The Model Tenancy Act 2020: Towards a maintainable, inclusive rental market

real estate
With the rates of houses skyrocketing and considering that the pandemic led to a significant fall in incomes, it is not shocking that builders are now verging on the edge of bankruptcy.

By Mrinal Kumar

The Model Tenancy Act was drafted in 2015, but was held up till June 2, 2021 when the Union Cabinet gave its approval to the draft. The Model Tenancy Act, 2020 (MTA 2020) was drafted by the ministry of housing and urban affairs to establish a sense of balance in the rights and interests of the landlords and tenants. The MTA 2020 sought to create an efficient and transparent procedure for the renting premises in India.

The vision of the government of India while preparing the Model Tenancy Act 2020 was to create a maintainable and inclusive rental market. It was also drafted with a view to standardise the laws in relation rent/ tenancy matters since all states have their own state laws and regulations governing tenancy matters.

The Model Tenancy Act 2020 is applicable to residential, commercial and educational premises while excluding those premises of industrial nature. It is also not applicable to premises owned by a company, university or organisation given on rent to its employees as part of their contract. Further, the draft legislation does not provide for a monetary threshold and therefore is applicable to all tenancies, except as specified by it. The Model Tenancy Act 2020 can either be adopted as a whole by the states and Union territories or the existing rent laws can be amended appropriately in line with the MTA 2020.

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Key features of the Model Tenancy Act 2020

One of the main features of the MTA 2020 is the grievance redressal mechanism which has been established. The grievance redressal mechanism includes the establishment of a rent authority, rent court and rent tribunal in every state and Union territory. The grievance redressal mechanism under the MTA 2020 aims to offer fast-track resolution of disputes in relation to tenancy matters. The main reason behind mentioning that the dispute resolution will be fast tracked is due to the provision in the MTA 2020 which provides that a compliant/ appeal is required to mandatorily be decided within 60 (sixty) days from date of receipt of the application or appeal.

The Model Tenancy Act 2020 provides that the security deposit required to be deposited in advance by a tenant has been capped at two month rent payable in respect of residential properties and up to six months in the case of non-residential properties. This is an extremely beneficial provision for tenants of a premises in the event it is adopted by the states and Union territories. In most metro cities in India, the amount of the security deposit to be deposited with the landlord is decided at the discretion of the landlord and in most cases is more than two months rent. Therefore, this reform is a welcome change for tenants.

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MTA 2020: The way ahead

To strike a balance between the interests of the landlords and the tenants, the MTA 2020 provides that in the event a tenant failing to vacate the premises after all the conditions mentioned in the tenancy agreement are fulfilled on the expiration of the tenancy period or termination of the tenancy agreement, the landlord under the MTA 2020 is entitled to double the monthly rent payable for the first two months and if the tenant still does not vacate then the landlord is entitled to four times the monthly rent.

The Model Tenancy Act 2020 also clarifies that the terms of a tenancy agreement executed between a landlord and tenant shall be binding on the heirs of the landlord and the tenant upon the death of the original landlord or tenant, as the case may be. Therefore, the heirs of the original landlord or tenant, have the same rights and obligations as agreed under the tenancy agreement for the unexpired period of tenancy.

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The MTA 2020 inter alia defines the rights and obligations of the landlord and tenant regarding eviction and recovery of possession of premises. In the event the MTA 2020 is enforced in letter and spirit by the states / Union territories, this legislation could potentially strengthen the rental market in India. However, it does remain to be seen the extent to which the states/ Union territories would adopt the MTA 2020, since it is not binding on them. Further, based on news reports, it appears that the Maharashtra is the first state to give a statement about adopting the MTA 2020, saying that the MTA 2020 is beneficial to the citizens of the state.

Considering that the rental market was not covered by the Real Estate (Regulation and Development) Act, 2016 and was being governed by state legislations, the Model Tenancy Act 2020 should be adopted by states and Union territories to provide guidelines to strengthen and balance the rental market along with time-bound dispute resolution arising thereof.

Further, one of the main benefits that emanate from the approving of the MTA 2020 is that it will give the rental market the required boost after the mayhem that the Covid-19 pandemic created. The MTA 2020 will streamline and empower the rental market by crating additional rental housing stock for various sections of the society such as migrants, working professionals and students. It will also improve and increase the access to better rented accommodation as the law gets streamlined and covers the interest of both the landlord and tenant.

(Mrinal Kumar is Partner at Shardul Amarchand Mangaldas & Co. The views are personal.)