Compulsory rent deeds and fast-track courts for dispute resolution may soon change the rental housing market across India as the Centre on Wednesday cleared the Model Tenancy Act for the states and Union Territories to adopt and emulate. With PM Narendra Modi‘s stated goal of ‘Housing for All by 2022’, the idea behind the model code is to encourage owners to put their property on the rental market by creating systems that address long-standing issues.
What Is Meant By Model Act?
A model Act in this respect means that it is not binding on any states. Which is to say, their approval by the Centre changes nothing on the ground unless states enact their own laws based on it. They can either borrow from the model Act or repeal their own laws to adopt it verbatim. That is because land is a state subject under the Constitution of India and it is the prerogative of state governments to regulate the housing markets.
Further, the Model Tenancy Act does not have retrospective effect, which means it will not be applicable to any existing contracts.
Why Has It Been Passed?
The rules that have now been approved have been in the public domain in draft form since July 2019. The draft code itself had been in the making since 2015. In a background note released with the draft, the Ministry of Housing and urban Affairs (MoHUA) said that around 1.1 crore houses are lying vacant in urban areas. It said that “one of the main reasons for non-availability of these houses for rental purpose is the existing rental laws of the States/UTs, which discourage renting".
The ministry said the model code will “enable creation of adequate rental housing stock for various income segments of society, including migrants, formal and informal sector workers, professionals, students."
A decade back, almost a third of all Indians were living in urban areas, their proportion rising from 31.16% in 2011 against 27.82% in 2001. By 2050, the ministry added, more than half of India would be living in cities or towns, thanks mainly to the migration. The model code will pave the way for “increase(d) access to quality rented accommodation, and enable gradual formalisation of rental housing market".
What Are The Key Changes Recommended By The Model Act?
The answer to this question lies through another question: What is the reason why many house owners are reluctant to rent out their property? The phenomenon of long-running rent disputes and eviction cases in courts is known to make many a house-owner wary of renting out their property.
A press release from the ministry in July 2019 had summed up the need for a model code thus: “The existing rent control laws are restricting the growth of rental housing and discourage owners from renting out their vacant houses due to fear of repossession. One of the potential measures to unlock the vacant house is to bring transparency and accountability in the existing system of renting of premises and to balance the interests of both the property owner and tenant in a judicious manner.”
The background note shared by the ministry further states that “existing state rental laws have long-drawn legal provisions, which result in lengthy litigation to resolve disputes". It also says that “a ceiling on rent has further reduced the quality and quantity of rental housing stock".
The Model Act requires that state set up a rent authority, which would be responsible for registering all rent agreements. Such an authority would maintain records of all rent agreements under it and create a website for the tracking of the data.
Under the Model Act, “no premises [are] to be rented except by an agreement in writing on mutually agreed terms". Having established the primacy of the written agreement, it provides for a fast-track quasi-judicial mechanism for adjudication of disputes.
A fast-track dispute resolution mechanism is to be set up under the Model Act that includes rent authority and a rent court and rent tribunal. It says that “in the areas to which this Act extends, only the rent court and no civil court shall have the jurisdiction to hear and decide the applications relating to disputes between landowner and tenant".
Among other things, the Model Act says that security deposit for residential premises shall not exceed two months’ rent. Also, in the event of the the tenant defaulting on vacating the property, the landlord is entitled for double the monthly rent for the first two months and four times the monthly rent subsequently.