One of the extremely bold and positive initiatives by the Union Government - the Model Tenancy Act, 2021 has potential to bring about a change in the real estate scenario. The step among other things seeks to regulate the vast but scattered rental market in the country. It also encourages the landlords to rent out vacant premises thereby increasing the supply of residential units.
The explicit purpose of the model law is to regulate business of renting of premises, protect the interests of landlords as well as tenants and provide a credible mechanism for speedy resolution of disputes between the two parties. The objective is to be achieved by mandatory signing of rent agreement between landlords and tenants, and setting up of Rent Authorities, Rent Courts and Rent Tribunals for expeditious resolution of disputes. In addition, the model law also clearly spells out the rights and obligations of landlords and tenants.
What is the Model Tenancy Act?
After the passage of the law by the state or the UT, it would be mandatory for landlords and tenants to sign a Tenancy Agreement.
It would be obligatory on the part of the landlord and tenant to jointly deposit this agreement with the Rent Authority within two months of the signing from both parties involved. In case they fail to jointly inform the Rent Authority about the execution of the tenancy with the stipulated time, both parties will be required to do it separately within a month after expiry of the two-month period.
The mandatory signing of the Tenancy Agreement will make the relationship between landlord and tenant more structured, enforceable by the law and thus helpful for both the parties. Besides other things, the agreement will have to specify rent, period of tenancy and details about renewal and extension of tenancy as well as rent. The agreement itself is introduced to reduce the scope of unnecessary disputes between landlord and tenant.
Disputes, however, can still arise over the terms of the agreement and its implementation. The model law provides quite an elaborate mechanism for speedy resolution of the disputes.
Security deposit under the Model Tenancy Act
The model law also seeks to do away with the arbitrary practice of asking exorbitant security deposits by landlords from tenants, especially in large cities. Under the model law, the security deposit being sought by the landlord cannot exceed two month's rent in case of residential premises and six months in case of non-residential property.
As the security deposit will be mentioned in the Tenancy Agreement, there is no way that landlords will be able to extract large security deposits from tenants who are often desperately looking for a place to live outside their hometown.
The security deposit, it has been specified, will have to be refunded to the tenant on the date of taking over vacant possession of the premises from the tenant, after making due deduction of any liability of the tenant.
It is to be noted here that Act will not apply to premises owned or promoted by the Central or State government, local authority, government undertaking, enterprise, a statutory body or Cantonment Board.
Premises owned by a company, University or organisation given on rent to its employees, premises owned by religious or charitable institutions or auqaf registered, too does not fall under the purview of the Act.
The Model Tenancy Act is a well thought out legislation which will encourage landlords to rent out vacant premises without any fear of losing control of them and on the other hand increase the stock of residential premises. It will also help the tenants to find suitable premises at reasonable rent.
However, everything would depend on how soon the state governments/UTs enact their own laws to implement the Model Tenancy Act, benefitting the landlords as well as prospective tenants. It is, in fact, going to be a win-win situation for landlords as well as tenants.
Vikas Wadhawan, the author of this article is the Group CFO, Housing.com, Makaan.com and Proptiger.com. The opnions mentioned above are that of the author and do not reflect the opinion of Greynium Information Technologies Pvt Ltd.