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Wednesday, Sep 18, 2019

Decoding draft tenancy law

Security deposit has been capped to a maximum of two months’ rent in case of residential property, and a minimum of one month’s rent in the case of non-residential property.

business Updated: Jul 16, 2019 15:50 IST
HT Correspondent
HT Correspondent
Hindustan Times, Mumbai
At first look, the draft rules seem to be favourable for both tenants and landlords. However, there are some inherent challenges.
At first look, the draft rules seem to be favourable for both tenants and landlords. However, there are some inherent challenges.(Illustration: Shrikrishna Patkar )
         

Are you living on rent? The government has come up with a draft tenancy law for you and your landlord. So far you must have noticed the focus on buying a property or on home loans from the government. In this Budget, the finance minister spoke about tenancy law, post which the government has proposed a Model Tenancy Law to regulate renting of premises. “This is not the first time. There have been archaic laws relating to this space. States have their own Rent Control Acts, which are old and not really serving the true purpose,” said Ramesh Nair, chief executive officer and country head, JLL India.

The draft tenancy law

According to the new draft Model Tenancy Act, 2019, security deposit has been capped to a maximum of two months’ rent in case of residential property, and a minimum of one month’s rent in the case of non-residential property. The draft imposes penalty for failure to vacate a residential unit. The landlord is entitled to get a compensation of double the monthly rent for two months and four times of the monthly rent thereafter if a tenant does not vacate the premises after tenancy has been terminated by order, notice or as per agreement. Also, the landlord cannot hike the rents in the middle of the tenure.

A landlord cannot cut off or withhold essential supplies or services such as electricity and water under the new Act. The property owner must give prior notice of three months before revising the rent value.

The tenant cannot sublet a part of or the whole property to someone else. The draft also makes it the landlord’s responsibility to rectify structural damages and undertake measures like whitewashing walls and painting doors and windows. “With nearly 30% of households in urban areas staying in rented accommodation, this regulation will have a significant impact on the rental market. The law, if implemented, will have rules for both residential and non-residential premises. It is early to comment on actual implementation process,” said Nair.

What does it mean for you?

At first look, the draft rules seem to be favourable for both tenants and landlords. “However, there are some inherent challenges. The cap on the security deposit can become a pain-point for many landlords in cities such as Bengaluru —a 10-month security deposit (with some scope for negotiation) was the accepted norm. Also, if a tenant defaults or causes significant damage to a property, a two-month security deposit may not cover the expenses the property owner incurs in repairs. While the government lays down the basic policies, the exact rules will likely change within each state since land is a state subject. Like we saw in the highly lopsided roll-out of RERA, the Model Tenancy Act, 2019 may lose its real purpose if states do not follow the basic guidelines and dilute them,” said Anuj Puri, chairman, Anarock Property Consultants. According to Puri, the Model Tenancy Act, 2019 - like RERA - may well become a process rather than an event, and need several course corrections to reduce regional dilutions before it becomes a force to reckon with.

7 things you should know about tenancy law

•Written tenancy agreement to be submitted with the Rent Authority- within two months

•Submission in electronic form will make the process easier and efficient

•Security deposit capped at two months’ rent in case of residential property and minimum of one month’s rent in case of non-residential property

•Prior consent of the landlord required for sub-letting whole or part of the premises held by tenant. This will restrict malpractices

•Penalty for tenants in case of non-vacation of premises post the expiry of the agreement period (double the monthly rent for the first two months and four times the monthly rent thereafter)

•Legal recourse for both tenants and landlords

First Published: Jul 16, 2019 15:50 IST