ISSUE VIII : The Model Tenancy Law: a real game changer, or new wine in an old bottle?

Issue VIII | July 2021

1. Introduction

On June 2, 2021, the Union Cabinet approved the draft Model Tenancy Law (“MTL”), which intends to overhaul the current legal regime encapsulated in the rent control statutes (“RCA”) governing certain tenancies pan-India. In doing so, the central government recognizes that land is a state subject under List II of the Constitution of India[1] and, therefore, it has “requested” states to either adopt the model tenancy law while repealing the existing rent RCA[2], or make requisite amendments to the latter. The MTL is comprised of VIII chapters, 47 (forty-seven) sections and 2 (two) schedules. The central government is of the firm belief, that introduction of this new law will pave way for a radical shift in the rental housing segment of the real estate sector. This is based on the premise that the MTL would remove existing obstacles and issues with the RCA by providing a more efficacious forum for grievance redressal and dispute resolution between landlords and tenants. The model law also envisages a new regulatory authority, that will track lease arrangements between parties. The central government is of the view, that this law would reinforce confidence among landlords and tenants alike and consequently, necessitate leasing arrangements sans hesitancy.

This article attempts an overview of the MTA while analysing the relative benefits, costs and implications thereof.

2. Critical legal provisions & nuances

A central feature of the MTL is the introduction of a Rent Authority (“Authority”)[3], which shall, amongst other things, “regulate” renting of premises, interests of landlords and tenants and ensure speedy resolution of landlord-tenant disputes. Premises covered by the MTL include residential and commercial premises but do not include land designated for industrial use, hotel, lodging houses or inns.[4] Further, there is no rental cap exemption akin to those that would feature in some of the RCAs, for instance, the Delhi Rent Control Act. There is an active obligation on a landlord and tenant to execute a rent agreement, only in writing, and thereafter “inform” the Authority about the same in the manner prescribed under the First Schedule to the MTL.[5] Subsequently, the Authority must record the details thereof and provide a unique code to the agreement.

The statute envisages formation of a digital platform for electronic filing by parties and publication of the same on the Authority’s official website. Interestingly, there is no chapter governing offences or penalties under the MTL. However, not informing the Authority implies that the parties will have no recourse to any relief under the MTL. At the same time, informing the Authority confers the parties with the statutory benefit of such information being conclusive proof of the facts relating to the tenancy and matters incidental thereto. A novel move is the introduction of enhanced rent in the event of a tenant overstaying in rented premises unless such occupation is on account of a force majeure event. The enhancement would be twice the agreed rent for the first two months and four times the agreed rent until vacation of the premises by the tenant.[6] It is pertinent to note that the definition of force majeure[7] mentioned in the MTL does not include a pandemic or epidemic but refers to “any other natural calamity caused by nature”. Of course, this would leave matters to statutory interpretation in the event of an epidemic or pandemic impacting a tenancy.

There is an express provision in the MTL that stipulates succession of tenancy rights in the event of demise of a tenant in a running tenancy. The same benefit is also conferred on the landlord and the lease does not come to an end.[8] However, here the anomaly is continuance of a tenancy in favour of successors of a tenant without the prior consent of the landlord. In the real world, many landlords (or their representatives) tend to overlook this aspect and include successors of tenants within the definition of a tenant in rental agreements. In our view, this provision takes away a critical right from the landlord, i.e., the right to choose his/her tenant. It would be a different matter, if parties expressly agree to the same but the MTL imposes this on parties nonetheless. A sub-tenancy or assignment of rights by a tenant is expressly regulated and parties must inform the Authority about the same.[9]

Another rather interesting provision is the cap on the famed refundable security deposit, which is commonplace in most rent agreements. The cap is 2 (two) months’ rent in case of residential and 6 (six) months’ rent for non-residential premises. The statute has expressly recognized the right of the landlord to make deductions from the security deposits on account of “any liability” attributable to the tenant before refunding the deposit to the latter.[10] Till now, this was always a contractual understanding between parties and may only include specific arrears payable by a tenant. Chapter IV captures the rights and obligations of landlords and tenants and begins with signing the tenancy in duplicate and ensuring that both parties have an original with them. It will be interesting to see how this works practically, as in case of a document registered with a Sub-Registrar, only 1 (one) is returned to the parties. At best, the other party can procure a certified copy for the concerned Sub-Registrar’s office.[11]

