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Commercial perspectives of the model tenancy law

With the objective of creating a uniform regulatory ecosystem in the rental housing market, the government recently approved the Model Tenancy Act, 2021 (MTA). The new law will act as a guide for states to adopt by either revising their existing tenancy laws or enacting new ones in line with the MTA.

The MTA regulates the tenancy market through a rent authority to oversee such matters as tenancy agreements; the determination of revised rents in case of dispute; the deposit of rent with the rent authority; the repair and maintenance of property, and the obligations of property managers and outcomes of infringements of obligations. The rent authority shall allot a unique ID for each tenancy agreement and all tenancy agreements are to be in writing. In the event of a dispute, a claim can be brought before the rent authority. The MTA establishes rent courts and tribunals that will hear appeals from decisions of the rent authority and make determinations within 60 days.

To balance the scales, the MTA caps the security payable by the tenant at a maximum of two months’ rent in the case of residential housing, and to a maximum of six months’ rent in the case of commercial properties while permitting the landlord to access the security deposit if the tenant refuses to carry out scheduled or agreed repairs; bars landlords from cutting power and water supplies in disputes with tenants and imposes heavy penalties for any breach; requires the tenant to pay the landlord twice the monthly rent for two months and four times the monthly rent thereafter where overstaying and squatting has occurred, and requires that the revision of rent shall be in accordance with the terms of the tenancy agreement unless a higher increase is mutually agreed.

From a commercial perspective, while the MTA sets out the essential arrangements and policies, the specific guidelines will probably change from state to state, as land is within their jurisdiction. The definition of tenant does not include their successor on death, but the MTA allows a tenant’s successor to inherit all rights as specified in the tenancy agreement in case of death. This inconsistency in succession issues needs to be rectified to give commercial developers better market access. The model on limits of the security deposit has to work differently in urban and semi-urban areas. One size may not fit both and may lead to pain points for landlords in urban areas who find the capped security deposits insufficient to cover losses.

The MTA provides for redress in the case of any matter or dispute arising from tenancies, without dealing with disputes that existed before the introduction of the MTA.

The MTA will simplify the existing rental structure and promote the overall growth of the commercial and residential real estate sector, which will now have to rework legal and risk strategies to follow the model of the MTA. The most significant feature is that it provides a clear roadmap to which states can adhere and accordingly adopt to suit local conditions. The MTA is a boon for investors who are looking at renting as an economic model. The MTA will put in place a reliable and robust system for tenants and landlords alike to resolve their respective issues, while reshaping the unorganised real estate and tenancy space over the years to come.

It will encourage the creation of adequate rental housing stock for all income groups and subsequently alleviate the issue of housing shortages. The MTA will create the systematic organisation of rental housing by continuously encouraging the free market to deal with it and to regulate it.

The implementation of the MTA has three broad implications for the tenancy space. There will be uniformity of and clarity in the legal regime:

  1. to regulate the tenancies of both residential and commercial properties in relation to tenancy, occupation and eviction conditions, and the maintenance and upkeep of property;

  2. to regulate tenancies while balancing the interests and rights of landlords and tenants alike, and

  3. for tenancy dispute resolution in a time-bound manner, with a three-tier framework of rent authorities, rent courts and rent tribunals to ensure the expeditious adjudication of tenancy disputes.

This article was originally published by Indian Business Law Journal:



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