Though the Union government claims that the Model Tenancy Act 2021 is meant to unlock more empty houses, many property owners in Mumbai are unsure.
Friction between the tenant and the landlord often result in long-drawn out legal battles. The new law is meant to govern the tenant-landlord equation through effective and faster dispute resolution.
Property owners fear legal disputes if tenants do not vacate their property on time. “….expensive legal costs deter landlords from giving their properties on rent in the first place. The risk of property litigations in cases of conflicts is a major deterrent which has made the rental market unattractive for property owners,” observed a 2019 Knight Frank report.
Shiv Sena MLA Prakash Surve, who is also a real estate agent said that the new law could reassure property owners. “Though the existing provisions are heavily in favour of the tenants, the new provisions, if implemented, could streamline the entire process and also fast track the dispute settlement and evictions,” he said.
The big Indian housing paradox
As per the Census 2011 data, 11.09 million houses remain vacant in urban areas despite the massive housing shortage in the country. “Zero or no policy interventions for rental housing have been a big deterrent for creation of rental housing stock in the country,” observed the Knight Frank report on institutionalizing the rental housing market in India.
A report titled, Urban Rental Housing in India: Towards ‘Housing For All’ by the Observer Research Foundation blamed the “depressing rental housing activity in cities” for slowing down India’s urbanisation. It said “…many would like to work in cities but are unable to afford reasonably decent and cost-effective rental housing.”
The report also noted that the majority of the urban housing shortage pertains to families from the economically weaker sections and lower income groups” who are unable to afford decent housing due to constraints like “negligible disposable incomes, weak creditworthiness, and an inability to procure a formal bank loan.”
The lack of affordable rental housing has pushed a large portion of the urban population, mostly migrants, into slums, thus resulting in “slumisation” of India, it noted.
Current dispute resolution mechanism
Anil Harish, an advocate who specializes in matters of property and taxation and Partner, D.M. Harish and Co. explains the two categories of tenants in Mumbai: statutory tenants (generally known as the Pagdi tenants) and those who have taken premises on rent on a Leave and License agreement under the Indian Easements Act, 1882. “If a law similar to the new tenancy Act is passed in Maharashtra, it will not affect the first category, as no fresh agreements are entered into under that law,” he said.
Currently, most premises in the city are rented under the Leave and Licence agreement, which allows a tenant to use a particular property for a particular period with no rights on the premises or the land. This is very different from the Pagdi system, which grants tenancy rights under the Maharashtra Rent Control Act, 1999
The leave and licence agreement allows a tenant to use a particular property for a particular period with no rights on the premises or the land. This is very different from the pagdi system, which grants tenancy rights under the Maharashtra Rent Control Act, 1999
Under the Indian Easements Act, a rental agreement between the tenant and owner, irrespective of its tenure, has to be registered with the state government’s Department of Registration and Controller of Stamp Duty.
Rental agreements can also be registered online here and here.
All disputes between the landlords and the tenants are based on this crucial rental agreement and handled by the Court of Small Causes. Since there are only two such designated courts for the entire city, they are already overburdened and there is a delay in dispute resolution.
The Maharashtra Rent Control Act, 1999 allows eviction of a tenant on grounds of non-payment of rent, sub-letting / assignment of the tenancy without permission of the landlord, non-usage of a residential premise by the tenant for six months, bona fide requirement by the landlord for his own occupation, the premises or any part thereof are required by the landlord for carrying out any repairs etc.
Since such grounds could prove to be highly contested on facts, it generally results in a delayed and arduous litigation that could make owners hesitant about entering into rental arrangements.
The new law
The Model Tenancy Act attempts to streamline the legal dispute resolution proceedings between property owners and tenants.
The Act proposes to set up a three-tier grievance redressal system consisting of a Rent Authority, Rent Court, and a Rent Tribunal.
A property owner could seek a tenant’s eviction if he defaults on rent for two months and fails to pay it with interest within a month of a demand notice served by the owner.
A residential tenant has to pay two months’ rent as a deposit with the landlord, who is allowed to increase the rent by giving a three-month notice period. If a tenant refuses to vacate the premises in two months of the set period, the landlord is entitled to receive double the rent, and another two-month delay could escalate the rent four times.
The new courts suggested under the MTA, exclusively to deal with tenant-landlord issues will reduce the burden of the Small Causes courts.
Similarly, the draft also suggests that a case shall not be allowed more than three adjournments. These special Rent Courts would have all the rights of a Civil Court, including the summoning of witnesses, demanding documents from parties and even inspecting premises after giving a 24-hour notice.
Real estate consultant Sunil Bajaj prefers to keep his spare flats in Mumbai vacant, rather than renting them out. “Most often, the tenants leave the flats in bad condition, forcing the owners to plough back a part of their rental earnings to restore or repair the flats. Many tenants stop paying rent, asking us to forfeit from the deposit money, thereby giving us little space to leverage in case of any nuisance caused in the flat,” said Bajaj.