The Model Tenancy Act, 2019 : Analysis

Relevance: Mains: G.S paper II: Governance

Introduction

In India, now every state has its own law on tenancy matters. The matters, which are not covered by state legislations are governed by the Transfer of Property Act, 1882 (“TPA”), which is central legislation dealing with the matters between tenants and landlords. However, it covers transaction between tenant and landowner in the form of a lease.

Codified legislation dealing exclusively on rent related matters in the real estate market has been long ignored in India. Lack of an exclusive legal framework hampered the growth of rental housing segment and resulted in low investments in the rental housing sector.

The draft Model Tenancy Act, 2015 was an effort made earlier to codify the law on tenancy. but majority of states never implemented the same. In Union Budget 2019, it was proposed that in order to promote rental housing, new tenancy laws will be formulated to remove the archaic laws currently in use.

In furtherance to the said proposition, Ministry of Housing and Urban Affairs (MHUA) released the draft Model Tenancy Act, 2019 (“MTA”) on July 10, 2019, which aims to regulate rental housing by a market-oriented approach while balancing interests of landowner and tenant at the same time.

Need for rental housing

Housing is one of the basic necessities of life. The rapid pace of urbanization in India has resulted in severe shortage of housing. People go for rental housing because  low-income or people are not ready to build their own house.In spite of government’s prime consideration to affordable housing, many poor households live in congested conditions, which indicates that housing is unaffordable for a large section of population, be it ownership or rental.

The Draft National Urban Rental Housing Policy, 2015 (“the Policy”) pointed out that there is a huge housing shortage in urban areas and on the other hand, there are massive stocks of vacant houses.

Possible reasons ascertained for vacant houses could be  low rental yield, fear of repossession, lack of incentives etc.

  • The Policy defines rental housing as a property occupied by someone other than the owner, for which the tenant pays a periodic mutually agreed rent to the owner.
  • The policy suggested that if these vacant houses are made available for rental housing, then some, if not most of the urban housing shortage, could be addressed.

Hence, the need for rental housing can be understoodunder the following heads-

  1. An alternative to eliminate the problem of housing shortage in view of ever-increasing population of India.
  2. Prevention of future growth of slums by providing affordable housing to all.
  3. Rental housing could be turned as a steady source of income for the landlords, making investment in rental market attractive.

Current problems of rental housing in India

Rental housing is a subject on which States have exclusive right to legislate. It is a state subject as mentioned under item 18 in List II of Seventh Schedule of the Constitution of India. Although, Central Government can guide the states as we have a quasi-federal structure in India, therefore, Central Government has power to make model law on rent control or tenancy.

At present, nearly every state has its own law governing matters relating to rental housing in their jurisdiction in the name of Rent Control Laws. However, these rent control laws are not adequate to satisfy the need for rental housing in true sense. Because, issues, such as lack of affordable housing, lack of investment in rental housing etc., are still present in the country.

The problems of rental housing in India, as present under different existing rent control laws, can be encapsulated as follow:

  1. Fixation of standard rent:

Existing rent control laws provide for standard rent or fair rent, which is calculated on the basis of cost of construction involved, when the premise was built and does not include present market value of the premise as a consideration to determine standard rent. This proves to be major disincentive for landlords and investors, who want to invest in rental market as it will give very low rate of return.

  1. Overstaying problem of tenants:

Existing rent control laws do not provide for any remedy for when tenants do not vacant the rent premises even after termination of the tenancy period. Therefore, landlords often fear that they might lose control on their premises and had to go long litigation process for recovering their premises.

  1. Reduced liquidity for landlords:

Freeze of availability of rental housing is evident in light of the long litigation proceedings relating to recovery of rental premises by the landlord or proceedings relating to eviction of tenants. When the proceedings are undergoing, it is difficult to rent out the premises which are lis pendens in court of law and thereby it reduces liquidity for landlords in the market.

  1. Security deposit:

From the point of view of tenants, it is unfair to give limitless amount to the landlords in the name of security deposit or pugree. Existing rent control laws do not provide for any upper cap as far as security deposit is concerned and tenants have to suffer in the hands of landlords, who demand lump sum amount as much as they want at the beginning of tenancy period. Because of this practice, poor households choose to live in slum areas as they cannot afford to give arbitrary amount of security deposit, which leads to lack of affordable housing in the Country.

