The Union Cabinet approved the new Model Tenancy Act on June 2, 2021. What are the implications for renters and landlords? Any legislation on the matter has to strike the right balance between protecting renters from exploitative behaviour and allowing a vibrant rental market. A problem that many urban housing markets in India face is that due to the stringent regulations discouraging homeowners from putting up their property for rent, a significant percentage of homes are left vacant. As such, they provide no productive service as housing. Let’s look at the changes:
Many transactions in the real estate and rental markets happen in cash and informally, the act attempts to bring some of those under a transparent framework through registrations and simpler documentation. The Act makes it compulsory to register all tenancy agreements with the authority to obtain a unique number. These agreements must be in writing. Such registrations would be uploaded online. This is a critical provision since the lack of written documentation, clarity regarding the validity and the ensuing lack of transparency make rental markets in India difficult to navigate.
The Act tries to repeal the rent control laws that still hold in most Indian cities and have proven to be extremely counter-productive. It, therefore, does not impose a monetary ceiling as past laws have done. The ceilings often trap landlords at outdated rents and discourage supply. However, since the law only applies on a prospective basis, it will likely not impact the vast numbers of renters occupying prime location properties at negligible prices. Such rent control is often popular with tenants and a proper repeal is bound to be politically tricky, it remains to be seen how much this provision is going to be enforced.
An important renter-friendly change is that now they can claim compensation in case their landlords deprive them of essential services like water and electricity. It also caps the amount that can be demanded as security deposit to two months’ rent
It sets up a three-level redressal mechanism. It establishes a Rent Authority as well as Rent Courts for arbitrating these complaints. Beyond Rent Courts, there are supposed to now be district authorities so as to shorten the duration it takes to resolve a dispute. Disposal of a complaint/appeal by the Rent Court and the Rent Tribunal will be mandatory within 60 days. However, many such provisions mandating quick justice exist on paper in other fields like consumer protection but don’t mean much in practice.
An important shift is a recognition and legal role of intermediaries between owners and the renters: it allows for the creation of property managers. This is separate from the general property brokerage services that already exist in the market right now.
The Act, however, mainly serves to provide a model piece of legislation for states to adopt as the subject falls under the states’ ambit in the constitution. States have the power to modify it or not adopt it at all, so its probable impact is hard to gauge.. Many Indian cities face a shortage of housing supply, which is especially concerning, given our accelerating rates of urbanisation. There are a number of regulatory concerns with regards to housing development that are at fault. A number of requirements imposed on developers serve no real purpose beyond creating more hassle. The lack of a modernised financing market for real estate construction also holds back supply. Without addressing those foundational problems, the effect of this act will likely be limited.
Another concern is that minority families who already find it extremely difficult to find rental housing in many cities due to blatant discrimination will be left even more vulnerable and the Act doesn’t even acknowledge the disproportionately large harassment often faced by minority renters, who are then forced to cluster in specific areas.
While the act tries to bring more properties under the ambit of law, the numerous slightly overlapping authorities it establishes and the lack of clear regulatory policy may make that tougher. For instance, while the Act creates a Rent Authority for dealing with registration, which is currently already done by State-level authorities. Moreover, it also explicitly states that only contracts lasting 12 months or more will be under its purview which is the same as existing law. However, this loophole is commonly exploited by signing 11 month agreements to avoid registration fees. Thus, it not only creates additional pointless paperwork but repeats the same mistakes as previous legislation. Why the Act establishes both the Rent Authority and the Rent Court is also baffling, since the mandates it assigns to both are somewhat overlapping. It does devolve power but in a weird way: rather than establish authorities under the urban bodies, it places them under district control when district administration is distinct from the responsibilities of managing a city.
Some experts fear that it creates too much space for litigation on inherently subjective matters like division of responsibility, which would have been more useful as general guidelines. It also does not overhaul some of the problematic aspects of current law- renter’s interests are better served by clearly articulated rights they are entitled to, as opposed to the lengthy legalistic processes set up by Indian law. The government should also advertise the substantial advantages offered by registration, since formalising the market is the main goal.
Broadly speaking, it’s a step in the right direction. However, the government has tried to sell it as the panacea for all housing problems- it is not. But proper implementation of the right provisions will go a long way in fixing the Indian housing market.
Written by: Shivansh Raman (shivanshsr01@gmail.com)
Edited by: Divij Gera