Key Highlights of the "MODEL TENANCY LAW - 2021"

Purpose of the Model Act 

A background note on the draft Model Act, 2020 had highlighted some issues the Model Act would address. These include: (i) balancing interests and rights of the landlord and tenant, (ii) creating adequate and affordable rental housing stock, (iii) enabling formalisation of the rental housing market, (iv) encouraging private participation in the sector, and (v) unlocking vacant premises for rental purposes.  It may be argued that the Model Act will not adequately address all these issues.  On the other hand, the Model Act goes into minute details of what a rental agreement must include, which may not be necessary in a law.   

Key Features 

Conditions for tenancy, eviction, and sub-letting

• Tenancy agreement:   The Model Act states that to rent any premises, a written agreement must be signed between the landlord and the tenant.  The agreement must specify: (i) the rent payable, (ii) the time period for the tenancy, (iii) terms and period for revision of rent, (iv) the security deposit to be paid in advance, (v) reasonable causes for entry of landlord into the premises, and (vi) responsibilities to maintain premises.  The Rent Authority must be intimated about the agreement within two months from the date of agreement.  This will apply to all premises used for residential, commercial, and educational purposes. 
   
• Security deposit: The security deposit may not exceed: (i) two months’ rent for residential premises, and (ii) six-months’ rent for non-residential premises.  The security deposit will be refunded by the landlord to the tenant at the time of taking over vacant possession of the premises, after making due deductions.
   
• Tenancy period: The tenant may request the landlord for renewal or extension of the tenancy period.  The tenant will be liable to pay enhanced rent if: (i) a tenancy period has ended and not been renewed, or (ii) the tenant fails to vacate the premises at the end of such tenancy.  If the tenant fails to vacate the premises at the end of tenancy, or on termination of tenancy by an order, he will be liable to pay: (i) twice the monthly rent for the first two months and, (ii) four times the monthly rent subsequently till he occupies the premises. 
   
• Eviction:  To evict a tenant, the landlord must apply to the Rent Authority seeking such eviction.  The Authority may make an order for eviction on certain grounds including : (i) refusal to pay the agreed rent; (ii) failure to pay rent for more than two months; (iii) parting of possession of part or whole of premises without written consent of landlord; (iv) misuse of premises even after receiving written notices to desist from such misuse; and (v) structural change by tenant without written consent. 
   
• Sub-letting: Under the Model Act, sub-letting is prohibited unless allowed through a supplementary agreement.  The landlord and tenant must jointly inform the Rent Authority about the sub-tenancy within two months from the date of execution of such agreement. 

Dispute adjudication mechanism

• The Model Act proposes to establish a three-tier quasi-judicial mechanism for adjudication of disputes (Table 1).  Rent Authorities and Rent Courts will be appointed by the District Collector with the approval of the state government.  The state government may establish a Rent Tribunal in each district after consulting with the jurisdictional High Court.  No civil court will have jurisdiction over matters pertaining to provisions under the Model Act. 

Highlights of the Bill

• The Model Act requires the landlord and tenant to sign a written agreement which specifies the rent, period of tenancy and other related terms.  Security deposit is capped at two months’ rent for residential premises, and six months’ rent for non-residential premises.    (https://prsindia.org/billtrack/the-model-tenancy-act-2021)
   
• Conditions for eviction of tenant under the Model Act include: (i) refusal to pay agreed upon rent; (ii) failure to pay rent for more than two months; (iii) occupation of part or whole of premises without written consent; and (iv) misuse of premises despite a written notice.
   
• The Model Act establishes a three-tier quasi-judicial dispute adjudication mechanism consisting of: (i) Rent Authority; (ii) Rent Court; and (iii) Rent Tribunal.  No civil court will have jurisdiction over matters pertaining to provisions under the Model Act.
   
• Rent Authorities and Rent Courts may be established by the District Collector with the approval of the state government.  The state or union territory government may establish a Rent Tribunal after consulting with the jurisdictional High Court.  

Rental housing is regulated by states as land, land improvement, and control of rents falls under the State List of the Constitution. The 2015 draft Rental Housing Policy noted that these laws led to low rental yields, and disincentivised landlords from investing in rental properties. Such a policy can guide government interventions to increase supply and regulate demand.  

The draft policy has not been adopted yet. the Model Act is only a suggestive framework for states to follow while regulating rental housing and agreements.  Since housing is a part of the State List under the Seventh Schedule of the Indian Constitution, the efficacy of the Model Act depends on its adoption by states.  So far, previous versions of the Model Act have not been adopted by most of the states.