  1. Landlord’s right to evict the tenant on false grounds:

It has been seen in many cases that landlords file false cases to evict tenants on the ground of non-payment of rent because most of the existing rent control laws do no mandate receipt of rent to be given by the landlord.

  1. Lease under Transfer of Property Act, 1882:

Section 105 of the aforesaid Act defines lease as “a lease of immoveable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms. The transferor is called the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service or other thing to be so rendered is called the rent.”

 It is to be noted that in case of a lease agreement, terms of the same cannot be changed until the expiry of the lease period unlike tenancy agreement. In practice, landlords often opt for tenancy agreement under rent control laws where they can execute tenancy on a month-to-month basis and can alter its terms.. However, in areas with high vacancy rate of rental premises, landlords choose for lease agreement under Section 105 and thereby make the use of rent control laws fatal. In addition, TPA and rent control laws do not mandate a written agreement to be executed, which is another problem to enforce the rights of either party to the oral agreement and leads to never-ending litigation proceedings in case of disputes.

  1. Leave and License Contract:

Apart from rent control laws and lease under the TPA, people often use leave and license contract as given under the Indian Easements Act, 1882. Section 52 of the said Act defines license as- “where one person grants to another, or to a definite number of other persons, a right to do, or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful, and such right does not amount to an easement or an interest in the property, the right is called a license.” Hence, the licensor gives the license to the licensee to use the property, which includes usage same as applicable to rental market without transferring a specific interest in the immovable property. Thus, to execute a landlord-tenant relationship, there exist different contracts under the different names and different procedures, the ambiguities of which can be used by the landlord or tenant to influence the law as per their needs.

 Overview of MTA

MTA has been drafted with a view to balance the interests of the landowner and tenant and to provide for speedy dispute redressal by establishing adjudicatory bodies under MTA. It also tries to create an accountable and transparent environment for renting the premises and promotes sustainable ecosystem to various segments of society including migrants, professionals, workers, students and urban poor. To understand what MTA proposes for tenants and landlords, a brief overview has been presented here under the following heads-

 Institutional framework – regulatory and judicial bodies-

Rent Authority-

Section 29 of MTA provides for the appointment of Rent Authority to be an officer who is not below the rank of Deputy Collector. Rent Authority exercises same power as vested in Rent Court in the following matters-

  1. Upload details of tenancy agreement on a digital platform in the local vernacular or state language in the form prescribed and provide a unique identification number to the parties;
  2. Fix or revise the rent on an application by the landowner or tenant;
  3. Investigate the case and pass an order in case of deposit of rent by the tenant with the rent authority, if the landowner does not accept the rent;
  4. Allow the tenant, if requested, to vacate the premises if it becomes uninhabitable in absence of repairs by the landlord.
  5. Conduct an inquiry and allow compensation or levy penalty in case of an application made to it by the landlord or tenant if any person cuts-off or withholds any essential supply or service in the premises occupied by the tenant or the landowner.

Rent Court and Rent Tribunal-

Section 32 and 33 provides for the constitution of Rent Court and Rent Tribunal respectively. Section 34 gives exclusive jurisdiction to Rent Court and Rent Authority to hear and decide the applications relating to disputes between landowner and tenant and matters connected with and ancillary thereto. For speedy disposal of cases, Rent Court or Rent Tribunal has to dispose the case within 60 days from the date of receipt of the application or appeal and shall record the reasons in writing in case of disposal of case exceeds 60 days period.

Appeal from the orders of the Rent Court lies to the Rent Tribunal.

In addition, order of Rent Court or Rent Tribunal shall be executable by as a decree of a civil court.

Following reliefs can be given by the Rent Court:

  1. Delivery of possession of the premises to the party in whose favor the decision is made;
  2. Attachment of bank account of the losing party for the satisfaction of the amount to be paid;
  3. Appoint any advocate or any other competent person including officers of the Rent Court or local administration or local body for the execution of the order.

4.2  Scope of coverage-

MTA applies to any premises, which is, let separately for residence or commercial or educational use except industrial use.

