The Model Tenancy Act has far-reaching implications for each the residential and industrial genuine estate asset classes, and will enable generate a 3-tiered regulatory ecosystem for stakeholders, according to a report by Knight Frank and Khaitan & Co.
From a residential standpoint, the investigation report – titled ‘2021: A New Era for Rental Real Estate in India’ — cites that India’s higher vacant stock of total residential census homes can be brought inside the fold of formal rental housing after this Act is implemented by states and union territories in letter and spirit.
With this policy push, urban India’s 21.72 million (Census of India, 2011) rented households provide a enormous market place chance for market place participants to focus on housing projects solely for rental purposes. 76.5% or 16.63 million (Census of India, 2011) of these urban rented households in India is spread across eight states and Union Territories. The higher percentage share of the total rented households in urban India can be attributed mostly to essential urban employment hubs in Chennai, Hyderabad, Mumbai, Pune, Bengaluru, Ahmedabad Kolkata, and the National Capital Region (NCR).
STATES WITH THE HIGHEST PERCENTAGE SHARE OF RENTED HOUSEHOLDS IN INDIA
The Union Cabinet, in June 2021, authorized The Model Tenancy Act, 2021 for circulation to all states and UTs for adaption by way of enacting new legislation or amending the current rentals laws. The objective of the investigation report is to lay down the possibilities and challenges in the rental housing market place.
By placing down the ground guidelines of tenancy in black and white, the Model Tenancy Act, 2021 aims to generate an helpful regulatory ecosystem in India to govern landlord-tenant relationships. The relationship amongst landlord-tenants has been tainted due to trust problems in the previous as there was no uniform rental housing law in the nation. Despite lots of states adopting the Rent Control Act in the previous, there was a require for a dispute resolution mechanism as tenancy laws in India are popularly perceived as ‘pro-tenant’. The absence of a regulatory framework to demarcate the rights and obligations of each parties has generally resulted in extended-drawn legal battles.
Commenting on the development, Shishir Baijal, Chairman & Managing Director, Knight Frank India, stated, “As most of the populations in top eight cities lives in informal rental housing accommodation, concerning the new Act, it will provide a huge opportunity for private housing operators and institutional investors in the organized rental housing market. Once the Act is implemented across the country, India may be ready to introduce rental housing models such as Build-To-Rent and Rent-to-Own. The Model Tenancy Act, 2021 will go a long way in the history of Indian real estate to create an efficient and transparent rental housing marketplace over the long haul.”
Sudip Mullick, Partner, Khaitan & Co, stated, “The Act deals with both residential and commercial property. The framework brings in an intention and promise to give impetus to boosting investment in both these sectors and balances the rights and obligations of the stakeholders including speedy relief in case of disputes. However certain provisions need to be relooked and the contractual rights of the parties should not be regulated, as such regulations will be frowned upon by the investors who would look to return on their investment. Investor sentiments and return on investment is quintessential for the development and growth of both the sectors in turn leading to development and employment.”
Key features of the Model Tenancy Act:
1) Creation of a 3-tier redressal program: The Act will introduce Rent Authorities, Rent Court and Rent Tribunals. These regulatory institutions will cut down the burden of tenancy disputes from the civil courts and enable in speedy dispute resolution.
2) Security deposit demand capped: The Act locations a limit to the safety deposit, that is to be paid by a tenant in advance to – a) not exceed two months’ rent in case of residential premises, and b) not exceed six months’ rent in case of non-residential premises.
3) Rights and obligation of landlords and tenants: The do’s and don’ts of each and every party (landlords and tenants) are clearly defined, covering a variety of elements which includes retention of original tenancy agreements, rents and other charges payable, repair and upkeep of the home, entry into premises, apart from facts and duties of a home manager and consequences of violation of required duties.
4) Eviction of tenants and recovery of possession of premises by the landlord: In the previous, rent handle acts of a variety of states such as the Delhi Rent Control Act and Maharashtra Rent Control Act supplied grounds for eviction that was very disputed in the court of law. This normally led to protracted litigation. By limiting the grounds for eviction and termination of tenancies, this Act seeks to bring a constant method towards addressing these problems at the ground level.
5) Role of home managers: The Model Tenancy Act, 2021 clearly defines the part of home managers, their duties and the consequence they face in case of any violations. The Act will need home managers to furnish information such as name, PAN quantity, Aadhar quantity, address and get in touch with information registered with the Rent Authorities. Any person or a legal entity, which includes the rental agent who acts on behalf of the landlord to handle the premises and represents him in dealings with the tenant, will be integrated right here. This Act will provide more possibilities for home managers going forward, specifically in the residential sector.
Some challenges in the implementation of the Model Tenancy Act, 2021:
1) Meaning of ‘Premises’: The Act defines a premise as a creating or a portion of a creating intended to be offered out on rent, except a hotel, lodging or home in industrial use. States exactly where the Rent Control Act is in spot and exactly where urban dwellings like slums/chawls had been previously covered, may perhaps have to define it clearly beneath their state level laws to provide protection to each tenants and landlords.
2) Non-applicability for specific kind of premises: The Model Tenancy Act, 2021 has largely kept properties owned by Central/State government, Union Territory administration, neighborhood authorities, government enterprises any home owned by some religious or charitable institutes, away from its purview. This will retain a massive inventory of leasable properties away from the regulatory framework.
3) Force Majeure: Since the Act offers with each industrial and residential, it would be greater to address each sorts of transactions beneath the force majeure clause. Merely stating what would constitute Force Majeure and linking the very same with habitability only may perhaps not enable the stakeholders.
4) Digital platforms creation by the rent authority: In the digital age, availability of facts in genuine-time is instrumental for informed selection creating. For a robust digital infrastructure, a central database can be designed which can be managed by States and UTs which can be a holistic way to retrieve or shop tenancy connected facts. This database can also be enhanced to incorporate more facts about landlords and tenants’ previous tenancy history, which can be an crucial high quality indicator for future use for interested parties.
Some of the other problems incorporate the time period expected for on-ground implementation of the Model Tenancy Act, 2021 by all states and UTs across the nation. Since genuine estate is a state topic, for states exactly where old Rent laws have to be repealed or amended, it may perhaps take even longer. There may perhaps be a handful of states which may perhaps not implement the Act at all.