Everything you need to know about Model Tenancy Act 2021

Affordable housing has been a major issue that the government of India has been focused on. The Pradhan Mantri Awas Yojana is a great example of the measures that the Modi Government is willing to take to alleviate the issue of housing for the underprivileged section of the Indian population.

That being said, one of the biggest unregulated sectors of real estate in India remains the rental segment. Since every state has its own laws to regulate rental agreements the disputes arising in rental agreements were prevalent. The need for a standardised and unbiased bill was long-standing to deal with disputes. That’s what the new Model Tenancy Act 2021 does for the rental market in India.

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What is the Model Tenancy Act 2021

Before the launch of the Pradhan Mantri Awas Yojna in 2015, the government decided to allot 20% of all the houses to be constructed to be used as rental units. This was done following a report by the Task Force for Rental Housing in 2013. The report clearly stated that affordable rental housing impacted the cause of underprivileged and inclusive growth more than affordable housing ownership. 

That brought us what we know as the Model Tenancy Act of 2021. 

The Model Tenancy Act 2021, passed after years of deliberation over the first draft, aims at regulating the rental market for commercial and residential units across India. Passed by the Union Cabinet on June 2, 2022, the Model Tenancy Act 2021 isn’t a mandatory Act and is at the will of the states and union territories to adopt. According to an interview by Metrolife, with the Revenue Minister, an ordinance will be brought before the Act is presented to the Karnataka assembly, making Karnataka the first state to adopt the Act.

The Model Tenancy Act details the rights, obligations, and duties of both the landlord and tenant but does not affect existing tenancy agreements.

Laws under the Model Tenancy Act 2021: An Overview

Here is a brief overview of what the rules and regulations under the Model Tenancy Act 2021 state.

1. As mentioned in the previous section, the Model Tenancy Act 2021 does not affect existing tenancies.

2. The act also does not apply to the renting out of the following properties:

1. Hotels/Lodges/Inns

2. Dharamshalas

3. Commercial property rented for Industrial use

4. Property owned by state governments, Union Territories, statutory bodies or any local authorities.

5. Property owned by a company or rented out to employees as part of their contracts.

6. Property owned by Universities or rented out to employees as part of their contracts.

7. Property owned by charitable or religious trusts or institutions.

3. A Rent Authority, to regulate the renting of property, needs to be established.

4. A written agreement between the landlord and the tenant must be in place for all new tenancies. Said agreement must also be submitted to the Rent Authority.

5. The security deposit for residential premises should not exceed two months’ rent. For any non-residential premises, the cap for security deposit is set at six months’ rent.

6. The consent of the landlord must be obtained to sub-let a property.

7. The landlord’s consent is also mandatory for the tenant in case they want to make any structural changes to the rented premises.

8. The landlord must not withhold the supply of any essentials to the property rented out.

9. In case no new tenancy agreement has been signed, the tenancy will be assumed renewed on a month-by-month basis for the maximum period of six months. During this period, the term and conditions of the expired tenancy agreement will be deemed applicable.

10. In case a tenant does not vacate the premises on :

1. Either termination of the tenancy agreement by notice.

2. Or the end of the six month period post expiration of the tenancy.

The tenant will be liable to compensate the landlord with double the monthly rent for the next two months and four times the monthly rent for any months preceding that.

11. The tenancy agreement shall also contain clauses to facilitate the revision of rent.

12. To enter a rented property, the landlord must serve the tenant either a written notice or a notice via an electronic medium at least 24 hours before the time of entry.

13. Rent Courts and Rent Tribunals will be set up at the district level to solve grievances amongst landlords and tenants.

14. In case of force majeure (generally circumstances considered an act of god):

1. The tenant, serving the termination period, will be given an extra month to vacate the property.

2. The tenant will not be charged rent for the duration of the restoration,  in case the property needs to be restored to make it occupiable again.

Issues with the Model Tenancy Act 2021

Just like any other bill that the Indian Government has ever passed or will ever pass, the Model Tenancy Act 2021 comes with its own set of challenges. These issues in the Act might be reformed in the future, but for now, remain a source of instability within an otherwise promising Act.

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1. No Rent Regulation

The Model Tenancy Act, although clear on many accounts, does not talk about rent regulation. No current ceilings have been suggested under the act. Since the act does not apply to any pre-existing tenancies, it does not alleviate the landlords from rent control laws as well.

2. Digital Literacy Needed

The Act highly depends on digital literacy. To be executed, the Act demands a “digital platform in the local vernacular language”. Considering the lack of digital literacy amongst the socio-economically disadvantaged section of India, the Act fails to liberate those it was aimed at. Also, since the local vernacular is a mandate as per the act, migrating tenants might have a harder time understanding the same.

3. Force Majeure Doesn’t Cover a Pandemic

Although the Model Tenancy Act 2021 covers “act of God” events like an earthquake, flood, etc. it fails to protect tenants against one of the biggest issues we faced in recent years, a pandemic. In the wake of Covid-19, we fail to see how any legislation passed could surpass taking into account the lockdowns and restrictions placed during the pandemic. 

The loss borne by tenants, especially commercial, does not get any coverage under the new Tenancy Act making the meaning of the Force Majeure clause highly limited.

4. Important Timelines Missing

The Model Tenancy Act 2021, although provides guidelines on the responsibilities, duties, and obligations of a landlord and a tenant, it misses out on some important timelines.

Any case of dispute presented to the Rent Authority must be completely investigated within a month. However, there is no set timeline for when the resolution for the dispute shall be made by.

5. Violates the Right to Privacy

The Act mandates the digitization of rent agreements. It also requires the landlord and the tenant to submit sensitive information like their Aadhaar numbers and a self-attested copy of their Aadhar Cards.

The digitization of the rental agreement means that all this sensitive information and more will be available online in the public domain making it highly accessible by anyone. 

Currently, Karnataka is the front runner in adopting the Model Tenancy Act 2021. While most of the clauses in the Act are preservatory of both the landlord and the tenant, there are still a few loopholes and kinks that need to be worked out. 

The implementation of the act in Karnataka will soon present a good picture of the results this Act creates. After going through this article, do you think that your state or Union Territory should be adopting the Model Tenancy Act 2021? Tell us in the comments.