Repair and maintenance of premises and respective obligations of the parties has been captured along with details at Second Schedule to the MTL. In a nutshell, all major repairs are to be conducted by the landlord and comparatively minor ones by the tenant. A carve-out has been provided for parties to contractually agree otherwise. Further, parties have an express right of deduction towards expenses incurred for repair and maintenance, which was the obligation of the other party who failed to perform it. Therefore, a landlord can make such deductions from the security deposit and the tenant from the rent payable to the former subject to statutory limits and caveats.[12] Another issue is the obligation on the landlord to not charge rent until an uninhabitable premises rendered so, on account of a force majeure event or otherwise, is made habitable by the landlord. Typically, this is a clause we would negotiate in any rent arrangement and at times, the landlord would be happier with non-abatement of rent in case of force majeure while allowing the tenant to exit along with his security deposit subject to pre-agreed deductions, if any.

Now, there is an active obligation on the tenant to take care of fittings and fixtures, not to damage them due to its negligence and inform the tenant in the event there is any damage to the premises.[13] The MTL introduces the concept of a property manager who acts on behalf and with authority from the landlord. The landlord must inform the tenant about the property manager and provide requisite details to the tenant. The statute recognizes express obligations on the part of such property manager as well.[14] However, the MTL takes away the landlord’s right to stop provision of any essential services to the premises during the tenancy. In fact, the landlord can be penalized for disobedience of this directive. Essential services have been defined to include electricity, piped cooking gas supply, water, lights in passages, lifts, staircase, parking, etc.[15] It is our submission that this takes away a landlord’s leverage in case of a rogue tenant unwilling to cooperate with, or pay the landlord.

Chapters V to VIII of the MTL deal with grounds for eviction of tenants and recovery of possession by the landlord, constitution and powers of quasi-judicial and judicial authorities and miscellaneous provisions. Interestingly, the opening words of section 21 stipulate that a landlord and tenant can agree otherwise i.e., they are free to provide for other grounds of eviction or termination amongst them than those statutorily recognized. Any such eviction application shall be made to a Rent Court and could be on grounds such as non-payment of rent, parting of possession of the premises, or misuse[16] of the same, demolition or alteration of premises by landlord, structural changes by tenant without landlord’s consent, or if landlord is to sell the premises after tenant’s notice to vacate and the latter retracts. Section 22 carves out another ground of eviction where the heirs of a deceased landlord need the premises for their bona fide use.

An interesting addition is statutory recognition of penal rent in the event of overstay by the tenant.[17] Further, section 23 explicitly allows a landlord to make deduction of arrears from amounts deposited with him by the tenant before taking possession of the premises from the tenant. If the landlord fails to make such refund, he/she is bound to pay simple interest on such amounts to the tenant. There is now an express prohibition on the tenant to make any structural changes in the premises without the landlord’s consent. At the same time, the landlord will need to apply to a Rent Court in the event it intends to make any additional construction in leased premises. Now, even if the tenancy agreement is silent, a tenant will be obliged to give a 1 month notice to the landlord prior to vacating the leased premises.

Whilst all eviction applications must be made before the Rent Court, proceedings concerning other matters covered under sections 4, 9, 10, 14, 15, 19 or 20 of the MTL shall be filed before the Authority. All orders of the Authority are appealable before the Rent Court within 30 days of the order of the Authority. Orders of the Rent Court are appealable before the Rent Tribunal within 30 days of the order and shall be disposed off by the latter within 60 days from the date of service of notice of appeal on the respondent. The Rent Tribunal has been given the express power to issue interlocutory orders during pendency of an appeal. The Rent Court and Tribunal shall be guided by principles of natural justice and have the power to regulate their own procedure. The MTL required the Rent Court and Rent Tribunal to dispose of an application or appeal within 60 days else record reasons in writing for such delay.

The Authority, Rent Court and Tribunal shall not grant more than 3 adjournments and in the event a party requires an adjournment beyond this limit, the court may grant it for sufficient cause shown by the requesting party while levying a cost on such party and recording reasons for the adjournment. MTL requires the Rent Court to decide all eviction applications before it within 90 days from the date of filing of such applications and those under section 21(2) (c) and (d) within 30 days. The Rent Court and Tribunal have been granted powers to review their orders, set-aside applications, appeals or orders.

