Model Tenancy Act Explained: What Are the New Clauses?

Two years since the release of its draft proposal, the Narendra Modi-led Cabinet on Wednesday, 2 June, approved the Model Tenancy Act (MTA) in a bid to make the process of renting property in India more efficient, and boost the rental economy in the estate sector.

The MTA will be circulated to all states/Union Territories for adaptation through enactment of fresh legislation or introduction of suitable amendments in existing rental laws.

In an official statement, the Centre said the MTA “will facilitate the unlocking of vacant houses for rental housing purposes. It is expected to give a fillip to private participation in rental housing as a business model for addressing the huge housing shortage.”

According to a census from 2011, over 1 crore houses in urban areas were lying vacant.

What is the MTA?

Under the MTA, which seeks to cover both urban and rural territories, no individual will be able let or rent any premises except by an agreement in writing.

As per the government, the Act will aid in institutionalising rental housing through a gradual shift of rental property marker towards the formal market.

It will also aim to create a vibrant, sustainable and inclusive rental housing market in the country and will enable creation of adequate rental housing stock for all the income groups, thereby addressing the issue of homelessness, the government stated.

Under the Act, subletting of premises will only be with the prior consent of the landlord and the tenant will be restrained from undertaking structural change in the property without the written consent of the landlord.

The MTA will not impact the existing tenancy agreements, and will only be applicable prospectively.

What Are The New Clauses?

• The Act will establish a rent authority which will regulate the renting of premises – to protect the interests of landlords and tenants – and set up a grievance redressal mechanism in accordance with a Rent Court and Rent Tribunal. The proposed authorities will be responsible for expeditious adjudication of rental disputes.
• A cap will be placed on the security deposit amount. For residential premises, it will be required to not exceed two months of rent and for non-residential properties, a the deposit can be a maximum of six months of rent.
• A digital platform will be established in the vernacular language of the local area or the language of the State/Union Territory for submitting tenancy agreements and other documents. The rent authority will be responsible for checking these agreements.
• If the tenant fails to vacate the property on the termination of its tenancy, provided that the landlord has fulfilled all obligations as stated in the rent agreement, the landlord will be authorised to double the monthly rent for two months and four times after that.
• If a force majeure event occurs, the landlord will allow the tenant to postpone vacating the property for a one month period from the date of cessation of the unforeseeable event, as per the provisions of the existing tenancy agreement.

How Will the Act Benefit Tenants and Landlords?

The MTA acknowledges areas of disputes between the landlord and the tenant, and addresses factors like the need for a formal rent agreement, a cap on the security deposit, rate of rent increase, and curbs on arbitrary eviction.

The streamlining of the rental market will benefit the landlords as proposed rental court can allow repossession of the premises if the tenant misuses the property after being served a notice.

As per the Act, misuse of the premises are defined as public nuisance, damage, or use for “immoral or illegal purposes.”

Additionally, provisions in case of a tenant refusing to vacate the property have also been made clear in the Act and even if a dispute is pending before the rent court, the tenant will be required to pay the rent.