Model Tenancy Act 2021 to create an efficient rental market in India: report

The Model Tenancy Act has far-reaching implications for residential and commercial real estate asset classes, and will help create a three-tier regulatory ecosystem for stakeholders, according to a report by Knight Frank and Khaitan & Co.

From a residential perspective, the research report – titled “2021: A New Era for Rental Real Estate in India” – cites that India’s high stock of vacant housing of total residential census houses can be factored into the formal rental housing once this law is implemented. by the States and Union Territories in letter and spirit.

With this political impetus, the 21.72 million rented households in urban India (Indian Census, 2011) provide a huge market opportunity for market players to focus on housing projects only for rental purposes. 76.5% or 16.63 million (Census of India, 2011) of these urban rented households in India are spread across eight states and union territories. The high share of the percentage of total rented households in urban India can be attributed mainly to the major 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, approved the Model Tenancy Act, 2021 for release in all states and UT for adaptation by enacting new legislation or amending existing rental laws. The objective of the research report is to define the opportunities and challenges of the rental housing market.

By setting out the basic tenancy rules in black and white, the Model Tenancy Act, 2021 aims to create an effective regulatory ecosystem in India to govern landlord-tenant relationships. The relationship between landlords and tenants has been marred by trust issues in the past, as there was no uniform rental housing law in the country. Although many states have passed the Rent Control Act in the past, a dispute resolution mechanism was needed, as tenancy laws in India are generally seen as “pro-tenants”. The absence of a regulatory framework to delimit the rights and obligations of the two parties has always given rise to long drawn-out legal battles.

Commenting on the development, Shishir Baijal, Chairman and CEO of Knight Frank India, said: “As most of the populations of the eight main cities live in informal rental housing, regarding the new law, this will provide a huge opportunity for private housing. . operators and institutional investors in the organized rental housing market. Once the law 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 Indian real estate history to create an efficient and transparent rental housing market for the long term.

Sudip Mullick, Partner, Khaitan & Co, said: “The law deals with both residential and commercial property. The framework brings an intention and a promise to provide momentum to stimulate investment in these two sectors and balance the rights and obligations of stakeholders, including prompt relief in the event of litigation. However, certain provisions need to be reviewed and the contractual rights of the parties should not be regulated, as such regulations will be frowned upon by investors seeking to make a return on their investment. Investor sentiment and return on investment are essential for the development and growth of both sectors, which in turn leads to development and employment.

Main features of the Model Tenancy Act:

1) Creation of a three-level appeal system: The law will introduce rental authorities, rental courts and rental courts. These regulatory institutions will reduce the burden of civil court rental disputes and contribute to the speedy resolution of disputes.

2) Capped deposit request: The law limits the security deposit, which must be paid by a tenant in advance to – a) not exceed two months ‘rent in the case of residential premises, and b) not exceed six months’ rent in the case of residential premises. of non-residential premises.

3) Rights and obligations of owners and tenants: The dos and don’ts of each party (landlords and tenants) are clearly defined, covering various aspects including the retention of original rental agreements, rents and other accrued liabilities, repair and maintenance of ownership, entry to the premises, in addition to the information and duties of a property manager and the consequences of breaching the necessary duties.

4) Eviction of tenants and repossession of the premises by the owner: In the past, the rent control laws of various states, such as the Delhi Rent Control Law and the Maharashtra Rent Control Law, were hotly contested grounds for eviction in the courts. This has often led to protracted litigation. By limiting the grounds for eviction and termination of leases, this law aims to provide a consistent approach to dealing with these ground level issues.

5) Role of property managers: The Model Tenancy Act, 2021 clearly defines the role of property managers, their duties and the consequences they face in the event of a violation. The law will require property managers to provide details such as name, PAN number, Aadhar number, address and contact details registered with the rental authorities. Any natural or legal person, including the rental agent who acts on behalf of the owner to manage the premises and represents him to the tenant, will be included here. This law will provide more opportunities for property managers in the future, especially in the residential sector.

Some challenges in implementing the Model Tenancy Act, 2021:

1) Meaning of “Places”: The law defines premises as a building or part of a building intended to be rented out, with the exception of a hotel, accommodation or property for industrial use. States where rent control law is in place and where urban dwellings such as slums / chawls were previously covered, may need to clearly define it in their state-level laws to protect both tenants and tenants. owners.

2) Non-applicability for certain types of premises: The Model Tenancy Act, 2021 largely retained the properties belonging to the central / state government, the administration of the Union territory, local authorities, public enterprises; any property belonging to certain religious or charitable institutes, beyond its reach. This will keep a large inventory of rental properties out of the regulatory framework.

3) Force majeure: Since the Act deals with both commercial and residential, it would be preferable to deal with both types of transactions under the force majeure clause. Simply stating what would constitute force majeure and relating it only to livability may not help stakeholders.

4) Creation of digital platforms by the rental agency: In the digital age, the availability of real-time information is essential for informed decision-making. For a robust digital infrastructure, a central database can be created that can be managed by States and UTs, which can be a holistic way to retrieve or store rental information. This database can also be enhanced to include additional information on past rental history of owners and tenants, which can be an important quality indicator for future use by interested parties.

Other issues include the time required for the on-the-ground implementation of the Model Tenancy Act, 2021 by all states and UTs nationwide. Since real estate is a state matter, for states where old rent laws need to be repealed or amended, it may take even longer. A few states may not implement the law at all.