In the context of housing policies in India, the need for a uniform rental housing law in the country was felt despite some states already having different versions of the Rent Control Act. r, there are many states where the Rent Control Act continues to be in force with some amendments. The Rent Control Act has disincentivized rental housing to a great extent. With maturity of the real estate sector over decades, the provisions became obsolete as home occupancy needs evolved as a result of urbanization.
The Union Cabinet’s move in June 2021 to approve the Model Tenancy Act, 2021, signals the creation of an organized rental housing marketplace and will act as a catalyst to augur the rental housing supply in India benefiting the urban middle class, working professionals, students, and the floating population. The Model Tenancy Act, 2021 will be adapted by all States and Union Territories (UT) by either amending existing rental laws or enacting a new legislation. Once implemented, this policy adaptation will provide for market conditions to support private players and investor participation in rental housing as a business model – a step which will bring market forces into play where supply and demand will be the determinant of ‘rent’ as a term of tenancy.
NEED FOR RENTAL HOUSING REGULATIONS IN INDIA:
A huge market opportunity – Urban India has 21.72 million rented households. Comprising the highest percentage share of rented households are eight states and Union Territories with 16.63 million or 76.5% of the total urban rented households. The fact that most of the population lives in informal rented housing accommodation provides a huge opportunity for private housing operators and institutional participation in the organized rental housing market. It was due to the lack of policy push that housing projects solely for rental purposes were not a focus area for market participants.
Vacant housing stock – Vacant houses as a percentage of total residential census houses in key Indian cities remains very high. Once the rental housing regulations are implemented in letter and spirit by the states, this vacant inventory can be brought within the fold of formal rental housing as it would make it easier for all stakeholders – tenants and landlords to bridge the trust deficit and unlock the true potential of this housing stock.
Home ownership focus of government policies – The current policy framework, with the focus of ‘Housing for All by 2022’, and the most recent addition of The Real Estate (Regulation and Development) Act, 2016 are skewed in favor of providing, promoting, and regulating homebuying. There have been several impediments due to which rental housing regulations did not take shape in India in the past. Consequently, demand for need-based rental housing and market driven rental housing remained unmet as the policy enabler was lacking until now.
Dispute resolution mechanism for landlords and tenants – The landlord-tenant relationship in India has been tainted due to trust issues. Despite tenancy and rent-related laws in Indian states, conflicts have been unavoidable. Absence of regulation has been one of the biggest deterrents for landlords to give their properties on rent in the first place. With the Model Tenancy Act, 2021 coming into effect, the rental marketplace may not remain unattractive for property owners.
KEY FEATURES OF THE MODEL TENANCY ACT, 2021:
Creation of a three-tier redressal structure – This is envisaged as comprising Rent Authorities, Rent Courts and Rent Tribunals, the powers vested in them and selection criteria for personnel to be employed. This is a much-needed regulatory structure which will reduce the case burden on civil courts by diverting all tenancy related matters to these said authorities.
Security deposit demands capped – The Act puts a lid on the security deposit to be paid by a tenant in advance to – a) not exceed two months’ rent in case of residential premises, and b) not exceed six months’ rent in case of non-residential premises. While this will help improve dispute resolution, capping it by number of months’ rent equivalent takes away the freedom of contracting.
Rights and obligations of landlords and tenants – The Act defines the do’s and don’ts for each party and covers aspects such as retention of original tenancy agreements, rents, and other charges payable, repair and maintenance of the property, entry into premises, besides information and duties of a property manager and consequences of violation of necessary duties, so that the routine aspects of managing tenancies can be clearly outlined and the need for litigation is reduced.
Eviction of tenant and recovery of possession of premises by the landlord – In the past, Rent Control Acts in different states such as the Delhi Rent Control Act, the Karnataka Rent Control Act and the Maharashtra Rent Control Act provided similar grounds for evicting a tenant and terminating tenancies which was highly disputed in the court of law. This often led to protracted litigation. By limiting the grounds for eviction and termination of tenancies, this Act seeks to bring a consistent approach towards addressing these issues at the ground level.
Role of property managers – The Act provides for the definition of property managers, their duties, and consequences of violation. This Act will provide more opportunities for property managers going forward, especially in the residential sector.
Excerpts from a Research Report by Rajani Sinha, Chief Economist & National Director- Research, Knight Frank (India) Pvt. Ltd. Mumbai