The Union Cabinet recently adopted the Model Tenancy Act, 2020, which will bring a slew of improvements to the rental housing segment in India. It will not only formalise the rental market but also improve the landlord-tenant relationship significantly.

While the Union Cabinet has given a green signal to the Model Tenancy Law, the implementation of the Act would be a subject matter of the States/Union Territories. The State governments will be responsible for enacting tenancy rules consistent with the Central version or amend the existing laws to comply with the Model Tenancy Law. Aside from improving the rental housing supply, the new law will encourage investment, entrepreneurial prospects and creative space-sharing arrangements. However, the law will only apply to new tenancies and will not impact the existing ones.

Advantages of the Model Tenancy Act, 2020

The Model Tenancy Act, 2020 intends to make renting more profitable for landlords and tenants by filling in the various gaps in the rental housing policies. 

Addresses the security deposit concern: To date, tenants in metro cities have endured hardship because security deposits for renting a premise in these cities have ranged from 5-10 months’ rent. However, the Model Tenancy Act, 2020 has restricted the security deposit for residential real estate to two months’ rent, providing immense relief to tenants. Furthermore, when a rented property is vacated, the law requires the landlord to pay the security or caution money within one month. In case of delays, the landlord has to bear a penalty.

Regulates rentals: The new law aims to unlock the vacant residential inventory across the country and improve the rental supply. The increased/adequate residential supply will prevent irrational rental hikes and ensure quality living for all.

Tenants and landlords interest addressed: Landlords and individuals with investments in residential property are wary about renting out their properties for various reasons, including the risk of losing their real estate asset to the tenant, rental delays, and tenant overstays.

Nevertheless, tenants who do not adhere to or observe the rental agreement clause will face significant penalties. In particular, if the renter overstays the rental agreement after it has expired, the tenant must compensate the landlord by paying double the rent for two months. In case the occupancy extends, the monthly rental increases up to four times the agreed rental value.

There is also a relief for the tenant as the landlord is responsible for all maintenance and repairs, such as whitewashing walls, windows, and doors. The landowner must give a 24-hour notice before performing any repairs or replacements at the rented property. Furthermore, the landlord is prohibited from raising the rent in the mid of the lease term. Similarly, before imposing the rental increases, the landlord must provide a written notice to the tenant at least three months in advance.

Rent courts for speedy resolution: The Act encourages the establishment of Rent Courts or Rent Authorities in each state and Union Territory to expedite the resolution of any rent-related grievances. There is also a discussion about establishing special courts to deal with rent-related matters.