Govt approves Model Tenancy Act to unlock vacant houses for rental purposes

The Act proposes to establish an independent authority in every state and UT for registration of tenancy agreements and even a separate court to take up tenancy related disputes.

The Centre, on Wednesday, approved the Model Tenancy Act for circulation among states and union territories, which will adopt the changes by enacting fresh legislation or amending their existing rental laws. 

The housing and urban affairs ministry floated the draft model tenancy bill in 2019. It proposed to establish an independent authority in every state and UT for registration of tenancy agreements and even a separate court to take up tenancy related disputes. 

Other provisions in the Act include limiting the tenant’s advance security deposit to a maximum of two months’ rent and to a maximum of six months for non-residential purposes. 

The government has claimed that the Model Tenancy Act will facilitate the unlocking of vacant houses for rental housing. “It is expected to give a fillip to private participation in rental housing as a business model for addressing the huge housing shortage,” the Centre said in a press note. 
“The Cabinet approval for the Model Tenancy Act will provide the much-required boost to Rental Housing in India. It is a landmark reform that will usher in a new era for the real estate sector in the country," said Pankaj Bhansali, COO at Eqaro Guarantees Pvt Ltd. "The move will help address the high number of vacant residential units in India, which is over 11 million houses, making it economically productive, reducing litigation, and encouraging trust between the landlord and the tenants. The new model Tenancy act will also encourage and attract institutional investments into the residential assets," he added. 

The Act will apply to premises let out for residential, commercial or educational use, but not for industrial use. It also won’t cover hotels, lodging houses, inns, etc. This model law will be applied prospectively and will not affect existing tenancies.

The Act also tries to address how a renter can legitimately increase the rent. The Act states that rent can either be increased according to the terms and conditions mentioned in the agreement, or the landowner will have to give a notice in writing to the tenant, three months before the revised rent comes into effect.