The Rent Court shall review any clerical or arithmetical mistake in its order at the request of a party or otherwise. Execution proceedings shall be carried out by the Rent Court in a summary manner and within 30 days from notice of the proceedings to the opposite party. Section 40 states that no civil court shall entertain a suit or proceeding with respect to the provisions of this Act and, jurisdiction of the Rent Court shall be limited to the tenancy agreement filed with the Authority under the First Schedule and will not extend to determination of questions of title or ownership of the premises.

3. Did we really need it? 

Short answer would be, yes! But while the MTL is a valiant effort to streamline matters in the rental housing and commercial segments, it does miss a trick or two. For starters, the MTL is a model law and all states may or may not fall in line and rather continue to work with their respective RCA, amended or not. The nature and political affiliations of the state governments may have a crucial role to play over here. Add to the mix, the local population/electorate’s response to an amendment to the existing RCA. This could be in the form of a mixed response, as some may view the MTL as being landlord friendly even though the central government emphasizes, that the MTL aims to address the issue of the RCA being pro-tenant.

In fact, the central government has attempted at making the tenancy law equitable by protecting the interests of both landlords and tenants alike. The MTL introduces certain novel changes as mentioned hereinabove and intends to plug in gaps that exist in the existing law. MTL does endeavour to lend flexibility to contracts between parties and therefore, allows parties to contract out of certain provisions. However, this is unavailable in case of some other provisions such as the one capping the interest free security deposit payable for leasing of residential or commercial premises.

Another regulator in the form of the Authority will not only impact the public exchequer but may also lead to a problem of plenty. Perhaps, extending the existing Real Estate Regulatory Authority’s mandate to cover tenancy agreements while also providing adequate infrastructure to deal with the same, if required, could have been a better bet. We also have the Rent Court and Tribunals thereby providing a new hierarchical order to adjudicate upon landlord-tenant disputes. Yes, the MTL does provide safeguards towards speedy justice by imposing timelines on pronouncement of verdicts and curbing adjournments but whether these forums will be any different from the existing ones under the RCA, shall only be proved through the test of time and implementation. On the other hand, the thought of not recognizing oral tenancies is a good move as it augments transparency in a landlord-tenant relationship.

4. Conclusion

It is certain that the Act is a positive move and would lend much clarity than the existing law. In most states, the RCAs need an overhaul in order to make the law balanced, something the courts have strived to achieve in recent times through certain pro-landlord verdicts. However, the courts are bound to interpret the law and cannot re-write it. At the same time, the MTL may irk many, as lease agreements and contracts that were not subject matter of any tenancy law would be covered under the MTL irrespective of the rental amount. Additionally, while the law provides parties the option to contract out of certain provisions it does take away the right to negotiate others. Thus, many may disagree with the law and prefer the existing practice of a well negotiated tenancy agreement.

The MTL intends to ensure that irrespective of the negotiating powers of the concerned parties, interests of both are well-served in an equitable manner. This should provide confidence to the landlords to offer premises owned by them in the rental market thereby ensuring sufficient availability of different kinds of housing to prospective tenants. As mentioned earlier, whether states would follow suit in adopting the MTL, or otherwise amending the RCAs, or not, is something we will have to wait and watch.

Author
Varun Kalsi

[1] Article 246 of the Constitution of India, Entry #18 of List-II

[2] Section 47 of the MTL

[3] Section 2(h) read with section 30 of the MTL

[4] Section 2(d) of the MTL read with section 3 that prescribes other properties exempt from the purview of the MTL

[5] Section 4 of the MTL

[6] Sections 5 and 23 of the MTL

[7] Explanation to sections 5 and 15 of the MTL

[8] Section 6 of the MTL

[9] Section 7 of the MTL

[10] Section 11 of the MTL

[11] Section 12 of the MTL

[12] Section 15 of the MTL

[13] Section 16 of the MTL

[14] Sections 18 and 19 of the MTL

[15] Section 20 of MTL and the explanation thereof

[16] Explanation to section 21 defines it to mean any encroachment by the tenant, use causing public nuisance, damage to the property, use that is detrimental to the interests of the landlord, or for illegal or immoral purpose

[17] Section 23 of the MTL states that such penal rent shall be twice the monthly rent for the first 2 months and then 4 times the rent if the default continues

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