However, MTA does not provide what constitutes residence/commercial/educational/industrial use. Besides, MTA does not apply to the following premises–

  1. Hotel, lodging house, dharamshala or inn etc.;
  2. Premises owned or promoted by-
    1. The Central/ State/ UT Government, or
    2. Local Authority, or
    3. Government undertaking or enterprise, or
    4. Statutory body, or
    5. Cantonment board;
  3. Premises owned by a company, university or organization given on rent to its employees as part of service contract;
  4. Premises owned by owned by religious or charitable institutions as may be specified by notification;
  5. Premises owned by owned by any trust registered under the Public Trust Act of the State;
  6. Premises owned by owned by Wakfs registered under the Wakf Act, 1995;
  7. Any other building specifically exempted in public interest through notification.

However, if the owner of any of the premises mentioned under in (b) to (g) wishes a tenancy agreement to be regulated under MTA, then he can inform the same to the Rent Authority.

4.3       Protection of landlord-

As stated above the prime object of the MTA is to eliminate the fear among landlords regarding repossession of their premises and increase the growth of investment in rental sector of the market. Keeping this view, MTA proposes to give protection to landlord in following manner-

  1. Subletting of rented premises cannot be effected without prior consent of landlord in
  2. Writing along with disclosure of all details of sub-letting to landlord by the tenant.
  3. Landlord is allowed to make deduction from security deposit amount for any liability of the tenant.
  4. Landlord is allowed to deduct the amount from the security deposit or can ask the amount payable from the tenant, in case the tenant refuses to carry out scheduled or agreed repairs in the premises.
  5. Landlord can file an application to the Rent Authority against the tenant in case of cut-off or withhold of any essential supply or service in the premises by the tenant.
  6. Landlord can evict the tenant on an application made to the Rent Court on any of the grounds mentioned under Section 21. These grounds are-
  7. Failure of agreement on rent payable;
  8. Failure of tenant to pay the arrears of rent in full and other charges payable unless the payment of the same within 1 month of notice being served on the tenant;
  9. Tenant has parted with the possession of whole or any part of the premises without obtaining the written consent of the landlord;
  • Tenant has continued misuse of the premises even after receipt of notice from the landowner to stop such misuse;
  • The premises are required by the landlord for carrying out any repairs, additions, alterations etc., which cannot be carried out without the premises being vacated unless re-entry of tenant has been pre-agreed between the parties;
  • The premises or any part thereof are required by the landlord for carrying out any repairs, additions, alterations etc. for change of its use as a consequence of change of land use by the competent authority;
  • Tenant has given written notice to vacate the premises and in consequence of that notice, the landlord has contracted to sell the accommodation or has taken any other step, as a result of which his interests would seriously suffer if he is not put in possession of that accommodation.
  • In case of overstay of the tenant beyond tenancy period, the landlord is entitled to get compensation of double of the monthly rent for 2 months and 4 times of the monthly rent.
  • Landlord can make any construction or improvement to the rented premises after permission of the Rent Court obtained in this behalf.
  • Landlord is allowed to fix or revise the rent payable by the tenant, provided the same should be agreed by the tenant in the tenancy agreement.

4.4       Protection of tenant-

MTA has not only given protection to landlords but balances the interests of the tenants as well. With this view, MTA proposes to give protection to landlord in the following manner-

  1. In the event of death of the tenant, his/her successors will have the same rights and obligations as agreed in tenancy agreement for the remaining period of the tenancy.
  2. Rent cannot be increased during the tenancy period, unless the amount of increase or method for increase is expressly set out in the Tenancy Agreement.
  3. Tenant is entitled to get refund of the security deposit amount at the time of vacating the premises after deduction of amount of liability, if any.
  4. Tenant is entitled to get a written acknowledgment rent receipt by the landlord.
  5. Where the landlord refuses to accept the rent, tenant may deposit it with the Rent Authority.
  6. Tenant is allowed to deduct the amount from periodic rent, in case the landlord refuses to carry out the scheduled or agreed repairs in the premises.
  7. Where the premises becomes uninhabitable and landlord refuses for repairs, thenthetenant has the right to vacate the premises after giving 15 days notice in writing to the landlord or with the permission of the Rent Authority, in case the.
  8. Tenant can file an application to the Rent Authority against the landlord in case of cut-off or withhold of any essential supply or service in the premises by the landlord.
  9. Tenant is entitled to get refund of such an advance amount and interest, in case of default, after deduction of rent and other charges in case of eviction proceedings initiated by the landlord under Section 21.

Tenant may give up possession of the premises on giving a one-month prior notice or notice as required under the tenancy agreement to the landlord.

