A new draft formulated by the housing and urban poverty alleviation ministry, aims to change the outdated rules and laws regarding landlord-tenant agreements. A revival of a four-year-old draft tenancy bill, the Draft Model Tenancy Act 2015 will bring in key changes to the rental market.
The draft promises to address the issues of landlord-tenant disputes, which are governed by the Rent Control Act 1948. The existing agreements have often been found to favor the tenants, as they placed a cap on house rent and also made it difficult to evict troublesome tenants. But the new draft proposes to change the rules in such a way that it benefits both the landlord and the tenant.
How Do Present Rental Agreements Work?
Presently, there are two types of rental agreements in India – Lease Agreement and Leave and License Agreement. Rent control laws, wherein the property is rented for a period of 12 months, generally govern a Lease Agreement. In this agreement, a ceiling is placed on the rental price depending on the cost of construction and the market price. But increase in rental prices under such an agreement is often found to be lesser when compared to the rise in property prices due to inflation, around the same period. This proves to be a disadvantage to landlords, as they cannot increase the rent due to strict rent control laws. Additionally, in a Lease Agreement, the right to ownership of the property gets transferred from the owner to the tenant, which can lead to trouble when the owner wants the tenant to vacate the property.
Due to the above issues, many owners opt for the Leave and License Agreement, which allows the tenant to occupy the property for a period of less than one year. Unlike the Lease Agreement, rent control laws do not govern a tenancy of less than 12 months. The rental agreement can be renewed after the expiration of the lease period, enabling the landlord to increase the rent according to the market price. Further, there is no transfer of property rights to the tenant from the owner. Therefore, the landlord is within his rights to evict the tenants from the property for justified reasons.
What Changes Will the Draft Model Tenancy Act Bring?
The strict rent control laws have resulted in decreased interest in renting out property with nearly 10 million completed units lying vacant. The new draft aims to bring in vital changes that would put landlords’ worries to rest. If the new draft is enacted, landlords will be able to charge rents based on market price for both residential and commercial properties. They will be able to revise the rents periodically and also insist on vacating the premises without getting into the hassles of long-drawn legal disputes.
The draft also proposes the establishment of an independent authority, which would overlook the registration of all rental agreements. Landlord-tenant disputes are very common in the court. Hence, the draft proposes the formation of a separate court to handle all rental-related legal problems.
How Will the Draft Benefit Landlords and Tenants?
The draft allows the homeowner and the tenant to mutually decide on the period of lease and the ceiling of rent. This is decided in consultation with the rental authority. The following are ways in which the new draft will affect the owners and the tenants –
a. Can fix the rent as per market price, which can be increased periodically by 10% at the expiration and renewal of the rental agreement.
b. Can terminate the tenancy if dues are not paid or property is misused.
c. Will be given compensation if tenant refuses to vacate the premises after termination by order, notice, or agreement.
a. Fix rental price by agreement; arbitrary hikes or unexpected rise in rental prices can be avoided.
b. Face no danger of eviction, as period of lease will be strictly adhered to as per the agreement.
c. Can’t exceed security deposit by three times the monthly rent, which saves the tenant from paying exorbitant rates of deposit.
d. Can seek reduction in rent in case of deterioration of assured services.
The Draft Model Tenancy Act, if implemented, will open up the housing market and is sure to benefit both the landlord and the tenant.
The Draft Model Tenancy Act, if implemented, will open up the housing market and is sure to benefit both the landlord and the tenant. Check out commonfloor.com for a comprehensive list of rental properties that you can choose from.