Indian Government approves the new rental law – The Model Tenancy Act

On 2 June 2021, the Union Cabinet approved the Model Tenancy Act, 2021 (Act) for circulation to all States for adaptation of the Act by enacting a fresh legislation or to make appropriate amendments in existing rental legislations of States.

The Act aims to promote rental housing and balance the interests of landlords and tenants by equitably and clearly defining their obligations and rights and providing for an expeditious dispute redressal mechanism. The Act is a step in right direction, and has several progressive provisions that can transform the rental-housing market.

Builders and developers may also start adopting the “build-to-rent model” considering the potential of stable rental income over the long term. The new law is also expected to lead to increased private participation in the housing industry, including agencies specialising in asset management, maintenance and security. It is expected that this new law would lead to increased formalisation of the industry and investments (including long term institutional capital) in new business models over the next few years.

A few key features of the Act are highlighted below:

The Act applies to residential and commercial premises but excludes hotels, lodging houses, dharamshalas, inns and industrial premises.
The Act also does not apply to inter alia, premises owned by a company, university or organization given on rent to its employees as part of service contract; premises owned by any registered trust and other buildings specifically exempted in the public interest through notification.
A Rent Authority, not below the rank of Deputy Collector, is to be established to regulate renting of premises and for resolution of disputes. Orders by the Rent Authority can be appealed before the Rent Tribunal established under the Act.
In order to avoid uncertainty in the terms of tenancy, the Act mandates that a premise can only be rented by way of a written agreement and such rent agreements must be informed of to the Rent Authority by the landlord and tenant jointly within a period of 2 months from the date of the agreement.
To protect the rights of the landlord, amongst other things the Act provides for the following:

tenants are not permitted to sublet whole or part of the premises without the prior written consent of the landlord by way of entering into a supplementary agreement to the existing tenancy agreement;

if a tenant fails to vacate premises on expiration of tenancy period, a landlord is entitled to double the monthly rent for the first 2 months and quadruple the monthly rent thereafter;

an application can also be made for eviction and recovery of possession by the legal heirs of the deceased landlord.

To protect the rights of the tenant, amongst other things the Act provides for the following:

Revisions of rent shall be in accordance with the terms of the tenancy agreement and in case of any dispute between landlord and tenant, the Rent Authority may, on an application made by the landlord or tenant, determine the revised rent and other charges payable by the tenant.

Essential supplies and services such as water, electricity, piped cooking gas supply, lights in passages, cannot be withheld by the landlord from the tenant.

The security deposit payable by the tenant is capped at a maximum of 2 months of rent in the case of residential premises and 6 months of rent in the case of non-residential premises.

During the continuance of tenancy agreement, a tenant can only be evicted in accordance with provisions of the Act, unless otherwise agreed.
Rights, obligations, and terms of the tenancy agreement between the landlord and the tenant will also be applicable upon their successors in case of death of either of the respective original party to the agreement.
To avoid disputes, the division of maintenance responsibility between the landlord and the tenants is provided under the Second Schedule of the Act, or as the parties may agree to in the agreement.
The Act also establishes Rent Courts and Rent Tribunals for speedy redressal of disputes and mandates a time limit of 60 days for adjudication of dispute/appeal from the date of application/appeal.

A copy of the Act and the Press Information Bureau Release can be accessed at: