The Model Tenancy Act, 2021: Falling short in catalysing the housing rental market


The Union Cabinet on June 2nd 2021 approved the Model Tenancy Act, 2021 (“MTA”) for circulation to all the States and Union Territories. This piece examines whether the MTA delivers in letter what it intends to achieve in spirit, especially at a time when the importance of rental housing markets has been explicitly recognised as a key component of affordable housing policy, with the introduction of the Affordable Rental Housing Complexes (ARHC) scheme in May 2020. It finds that the MTA, while a good first step, has many shortcomings that will inhibit the achievement of its objectives.
By and  |  June 8, 2021

The Union Cabinet on June 2nd 2021 approved the Model Tenancy Act, 2021 (“MTA”) for circulation to all the States and Union Territories. The MTA, which is virtually identical to a draft released for public comments in November 2020, improves on an earlier version in 2015, which was released with the then draft National Urban Rental Housing Policy. The MTA is dovetailed to the vision of ‘Housing for All’ by 2022, and aims to “balance the interests and rights of both the landlord and tenant; to create an accountable and transparent ecosystem for renting the premises in a disciplined and efficient manner.” It seeks to “enable creation of adequate rental housing stock for various income segments of society including migrants, formal and informal sector workers, professionals, students etc.; increase access to quality rented accommodation; and enable gradual formalisation of rental housing market.” It identifies problems with existing rent control legislations and their “long-drawn legal processes” which have served as a disincentive to landlords and resulted in “informal sub-standard rental market lacking basic amenities.

This piece examines whether the MTA delivers in letter what it intends to achieve in spirit, especially at a time when the importance of rental housing markets has been explicitly recognised as a key component of affordable housing policy, with the introduction of the Affordable Rental Housing Complexes (ARHC) scheme in May 2020.

A procedural approach to rental regulation

Regulatory attempts around rental housing in India have faced a tension between protecting interests of landlords and tenants, which are seen as opposing each other. The ostensible reason why rental agreements are being treated differently from any other type of contract is the imbalance in the bargaining power between both parties. Landlords, as owners of property, are generally socially, politically and economically in an advantageous position compared to tenants, who may have limited social, political and economic capital in the place they are renting. The situation is analogous to the labour market, where similar imbalances between employers and workers leads to careful state regulation of labour contracts. However, unlike labour, tenants in India lack a history of collectivisation and rental markets are not organised. Consequently they are unable to clearly articulate their interests and regulatory intervention has tended to be paternalistic rather than pragmatic.

Thus, while leaning in favour of tenants, the regulatory regime has tended to use procedural means – rent control, eviction procedures, and permissions – rather than a well-articulated set of substantive rights that tenants are entitled to. The MTA strikes a positive note in this regard through Section 11, which provides vital protection to tenants against exploitation though collection of excessive amounts as security deposit or non-refund of security deposit after the termination of tenancy, and also makes rental agreements on this point subject to the Act. It also takes some tentative steps in this direction by clearly delineating the rights and obligations of landlords and tenants in Chapter IV, including often-contentious obligations of repair and maintenance, and the tenant’s recourse when landlord refuses to accept rent. However, as we now show, it fails to go sufficiently far to simplify processes for tenants and landlords.

Clarity of implementation processes

The MTA is beset with a bevy of overlapping and confusing institutional processes. For instance, Section 31 envisages the creation of a Rent Authority, who is a designated official appointed by the Collector. The Authority’s proposed role is primarily to register lease agreements, which is currently being done by the respective registering authorities in the States under the Registration Act, 1908. The latter Act mandates registration for all rental agreements for a period of 12 months or longer. However, the common practice at present, even in the formal sector, is to issue agreements for 11 months to avoid paying registration fees or stamp duty. Instead of directly addressing this through an amendment to the Registration Act (mandating registration for all agreements irrespective of their duration) and thus simplifying the process, the Model Act creates another process and another authority. This is likely to be counterproductive and is also particularly incongruous given the Central Government’s stated commitment to “ease of doing business”, “single window clearances” and “minimum government, maximum governance”. This is in contrast to another successful model of housing regulation – the Real Estate Regulation Act, 2016, which creates a streamlined process involving a single set of authorities.

It is also curious that the Model Act terms a non-judicial body as the Rent Court and a judicial body as the Rent Tribunal. It would be appropriate if the use of the terms “Tribunal” and “Court” for these bodies was interchanged. Nomenclature aside, it is unclear why there is a multiplicity of authorities, especially since the Rent Authority appears to have coextensive powers with the Rent Court under section 31 of the Model Act. Given the similarity of functions, it may be useful to merge the proposed Rent Court and Rent Authority into a single body. Further, the appointment and functioning of these bodies should ideally be carried out under the aegis of the urban local body rather than the district administration, in line with the devolution envisaged under the 74th Amendment to the Constitution.

Landlords’ expectations of repossession

A significant issue with existing state-wise Rent Control legislations, which the MTA fails to adequately address, is the restrictive and cumbersome procedure involved in repossession of the rental premises. While the general bar on eviction has been removed, the process (Chapter V) remains as complicated as it was before, with one cumbersome process (involving an application to the Rent Controller) being replaced by another (involving proceedings before the Rent Court and Tribunal).

