FinMin proposes changes to promote rental housing in Draft Tenancy Law

On 5 July 2019, Nirmala Sitharaman presented the Union Budget in Parliament and proposed numerous reforms to promote rental housing in her maiden speech. She mentioned that the present laws are archaic since they do not realistically address the relationship between the owner of the property and the tenant.  

She added that a model tenancy law will be drafted and circulated to the states.

The Draft Tenancy Model Act is framed to balance the rights and responsibilities of tenants and landlords via rental contracts.

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Ashok Anand, the owner of a residential property in Aahika Apartments, said, “This is a welcome change for all tenants. Prior to these reforms, several landlords would ask for a very high security deposit, which was difficult for tenants to pay. This move will bring in discipline.”

It is not a central bill or an act of Parliament but a template/model for the states to adopt.

Let’s have a look at the key changes in the Draft Tenancy Model Act:

• Modification of rent rules between the tenant and the owner of the property will be according to the tenancy agreement and the owner has to notify the tenant, in writing, three months before the revised rent becomes due.
• The tenant will have to accept whatever rent increase has been suggested by the owner if the tenant does not give notice of termination of the contract.
• The security deposit that’s paid by the lessee in advance shall be a maximum of two months’ rent if it’s a residential property and a minimum of one month’s rent if it’s a non-residential property.
• The security deposit shall be reimbursed to the occupant while taking possession of the vacant premises, post due deduction of any liability of the occupant.
• The owner or the property manager may enter premises in accordance with a notice given to the lessee at least one day before the time of entry under certain circumstances mentioned in the agreement. The time of entry is between 7 a.m. to 8 p.m.
• No landlord or property manager or lessee either by himself or through any other person shall withhold or cut-off any essential services or supplies in the properties occupied by the tenant.
• A landlord is entitled to get a double compensation of the monthly rent for two months and four times of the rent thereafter, for the use and occupation of a property by a lessee who does not evacuate the premises after his tenancy has ended by order, notice, or as per the agreement.
• The District Collector shall, with the approval of the State/UT Government, employ an officer, not below the rank of the Deputy Collector to be the Rent Authority.

The draft policy suggested numerous incentives to boost rental housing with an aim to achieve ‘Housing for all’ by 2020. To dodge controversies, the draft also suggests that the laws would not have any effect on the states. This means that the owners getting inadequate rent for key locations will not get any relief.