of the landlord and the tenant under the MTA?

Ans. The tenant has to pay rent within such period as agreed in the tenancy agreement. On receipt of such rent, the landlord has to provide the tenant with a duly signed receipt for the amount received by him. In case payment is made through electronic mode, the bank acknowledgement is conclusive proof of such payment.

Both the landlord and tenant have to keep the premises in good condition, except for normal wear and tear. Division of responsibilities for repair and maintenance of the premises is provided in Second Schedule of the MTA. However, such responsibilities may be altered as per the tenancy agreement between the parties.

For example,

the landlord is responsible for structural repairs, whitewash of walls, painting of doors and windows, changing and plumbing pipes and electrical wiring.

At the same time, the tenant is responsible for changing of taps and tap washers, drain cleaning, repair of kitchen fixtures, sockets, switches and all such external electrical appliances, and maintenance of gardens and used open spaces.

If a tenant fails to or refuses to carry out repairs, the landlord may carry them out and deduct the amount spent from the security deposit. Similarly, if the landlord refuses to carry out repairs, the tenant may facilitate the repairs and deduct the amount incurred from the rent to be paid for the succeeding month(s).

The landlord cannot during the tenancy withhold any essential supply or service in the premises occupied by the tenant. In case the landlord does so, the tenant may approach the Rent Authority in this regard. The Rent Authority may award a compensation to the tenant, not exceeding two months’ rent, to be paid by the person withholding the essential supply. Such essential services include supply of water, electricity, piped cooking gas supply, lights in passages, lifts, staircases, parking, communication links, sanitary services, and security fixtures and features.

Q11. Is sub-letting permitted under the MTA?

Ans. Yes, sub-letting is permitted under the MTA. However, only if the tenant enters into a supplementary agreement with the landlord to sub-let the premises. The sub-tenancy has to be intimated to the Rent Authority within a period of two months from the date of entering into such supplementary agreement.

Q.12. Who is a property manager? What is his role under the MTA?

Ans. The MTA has introduced the concept of a ‘property manager’. A property manager is a person or any legal entity, who is authorised by the landlord to manage the tenanted premises and represents the landlord in his/her dealings with the tenant.

The property manager is tasked with rent collection, carrying out essential repairs at the premises on behalf of the landlord, inspecting the premises from time to time, helping in resolution of disputes between the landlord and the tenant.

The property manager will also notify the tenant for–

proper maintenance of the premises;
delay in payment of rent;
revision of rent;
vacation of premises; and
renewal of tenancy.

In case the property manager acts in violation of his duties, or against the instructions of the landlord, the landlord or the tenant can approach the Rent Authority for remedial measures. This may lead to removal of the property manager or compensation awarded to the landlord or tenant for any loss incurred.

Q13. When can a tenant be evicted from the tenanted premises?

Ans. On an application made by the landlord, the Rent Court may order for eviction and recovery of possession of the tenanted premises for one or more of the following reasons

tenant’s failure to pay rent as per the tenancy agreement;
tenant’s failure to pay arrears of rent for two consecutive months, within a period of one month’s notice for such payments by the landlord;
tenant has parted with possession of the premises, or any part of it, without the written consent of the landlord;
tenant has continued to misuse the premises even after receipt of notice from the landlord to desist from such misuse;
it is necessary for the landlord to carrying out repairs, construction, alteration or demolition of the premises or any part of it, which is not possible without the premises being vacated;
the landlord is required to carry out repairs, construction, rebuilding, alterations or demolition of the premises, or any part of it, as a consequence of change of land use by the competent authority;
when the tenant has given a written notice to vacate the premises, and as a consequence, the landlord has contracted to sell the premises, or taken such other similar step(s);
tenant has carried out structural changes without the written consent of the landlord; and upon death of the landlord, if the premises is required by the legal heirs of the landlord for bonafide needs, they may approach the Rent Court for eviction and recovery of possession.

Q14. What are the consequences of the tenant failing to vacate the premises at the end of tenancy period?

Ans. If a tenant fails to vacate the premises at the end of the tenancy, then such tenant will be liable to pay enhanced rent to the landlord, i.e., twice the monthly rent for the first two months and four times the monthly rent thereafter, till the tenant continues to occupy the premises.

However, in case of any disastrous event in the nature of force majeure, the landlord shall allow the tenant to continue in the premises for a period of one month, from the date of cessation of such event.

Q15. What are the consequences of the landlord failing to refund any advance payment received from the tenant, after he/she has exercised his right to recover the tenanted premises?

Ans. In case the landlord fails to refund any advance payment after he/she has exercised his/her right to recover the tenanted premises, the landlord shall be liable to pay simple interest on the amount which is failed to be refunded. The rate of such simple interest will be prescribed by the respective State Government/UT administration.

Q16. Who is a Rent Authority under the MTA? What are his duties? Where does an appeal lie from the order of the Rent Authority?

Ans. An officer not below the rank of a Deputy Collector will be appointed as the Rent Authority under the MTA. Such appointment will be made by the District Collector or the District Magistrate, with the prior permission of the State Government/ UT administration. The Rent Authority is empowered to adjudicate disputes with regard to revision of rent, withholding of essential supplies, removal of property manager etc. Also, the Rent Authority can accept rent for upto two months when the landlord refuses to accept the rent, or conduct enquiries when the tenant cannot decide to whom the rent is payable.

Any person aggrieved by an order of the Rent Authority may prefer an appeal to the Rent Court, exercising jurisdiction over the tenanted premises. Such appeal has to be made within a period of thirty days from the date of order of the Rent Authority.

The Rent Court is empowered to decide issues arising from the tenancy agreement. However, the Rent Court cannot decide question of title or ownership of premises. Any order passed by the Rent Court may be challenged before the Rent Tribunal, exercising appellate jurisdiction over the Rent Court. Such appeal is to be filed within a period of thirty days from the date of the order of the Rent Court.

The model law expressly bars the jurisdiction of civil courts to entertain suits or proceedings in relation to the provisions of the MTA.

Q17. Is there a time period within which the Rent Court and Rent Tribunal have to adjudicate matters?

Ans. The Rent Court and Rent Tribunal must attempt to decide matters within sixty days from receipt of application or appeal. In case there is a delay in deciding the application or appeal beyond sixty days, the Rent Court or Rent Tribunal, as the case may be, have to record their reasons for delay, in writing.