Draft Model Tenancy Act: Realty stakeholders cheer move, say it will boost transparency

A very important component of the Narendra Modi government's 100-day agenda is the promotion of rental housing with as many as 11 lakh houses lying vacant across the country.

To streamline the rental housing sector, the Ministry of Housing and Urban Affairs (MoHUA) has drafted a ‘Model Tenancy Act 2019'. The act proposes to cap the security deposit equal at a maximum of two month’s rent in the case of residential properties and a minimum of one month’s rent in the case of non-residential properties.

The draft law envisions that a deputy collector-ranked officer will head the rent authority which will be set up by district collectors with the approval of the respective state governments. A website will be set up where the details of all agreements will be available.

The draft model states that both the landlord and the tenant will have to inform the rent authority after getting into an agreement which in turn will ensure that a landlord does not arbitrarily increase the rent in variance with what has been agreed to in the agreement.

A copy of the draft act is available on the ministry’s website (Mohua.gov.in) and is open for comments from the public and industry stakeholders till August 1.

The real estate industry has welcomed the Model Tenancy Act, saying that the proposed regulations will improve transparency and accountability.

Speaking on the act and its provisions, Niranjan Hiranandani, National President of NAREDCO said, "Rental housing concept is applicable globally in most of the developed countries. The Indian government has set an ambitious target of Housing For All by 2022 to provide shelter to every citizen. To meet this mammoth target, horizon and scope of this scheme should be expanded to embrace rental housing model. In the current scenario, it easy to fetch commercial properties on lease versus residential. Therefore, new national rental housing policy will promote and regulate rental housing platform which will draw individual as well as corporate players into this emerging segment with a good influx of investments pumped into the residential rental housing segment. It also gives a lucrative proposition for REITS and Foreign Direct Investments players with a steady income as well as appreciation in the property value."

Amit B Wadhwani, co-founder, SECCPL, is of the view that key aspects of the rental policy like the repossession of property, security deposit threshold and tenancy agreement initiated in the Model Tenancy Act 2019 will open doors to transparency and provide ease for homeowners and tenants. "Reflecting on the recent research data that states the vacancy of 4.8 lakh units in Mumbai, the amendments proposed will aid in fast-tracking the current vacancy issue," he observed

"This reform will strike a loop of conversation for both the lessor and the lessee. Furthermore, millennials that are moving to cities such as Mumbai for job prospects will have an easier transition unlike before. The tenancy act will bring healthy competition within the rental market if the draft is executed seamlessly," he added.

Ramesh Nair, CEO and country head, JLL India, said,"With nearly 30 percent of households in urban areas staying in rented accommodation, this regulation will have a significant impact on the rental market. It is going to impact a large section of our population residing in big cities. But they continue to live on rent due to high property prices."

The law, if implemented, will have rules for both residential and non-residential premises. This would further help the country in developing policies for various options of rental housing such as individual units, dormitories, hostels, co-living, co-housing, paying guest accommodations and services-sector living quarters.

Parth Mehta, managing director, Paradigm Realty, said, "Overall, it’s a great move to instil transparency in leasing transactions. Now a landlord won't hesitate to lease a premise to a tenant, which will encourage rental housing.”

Farshid Cooper, managing director,  Spenta Corporation has positive things to say about the new Model Tenancy Act as it is going to change the face of rental housing in India. "The act makes it mandatory for the rentals and the landlords to have an agreement while opting and lending the property on rent along with clauses like landlord offering essential utilities and no increase in rent without prior notice. These rules will benefit the millennials who constantly migrate to different cities for better opportunities. This will lead to higher consumption and use of existing housing inventory," he added.

"Under this law, landlords cannot rent or charge tenants any extra payment or even hike the rental figure mid-term of an agreement, unless it is written on paper. As a developer, I believe the act will be of great help to rental housing across the country.” Manju Yagnik, vice chairperson Nahar Group, said.

Ashok Mohanani, chairman, EKTA World welcomed the  move and said, " It makes the complex rules simpler for the rental system as well as is a boost to developers’ trust in system. One of the biggest advantages of the Act is that it reduces the security amount.  Lower deposits will benefit the co-living industry and also make traditional leasing more organized."

Even if the draft Act comes into force, it is unlikely to affect existing rent agreements. “The Model Act is prospectively applicable and will not affect existing tenancies," said Anuj Puri, chairman, ANAROCK Property Consultants.