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New Model Tenancy Code-bonanza for HNIs & NRIs

Model Tenancy Code Brings Cheer to NRIs and is being hailed as a landmark moment in Indian real estate and creates a level playing field for all stakeholders

On 2 June, 2021 Indian Government approved the Model Tenancy Act (MTA), 2021, which ensures a level playing field for landlords and tenants. States already have laws that deal with renting and leasing of properties. The MTA will replace the existing Rent Control Act of states, if adopted by the state in question. Current Rent Control Act is lopsided in favour of tenants.

1) For real estate investors, no one will henceforth be allowed to enter into a rental arrangement without a written agreement. Verbal agreements will be out of the picture

2) The increased trust and confidence thus generated will enable NRIs to easily monetize their existing vacant residential properties by letting them out in a simple, coherent, cohesive way with a well-defined terms, conditions, rights and obligation of both landlord and tenant. It will act as great assurance that the tenant of their property is bound by legal terms.

3) MTA defines the timeline within which any rental disputes will be resolved.

4) No one will henceforth be allowed to enter into a rental arrangement without a written agreement & this avoids illegal trespassing into your property, while you are away

5) MTA calls for a digital platform where tenancy agreements need to be submitted to the rent authority in future as it will be more convenient and transparent way of registering the agreement.

6) There is now a clear demarcation of responsibilities between a tenant and landlord

7) Currently finding a tenant and collecting monthly rental and other dues is usually carried out by family or close associates (mostly broker) in India. With the rental market now becoming more organised, institutional service providers will come into the picture to address the market demands and render associated services.

8) The MTA requires states to establish a rent authority that will regulate the renting of premises. Once the property owner and tenant sign the leave and licence agreement, they will need to inform the rent authority within two months. The proposed authority will issue a unique identification number. In case of disputes, the authority will take a decision based on the facts that were submitted.

9) States will also need to set up rent tribunals and rent courts to resolve disputes. These could fast-track resolution.

10) Currently, biggest concern for landlords has been squatting. Many keep their houses locked instead of renting them out due to this concern. In some states, like Maharashtra, it’s mandatory to register leave and licence agreements with the government. Even then, it takes time for landlords to get relief from courts if the tenants refuse to leave the house. In the new Model Tenancy Act, the resolutions are time-bound; an order must be passed within 60 days. This should give confidence to landlords to let out their properties

11) Tenant will continue to pay the rent even during the pendency of a dispute with a landlord.

12) The amount of security is one of the hurdles that tenants face. There is no standard practice for this. In some cities, the security deposit can be 6-10 months of rent and in some cities it’s 2-3 months. Standard security deposit would help to bring parity. Under MTA, the security deposit to be paid by the tenant should not exceed 2 months’ rent for residential property and 6 months’ rent in case of non-residential property

13) There is no monetary ceiling on rent. At present, in many old properties let out under archaic rent-control Acts, such ceilings have left landlords stuck with outdated rent amounts.

14) Subletting of premises can only be done with the prior consent of the landlord, and no structural change can be done by the tenant without the written consent of the landlord.

15) MTA lists the kinds of repairs each party would be responsible for, with the proviso that money for repairs can be deducted from the security deposit or rent, as applicable, if a party refuses to carry out their share of the work. No arbitrary eviction of a tenant can be done during currency of the tenancy period, except in accordance with provisions of the Act.

16) The Rent Court can allow repossession by the landlord if the tenant misuses the premises, after being served a notice by the landowner. Misuse of the premises, as defined, includes public nuisance, damage, or its use for “immoral or illegal purposes”. If the tenant refuses to vacate, the landlord can claim double the monthly rent for two months, and four times the monthly rent thereafter.

17) In case of a force majeure event (event like flood, quake), the landlord shall allow the tenant to continue in possession until a period of one month from the date of cessation of such disastrous event, on the terms of existing tenancy agreement. As per Force majeure, Each Party is excused from performing its obligations under the Agreement to the extent that such performance is prevented by an act or event (a "Force Majeure Event") whether or not foreseen

18) Vacating premises: Many disputes arise at the time of the tenant vacating the premises. MTA provides for various scenarios for disputes that can arise when the owner wants the tenant to vacate. There’s compensation for the landlord if he gives a notice to the tenant based on the conditions stated in the agreement, but the latter doesn’t vacate the house in time. The compensation is double the monthly rent for 2 months and 4 times after that.

19) The Act covers only new agreements. Experts feel that MTA should have brought in its scope agreements that property owners and tenants have already executed as it would have helped to boost confidence.

20) According to experts, MTA should have defined the role of property brokers in a transaction and it should have also included the minimum & maximum compensation (brokerage) they should get and their registration, accreditation

Few posers

1. What about pending disputes currently stuck in lower courts, High Courts & Supreme Court? High Courts and Supreme Courts should transfer all cases relating to facts to Tribunal being created and should deal with case pertaining to law

2. What about Pagdi Property transactions where there are no existing agreements and tenants continue to enjoy the property are nominal rent? Government should bring some clarity as most of these “Pagdi” properties are very old, beyond their life and are actually a threat to occupants and neighborhood.

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