The Central government recently released the Draft Model Tenancy Act (2021) (‘the MTA’) on 2nd June, 2021, to institutionalise rental housing in India. The MTA, if adopted by state governments in India, will result in the repeal of the prevailing rent control legislations.
The MTA proposes a three-tier quasi-judicial mechanism to govern tenancy agreements in residential and commercial premises and undertake dispute resolution by instituting district-level Rent Authorities and Rent Courts along with state-level Rent Tribunals. The MTA also moves away from the mechanism of imposing a ceiling on rent, and allows landlords to charge the rent based on the market value of the property.
Benefits of the MTA
- Dismantling of the prevailing rent control regime- Apart from the freezing of rents at rates which were substantially below the prevailing market rate, rent control legislations effectively stripped landlords of their property rights. This disincentivized landlords from investing in the improvement of their properties causing the gradual dilapidation of rent-controlled properties. The adoption of the MTA, by dismantling rent control, has the potential to rationalize the rental housing sector.
- Providing an impetus to the rental housing sector- It is expected that rental housing will receive a boost by unlocking vacant houses for renting purposes and promoting private participation in addressing the housing shortage; since the MTA proposes to establish a separate mechanism for the efficient redressal of disputes it is expected to generate confidence among home-owners and especially among Non-Resident Indians (NRIs) to rent out their properties who were skeptical that tenants may not vacate their premises on time.
- Capping of security deposit- The MTA will also benefit tenants staying in large metropolitan cities such as Mumbai, Bengaluru and Chennai wherein landlords often ask for a security deposit worth up to 10 months’ rent. Since the MTA imposes a ceiling on the amount of security deposit which can be demanded by the landlord, at 2 months’ worth of rent for residential properties and 6 months; worth of rent for commercial properties, its adoption is expected to increase affordability in the rental housing sector.
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