The MTA places several restrictions on eviction: it can be carried out only on certain limited grounds, and that too after taking permission of the Rent Court. Incidentally, the landlord’s requirement for the premises is not a sufficient ground to evict a tenant under the proposed formulation. Nor is it clear why this process, which essentially involves termination of a commercial transaction between two private individuals, has to receive prior approval from another authority (the Rent Court). In the absence of a workable legal recourse to evict unlawful tenants, homeowners are unlikely to have any incentive to rent out vacant homes. The need of the hour is a speedy, simple procedure that invokes due process and provides sufficient notice to the tenant to prevent arbitrary or illegal eviction. The Rent Courts and Tribunals should only function as a dispute redressal mechanism if the intent is to break out of the current framework.

Inclusion, in terms of process and substance

While the introduction of a mandatory “digital platform in the local vernacular language” may be intended to facilitate registration, it is unclear how useful this will be, given the extent of digital literacy and access, especially in the informal sector. In addition, the registration form (in the First Schedule) also requires irrelevant documentation such as Aadhaar (not required since no subsidy is being provided) and PAN (mandatory only if the rent amount is above Rs 50,000) for all agreements. This creates unnecessary paperwork and makes the process more complicated (for instance, low-income renters might not have a PAN), besides potential privacy violations since the information is required to be uploaded in public domain on the website under section 4(4). The mandate of vernacular language may also work to the detriment of migrant renters.

Overall, the provisions of the MTA, as they stand, are geared to address the formal rental space. While it envisages registration of all rental agreements, there is no penalty for not doing so and, as outlined above, the proposed registration mechanism is unlikely to effectively cover the informal rental market, especially for lower income groups. The only incentive to register is the provision of section 4(6) that no relief under the Act can be claimed without registration. The scope of the Act has also been narrowed by making it prospective (excluding rental agreements entered into prior to the Act coming into force). All subsequent provisions of the Act presume the existence of a registered agreement, which will result in the informal rental sector (largely comprising the urban poor, who are a key target group under the Policy) being completely bypassed. The Act would benefit from a broadening of its scope and coverage in order to address all categories of rental housing.

Aside from the inability to ensure inclusion via procedures, the Model Act also fails to address rental discrimination against tenants: a substantive need for protection that has been articulated in the media and literature on the basis of a large number of documented instances of discrimination against specific groups, viz. single men and women, unmarried couples, non-vegetarians, Dalits, religious minorities, transgender persons and sexual minorities, among others. This is not in consonance with the Act’s objectives of ensuring adequate access to rental housing for all sections of society, which will only be possible through socially inclusive housing. Incorporating an explicit anti-discrimination provision into the law, on the lines of other recent legislation like the Code on Wages, 2019, provides a meaningful way of enforcing the constitutionally guaranteed protection against discrimination.

The political economy of rental supply

An interesting provision is the MTA’s definition of ‘landlord’, which appears to be agnostic to land tenure as it does not clearly specify the landlord as the owner of property, but defines it in terms of ‘entitlement’ to receive rent. While this could lead to disputes in respect of properties with unclear titles, it could also potentially bring many grey areas – such as unauthorised colonies and similar informal settlements – under the ambit of the regulatory framework. This would allow arbitration of the rental market in areas which were traditionally out of the regulatory purview from a strictly tenurial perspective.

However, whether this definition and the provisions of section 4(6) of the MTA by themselves would provide sufficient incentive to landlords for registration is doubtful. This is because informal landlords operate in an environment where oral contracts act as de facto law that is implemented via social mechanisms like community-based trust networks or the implicit threat of violence owing to unequal power relations, which would make them hesitant to incur the regulatory gaze. To provide landlords with stronger incentives to register, the MTA should also be linked with other regulatory mechanisms like  building codes, taxes, master plans etc. to create a broader set of incentives/penalties, which will need to be resolved at the state level.

Conclusion

Much of urban India’s affordable rental housing is  supplied by the informal market, like these rental tenements in Gurgaon.

Overall, the MTA, though well-intentioned, stops short of achieving significant departures from the existing regulatory provisions for rental housing. On the one hand, it is characterized by an unnecessary multiplicity of authorities and a general absence of a clear regulatory scheme. On the other hand, significant requirements such as a speedy, fair eviction process and an anti-discrimination mechanism are not provided. The registration process, instead of being simplified and aligned with the existing mechanism under the Registration Act, can potentially create a multiplicity of authorities and unnecessary paperwork. The rental housing sector would benefit from simpler registration and arbitration processes. Moreover, not all aspects of tenancy require a heavy hand. Provisions like the division of responsibilities between landlord and tenant under the Second Schedule, instead of being statutory mandates, may just as well be retained as guidelines, to be resolved through bilateral negotiations between the parties concerned.

Further, the MTA’s orientation towards formal rental housing ignores the reality of renting in India, which is predominantly informal, both in terms of the land tenure on which the supply is built as well as in terms of the nature of contracts. Informal rental housing caters to the housing needs of low- and middle-income renters, who have suffered the brunt of a historic inadequacy in formal affordable housing supply by the public and private sectors. A broadening of scope and coverage of the Act, simplified registration processes and a clear articulation of the benefits of registration could be a first step in creating a tenure-neutral and inclusive approach to rental housing in India.

Finally, the Central Government has an opportunity to go further and lead the way for the states. At present, the MTA remains a model legislation which is subject to political will for adoption in the states. However, in respect of the Union Territories, including the National Capital Territory of Delhi – which has one of the largest rental markets in the country –Parliament exercises overriding legislative power. Previous attempts by Parliament to legislate on rent control in Delhi have failed due to their inability to consider the needs of all stakeholders on board. With the changes suggested in this article, the introduction and passage of an amended MTA for the Union Territories (including Delhi) in the next session of Parliament could offer an excellent demonstration to the state governments of the viability of changing the rent control paradigms currently operational in the country.

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Manish

Mukta Naik

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