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Security deposit to dispute resolution: All you need to know about the Model Tenancy Act

The Union Cabinet approved the Model Tenancy Act on June 2 and said that states and union territories can adopt it by enacting fresh legislation or they can amend their existing rental laws suitably.

The Union Cabinet on Wednesday approved the Model Tenancy Act, aiming to bring about wide-ranging reforms, including setting up separate rent authorities, courts and tribunals in every district to protect the interest of both the owner and tenant. States and union territories can adopt the Model Tenancy Act (MTA) by enacting fresh legislation or they can amend their existing rental laws suitably.

The government said that it is expected to give a fillip to private participation in rental housing as a business model for addressing the huge housing shortage in the country. The government said that the MTA will be applied prospectively and will not affect existing tenancies. Rent and duration of tenancy will be fixed by mutual consent between owner and tenant through a written agreement.

In a statement, the government said, “The Union Cabinet, chaired by Prime Minister Shri Narendra Modi, has approved the Model Tenancy Act for circulation to all states/union territories for adaptation by way of enacting fresh legislation or amending existing rental laws suitably."

It is important to note that the model law is not binding on states, and adapting or rejecting to the same is the state’s prerogative. Land is a state subject.

Union Housing and Urban Affairs Minister Hardeep Singh Puri said that the move will help overhaul the legal framework with respect to rental housing across the country. During a press conference, Puri said that according to the Census 2011, more than 1 crore houses were lying vacant in urban areas across the country. 

What the Act says:

>Under the Act, for residential premises, tenants will have to submit a security deposit of maximum two months' rent, while in case of commercial property, six months rent will have to be deposited. The security deposit shall be refunded by the landlord to the tenant on the date of taking over vacant possession of the premises from the tenant after making due deduction of any liability of the tenant, the Act states.

>The Act mandates a written agreement for all new tenancies, which will have to be submitted to the concerned district 'Rent Authority'. If any dispute emerges between the owner and tenant, they will have to first approach 'Rent Authority'. If any party is not satisfied with the Rent Authority's order, 'Rent Court' can be approached and then 'Rent Tribunal'.

>If a tenant fails to vacate the premises let out on rent in accordance with the tenancy agreement, he or she will be liable to pay the landlord twice the monthly rent for the first two months and then four times while the latter continues to occupy the said premises.

>If the landlord fails to make any refund, they will be liable to pay simple interest to the tenant at such rate as may be prescribed from time to time on the amount which they have failed to refund

>No landlord or property manager can withhold any essential supply to the premises occupied by the tenant.

>Unless otherwise agreed in the tenancy agreement, the landlord will be responsible for activities like structural repairs except those necessitated by damage caused by the tenant, whitewashing of walls and painting of doors and windows, changing and plumbing pipes when necessary and internal and external electrical wiring and related maintenance when necessary

>The tenant will be responsible for drain cleaning, switches and socket repairs, kitchen fixtures repairs, replacement of glass panels in windows, doors and maintenance of gardens and open spaces, among others.

>"Where the landlord proposes to make any improvement in or construct any additional structure on any premises, which has been let out to a tenant and the tenant refuses to allow the landlord to make such improvement or construct such additional structure, the landlord may make an application in this behalf to the Rent Court," the Act stated.

>Tenants will not be evicted during the continuance of tenancy agreement unless otherwise agreed to in writing by both the parties.

>Tenants will not carry out any structural change or erect any permanent structure in the premises let out on rent without the written consent of the landlord, it also stated.

>If the term of the tenancy expires at a time when the locality is affected by any disastrous event of force majeure, then the landlord can allow the tenant to continue to stay for one month from the date of cessation of such event on the same terms and conditions of the tenancy agreement. Additionally, if the premises become uninhabitable due to the event, the landlord shall not charge rent from the tenant until the premises is restored

The Act stated that the state government and union territories, in consultation with the jurisdictional high court, can appoint district judge or additional district judge as 'Rent Tribunal' in each district. Additional district collector or additional district magistrate or an officer of equivalent rank will be appointed to the 'Rent Court'.

"The district collector or district magistrate shall, with the previous approval of the state government/union territory administration, appoint an officer, not below the rank of deputy collector, to be the Rent Authority within his jurisdiction," the Act said.

“The Model Tenancy Act will help bridge the trust deficit between tenants and landlords by clearly delineating their obligations and will eventually help unlock vacant houses across the country,” said Anuj Puri, the Chairman of Anarock Property Consultants. He added that it will go a long way in formalising and stabilising the rental market.

Shishir Baijal, Chairman & Managing Director, Knight Frank India said that while tenancy in commercial real estate segment has been a well-established tenet, “the fractured landlord tenant relationship in case of housing segment has discouraged development of market model and obstructed institutionalisation of a rental housing market.”

“The Model Tenancy Act has provisions to regulate the rights and duties of both the landlord and tenant and this shall balance the scale between both these counter parties,” he said.

(With inputs from PTI)

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