How will the MTA help rental housing issue?

MTA recommends eradicating the existing rental housing problems by incorporating needful provisions. MTA has recognized the problems in existing rent control laws in its preamble as lack of growth of rental housing segment and lack of the landlords renting out their vacant premises. For better understanding of these needful provisions in MTA.

MTA provides for market-oriented approach by leaving the fixation of rent amount on parties, who may fix or revise it considering current market value of the premises and thereby increasing the possibilities of high rate of return to the investors in the rental housing market.

On the other hand, to remove the fear of the landlords of losing possession of the premises has been taken care by MTA by giving a remedy in form of compensation to the landlord.

What do the state governments have to do?

As mentioned above, housing is a state subject and States have exclusive right to legislate upon it. MTA proposes only a model on how the issues relating to rental housing as existed under current laws relating to tenancy can be eliminated. It is completely on the states to adopt or not adopt MTA in their state. For better functioning of the rental housing in the state and to resolve the issues as point out above, state should adopt MTA. Moreover, States are free to make amendments in the proposed provisions in MTA while incorporating the same in their states.

What incentives will the state governments have for enacting the MTA?

MTA only proposes a model and States are under no obligation to enact MTA in their respective jurisdictions. Therefore, what the states will get for enacting MTA is equally an important question to consider. Section 46 of MTA provides that if any difficulty arises in giving effect to the provisions MTA, the State/UT Government may, by order, not inconsistent with the provisions MTA, remove the difficulty. Hence, any State enacting MTA is empowered to remove difficulty or amend the provision in their jurisdiction, if there arises any difficulty in implementation of the MTA.

Moreover, housing is one of the basic needs of life and raising the standard of living of its people is one of the primary duties of State as enshrined under the Article 47 of the Constitution of India. Therefore, States shall make every endeavor to resolve the issue of affordable housing in the best manner possible and MTA serves this objective well.

Drawbacks of the MTA

Despite all the good attempts made in the provisions of MTA to remove the current problems relating to rental housing, MTA shortfalls on following grounds:

  1. Moreover, the term ‘Landlord’ covers ‘Lessor’ and the term ‘Tenant’ covers ‘Lessee’ in its definitions, but the MTA nowhere provides that it will override the provisions relating to Lease under the Transfer of Property Act, 1882. Therefore, usage of the term lessor/lessee would create conflict in practice since application of the Transfer of Property Act, 1882 is not clarified under the MTA .
  2. Lodging house and hotels are kept outside the scope of MTA. Therefore, application of the MTA to premises providing paying guest facilities is not clear.
  3. MTA provides for prospective application and gives no redress to tenancies, which are already in existence, prior to the commencement of MTA. Hence, position regarding existing tenancies is left untouched.
  4. Successor-in-interest has not been included in the definition of the term ‘tenant’ under Section 2 (m) of the MTA. However, Section 6 provides for successors of the tenant to come into the shoes of tenant in case of his/her death. This provision creates anomaly that after death of tenant, his/her successor-in-interest may deny acceptance of tenancy agreement on the ground that he/she is not covered within the definition of the term ‘tenant’.
  5. The term ‘rent’ is not defined under the Act, because of which, the form of rent payable is not clear, i.e. whether it has to be necessarily in cash or kind or crops or services rendered.
  6. The MTA does not address the situation in case of failure to execute tenancy agreement, failure to obtain consent of landowner for subletting, failure to refund security deposit at the time of taking over vacant possession of the premises by the landlord, failure to observe obligations imposed on parties. Although specific establishment of adjudicatory bodies has been provided under the MTA but the same results in increase of litigation matters before judicial bodies established under the MTA.
  7. MTA is open to be adopted by the States and does not necessarily impose application of its provisions to State.
  8. MTA does not talk about weak bargaining power of tenants and allows parties to agree on rent amount, which may cause prejudice to weaker sections of the society.
  9. MTA does not talk about over-riding effect of MTA on existing laws on tenancy, lease under the TPA, license under the Indian Easements Act, 1882 to uphold the objectives of the MTA.

Conclusion

MTA is a welcoming step in rental matters relating to any premises. Establishment of the adjudicating authorities is going to lessen the burden on lower courts in the country in the matters relating to tenancy. However, application of the MTA would be interesting to see as to how many states actually implement MTA because it is only a model and not mandatory for states to adopt it.

 

 

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