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Home Blog Real Estate Legal Guide The Tenancy Act in India – A 10 Crore House being Rented for Rs.40?

The Tenancy Act in India – A 10 Crore House being Rented for Rs.40?

Updated : June 15, 2021

Author : kruthi

Real Estate Legal Guide

3689 views

Yes, this happens in India. The old Rent Act, set by the British Raj when they were in rule, froze rents and made it very hard to evict tenants! This means that property worth crores still had to be let out for the insanely low amount that it was given out at all those years back.

This act also made tenancy inheritable, so a tenant's children could continue to live here and pay the same rent their forefathers paid. Landlords could not do anything about this, as long as there was a record of tenants paying their rent on time, they could not be evicted. The tenant and his heirs could claim legal rights and protection under the provisions of the Rent Act.

This system led to many owners just giving up on their buildings and letting them fall apart. This also led to the pagdi system where an incoming tenant would pay the landlord a huge chunk of money, the landlord would give this to the old tenant to kick them out. But the new tenant would also pay very low rent.

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Time for a change – The Model Tenancy Act 2019

Knight Frank India and Khaitan & Co in October 2019 shared the details of a study they conducted. The main finding was - " The total vacant houses incorporate approximately 12% of the entire share of the urban housing stock, which aggregates to around 1.11 crore homes in 2011. This stat showed a 71% hike with respect to vacant houses when compared to the year 2001.”

This means that houses are going vacant and this is bad news for both tenants and landlords and very bad for the 'Housing for All by 2022' goal.

So, it’s no surprise why the Ministry of Housing and Urban Affairs (MHUA) introduced the Model Tenancy Act in 2019.

What is the Model Tenancy Act?

This act is a model for all states and union territories (UTs) as land is state subject. This means each state and Union Territory has the option to adopt the act or reject it. This act, as stated by Finance Minister Nirmala Sitharaman is much needed. The old acts that we follow don’t as she said, “address the relationship between the lessor and the lessee realistically and fairly".

The act aims it making rental law fair and safe. There is no favouritism shown to either landlord or tenant.

What you should know about the Model Tenancy Act & Tenants Rights in India

There are a few important takeaways from this Act, such as –

There should be a formation of a Rent Authority department in each state to manage any rental issue.
Security deposit for residential property is capped at two months’ rent and one month for commercial tenancy.
If a tenant overstays, they will have to pay a penalty for not vacating. They have to pay 2x the rent for the first 2 months and 4x for each month after this. This will begin if they don’t vacate after the tenancy agreement expires or is mutually terminated.
The landlord must provide access to basic essentials and utilities. If they need to increase the rent, then a written notice needs to be given 3 months in advance.
If a landlord does not pay for basic repairs that are required, a tenant can pay for it and deduct it from their monthly rent. Read more about Model Tenancy Act & Tenants Rights in India from here.

All tenancy agreements have to be reported to the Rent Authority within two months. A unique identification number will be issued to each agreement by the authority.
Tenants cannot sublet all or a portion of the property without permission from the landlord.
A landlord will have to respect the privacy of the tenant, they will have to provide 24-hour notice before entering any rental property, even if it is to carry out repairs.
If there are any disputes, the landlord can’t take matters into his own hands by cutting off power or water.

Do you think the Model Tenancy act is a good move by the government? Drop us a comment below and let us know what you like or dislike about the act.

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kruthi,Author

Kruthi is a Chartered Accountant has worked for various Real Estate firms across India, she is well versed with the legal and financial aspects of all real estate transactions. There are numerous documents and plenty of hidden fees that people get lost in, her goal is to shed some light on it all.

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