The real estate sector is one of the fastest growing sectors in terms of its contribution to India’s gross domestic product (“GDP”). By 2025, it is expected that the real estate sector will reach USD 650 billion, which accounts for 13% of the GDP. Talking about foreign direct investment (“FDI”) in the real estate market, the influx in the period 2015-2019 saw an 84.4% jump when compared to 2005-2014. Affordable housing is an important goal of the real estate policy of the Central Government, especially after the introduction of the Pradhan Mantri Awas Yojna (“PMAY”), under which 112.52 lakhs affordable houses have already been sanctioned. However, the need for affordable rental housing is far from being quenched. The Eleventh Five Year Plan (2007-2012), under the chairmanship of Dr. Manmohan Singh, indicated towards an overall shortage of 24.7 million urban housing units where almost the entire shortage was attributed to the economically weaker sections (“EWS”) and lower income group (“LIG”).
The only solution to this problem for the EWS and LIG is affordable rental housing. For a long time, landowners and tenants have been apprehensive of letting out their property or renting a space respectively. This was majorly due to lack of strict mechanisms for dispute resolution as well as a speedy resolution in case of a dispute. Most disputes between a landowner and tenant are governed by the rent control act of that state, which are outdated and obsolete. In this context, the Ministry of Housing and Urban Poverty Alleviation constituted a task force with Mr. Deepak Parekh, Chairman, Housing Development Finance Corporation Lt. at the helm of affairs (“Committee”). The aim of the Committee was to suggest means to the ultimate goal of “affordable housing for all”. The Committee in its report pointed out that by alleviating the global housing shortage, the GDP could be increased by 1-1.5%. The Committee also suggested that “affordable housing” should be at the center of public policy. Keeping this in mind, the Union Cabinet approved the Model Tenancy Act, 2021 (“Act”). The Act aims at balancing the rights and duties of the tenants and landlords by standardizing the process across all the states. In this article, the author highlights the changes brought about by the new legislation and analyzes its impact on the existing market.
I. Existing Real Estate Market and The Rent Control Regime
The relationship between a landlord and tenant and the power to legislate on the same rests with the respective State Governments. The same is covered by Item 18 of the State List as given in the Seventh Schedule. Different states in India have different rent control regimes which suits their local requirements. Despite laws that suit local conditions, there has been a decline in the share of rental housing in India. This was also concluded by the 2011 census which stated that the share of rental housing in India declined from 54% in 1961 to 28% of the total in 2011. The number of vacant ‘rentable’ properties on the other hand was constant rise from 6.4 million units ten years ago to 11.1 million in 2011. This was mainly because landlords were apprehensive to rent out their properties as recovering their properties post the expiration of the tenancy period was a cumbersome process. On the other hand, the tenants were hesitant to rent properties because of the fear of unlawful eviction before the expiration of the tenancy period. Hence, the real estate market across every state was suffering under the previous regimes.
II. The A.C.T. under the Model Tenancy Act, 2021: Authority, Court, Tribunal
The new Act suggests the establishment of three bodies for dispute resolution between the landlord and the tenant – the Rent Authority, Rent Court, and the Rent Tribunal. The existence of a hierarchical structure ensures that if there is any miscarriage of justice by one, the appellate authority rectifies it.
The Act under Section 30 introduces the concept of a Rent Authority who is to be appointed by the District Collector or a District Magistrate upon the prior approval of the State Government/ Union Territory Administration. Such an officer appointed should not be below the rank of a Deputy Collector. If a person is aggrieved by an order passed by the Rent Authority, he/she can prefer an appeal under Section 32(1) to the Rent Court.
The Act establishes a Rent Court under Section 33, which must constitute of “an Additional Collector or Additional District Magistrate or an officer of equivalent rank”. The process of appointment in this case is same as that of the Rent Authority explained above. If a person is aggrieved by an order passed by the Rent Court, he/she can prefer an appeal under Section 37(1) to the Rent Tribunal.
The Rent Tribunal ‘may’ be established under Section 34 of the Act, and the same will comprise of a District Judge or Additional District Judge for a particular district. The use of the term ‘may’ in the bare text of Section 34 signifies that it is not mandatory for the State Governments to establish this tribunal in their districts. The mode of appointment differs to the extent that the Rent Tribunal is appointed by the State Government/ Union Territory Administration in consultation with the High Court of its jurisdiction.
III. Addressing the Lacunae in the Previous Regimes
|S. No.||Issues faced under the previous regimes||Solutions provided under the new Act|
|Under the previous regime, there was a delay in resolution of disputes between the landlord and tenant because of lack of any fixed resolution timeline.||Under Section 35(2) of the Act, a time limit of sixty days has been set for the Rent Court and Rent Tribunal to dispose of applications filed before them.|
|The previous regime was only applicable to a certain rent bracket (for example, according to Section 3(1)(c) of the Delhi Rent Control Act, 1995 is only applicable to those households with a rent more than three thousand five hundred rupees.)||The present Act is applicable to everyone who has entered into a tenancy agreement under Section 4 of the Act and informed the Rent Authority of the same. Thus, the process under the present Act is more democratic and inclusive in nature.|
|The registration process under previous regimes was paper intensive and acted as a deterrent for landlords and tenants against registering their tenancy.||The registration process under the new Act has been moved to a digital platform. Section 4(3) of the Act mandates the Rent Authority to set up an online portal wherein the landlord and tenant can submit their documents for registration.|
|Owing to a lack of any fixed rate of security deposit, there was no check on the landlord as to the quantum of deposit asked from the tenant. Hence, the landlords had a freehand to decide the amount of the security deposit.||Section 11 of the present act puts a cap on the security deposit that the landlord can ask for, which is two months rent in case of a residential property and six months rent in case of a non-residential property.|
|The previous regimes had no trace of any force majeure clause, specially in the context of the COVID-19 pandemic, to extend the tenancy during that period.||Section 5(3) of the Act provides for a force majeure clause wherein, under specified circumstances, the tenancy will extend till “a period of one month from the date of cessation of such disastrous event”.|
|Under the previous regime there was an absence of any arm-twisting mechanisms for the eviction of tenant in case of non-payment of rent.||Under Section 23, if the tenant has not paid the rent and not evicted the premises, then a penalty of twice the monthly rent for the first two months thereafter four times the monthly rent may be imposed.|
IV. Conclusion and Analysis
The Act aims at streamlining the powers and duties of the landlord and the tenant which were till date managed by archaic state rent control laws. The novel provisions in the present act namely – force majeure, prohibition of sub-letting – will not only act as a confidence building measure for both the landlords and tenants but will also boost the real estate sector with an influx of new rent properties. The Act also permits, under Section 35(1), the Rent Court and Rent Tribunal to deviate from the procedure under the Code of Civil Procedure Code, 1908 and follow their own procedure. This will help in expediting the process as the time taken for formal procedures can be reduced substantially and will also provide flexibility to the Rent Court and Rent Tribunal.
The big issue that still remains is the implementation of the provisions of this Act. Land, being a state subject, is under the legislative control of the states and states have the discretion to adopt this Act in its entirety, partially adopt it or not adopt it at all. For instance, states like Maharashtra are already considering to only partially adopt the Act. The state discretion will bring the entire discussion back to square one – non standardized rent control across different states. Certain aspects of the Act still require fine detailing. For instance, the citizenry in Maharashtra is under the fear that once the Act is implemented, the landlords will be able to revise the rents which was 15% a year under the previous regime. The Central Government should initiate a discourse with the State Governments and the people apprising them about the intricacies and the benefits of implementing the Act. To ensure nationwide implementation, a starting step can be offering incentives to the State Governments in return of implementation of the Act. This has been previously done when the Centre had allowed the states to borrow 2% of Gross State Domestic Product, half of it being contingent on implementation of four specified reforms. If the Centre is successful in persuading the states to implement the Act then, this legislation will prove a boon for both the landlord and tenant as registration of tenancy agreements will become a norm, making the entire process much more transparent and fairer to both parties.
This article has been written by Anmol Mahajan, student at Rajiv Gandhi National University of Law, Punjab.