New tenancy law creates a level playing field for all stakeholders
PremiumThe Model Tenancy Act looks good on paper, but the big question is whether the states will implement it as it is
On 2 June, the Union cabinet approved the Model Tenancy Act (MTA), 2021, which ensures a level playing field for landlords and tenants.
States already have laws that deal with renting and leasing of properties. The MTA will replace the existing Rent Control Act of states, if adopted by the state in question.
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“The Rent Control Act is lopsided in favour of tenants. States have tried to bring both the parties (landlords and tenants) at par through modifications of existing laws. The new MTA, however, has done a better job," said Mukesh Jain, founder, Mukesh Jain and Associates, a law firm that deals in real estate regulations.
Even though the Centre has passed the MTA, states have the power to modify it or not adopt it at all. Whether states will be able to retain the balance that the Act tries to achieve depends on how they implement it. According to real estate experts, implementing such regulations is a political decision.
“To explain it in simple words, the central and state governments have exclusive powers to implement specific regulations. Then, there is the Concurrent List, where both need to work together to implement regulations," said Jain. “The MTA is part of the Concurrent List, where it’s desirable for states to implement it uniformly, but it’s not mandatory. The Act is more of a policy guideline for states. That’s why it required Cabinet approval and was not required to be tabled in Parliament."
To put things in perspective, the Real Estate (Regulation and Development) Act or RERA is about buyer protection, and it doesn’t deal directly with property laws. That’s why it was passed in Parliament.
The MTA requires states to establish a rent authority that will regulate the renting of premises. Once the property owner and tenant sign the leave and licence agreement, they will need to inform the rent authority within two months. The proposed authority will issue a unique identification number. In case of disputes, the authority will take a decision based on the facts that were submitted.
States will also need to set up rent tribunals and rent courts to resolve disputes. These could fast-track resolution.
According to real estate experts, the biggest concern for landlords has been squatting. Many keep their houses locked instead of renting them out due to this concern.
“In some states, like Maharashtra, it’s mandatory to register leave and licence agreements with the government. Even then, it takes time for landlords to get relief from courts if the tenants refuse to leave the house. In the Model Tenancy Act, the resolutions are time-bound; an order must be passed within 60 days, which should give confidence to landlords to let out their properties," said Sudhanshu Mishra, co-founder, Azuro, a subsidiary of Square Yards, which deals with rentals and property management.
According to Anuj Puri, chairman, ANAROCK Property Consultants, the number of cases that rent authorities would handle will be far higher than those that fell under RERA’s purview.
SECURITY DEPOSIT
The amount of security is one of the hurdles that tenants face. There is no standard practice for this.
“In southern cities like Bengaluru and Chennai, the security deposit can be 6-10 months. In Pune and Delhi it’s 2-3 months. Standard security deposit would help to bring parity," said Saurabh Garg, co-founder and chief business officer, NoBroker.com.
The Act caps the security deposit to a maximum of two months’ rent for residential properties and a minimum of six months’ rent for non-residential ones.
“Landlords could feel that an adequate security deposit is their only leverage. But there are other provisions in the Model Tenancy Act that give more power to landlords than existing laws do," said Mishra.
vacating premises
Most of the disputes arise at the time of the tenant vacating the premises, according to experts. The Act provides for various scenarios for disputes that can arise when the owner wants the tenant to vacate. There’s compensation for the landlord if he gives a notice to the tenant based on the conditions stated in the agreement, but the latter doesn’t vacate the house in time. The compensation is double the monthly rent for two months and four times after that.
In case there is a force majeure (events like flood, quake), the owner must allow the tenant to continue possession of the house for a month after the cessation of such an event. Force majeure refers to the clause that gets invoked in case of unforeseeable circumstances that prevent someone from fulfilling a contract.
RERA took years for proper implementation as it was left to the states to modify and implement it. Will the MTA meet the same fate?
“Implementing RERA was challenging as there was a strong pushback from developers. In the case of the Model Tenancy Act, there are no strong lobbies. In fact, both tenants and property owners would want their rights to be protected and wish for faster implementation. Therefore, we could see states implementing the new Act faster than RERA," said Garg.
The Act covers only new agreements. Some feel that it should have brought in its scope agreements that property owners and tenants have already executed as it would have helped to boost confidence.
According to some real estate experts, the Act should have defined the role of property brokers in a transaction and it should have also included the minimum compensation they should get.
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