Tenants find solace in a push for Urbanization: Model Tenancy Act, 2020

Model Tenancy Act, 2020: Tenants find solace in a push for Urbanization

With increasing reliability of the economy on the services sector, legally formalizing tenancy issues could be relief for tenants moving to cities for job opportunities, and a push towards planned urbanization.

With the start of an unending phase of lockdowns in March 2020, the mass de-migration and de-urbanization of migrant population back to home states raised multiple concerns about the plight of migrant labourers, whilst also drawing attention to a more privileged section of migrants who moved to urban areas (especially the metropolitan cities)for purposes such as education, employment/jobs, business, healthcare and better quality of life. The constant tussle of the vulnerable migrating population as well as local tenants, with landlords, has been a concern, with or without the Covid complications. With increasing reliability of the economy on the services sector, legally formalizing tenancy issues could be relief for tenants moving to cities for job opportunities, and a push towards planned urbanization.

A large portion of the urban population comprising 31.16% share of the total population (as per 2011 census), with unimaginable y-o-y growth, seeks to prefer rented accommodation as it offers affordability and flexibility with low entry and exit cost with option to live near their 'place of work/education'. In order to facilitate a better and more organized ecosystem of rights and obligations of tenants and landlords, and in furtherance of the Modi-Government's ambitious plan of "Housing for All" by 2022, the Ministry of Housing and Urban Authority (MOHUA) introduced the Model Tenancy Act, 2020(hereinafter "MTA") on October 31, 2020, as a suggestive draft for guidance to State governments to consider implementing.

While the overarching ideology behind the introduction of the Model Tenancy Act, 2020 is to tap into the market of 110 lakh houses lying vacant in urban areas (as per the 2011 census), as well as provide protection to renting population, residential as well as commercial, it would be interesting to see the ecosystem of the MTA potentially encourage entrepreneurial tendency and private participation to upgrade the always booming residential real-estate sector.

Balancing the rights of Tenants and Landlords

The MTA has sought to balance the recurring issues of imbalance between landlords and tenants, by codifying the impact of recurring issues. The designation of a district level Rent Authority is also anticipated to be a welcome sign of clarity for an escalation mechanism for tenancy disputes.

One of the highly negotiated and disputed factors of every pre-tenancy discussion is the security deposit. The fictitious distinction often created between 'good families' and 'bachelors' while renting out residential property, is indicated by the exorbitant security deposit amounts retained by landlords. The MTA seeks to restrict a maximum of two months' rent for residential premises, and a maximum of six months' rent in case of commercial properties, as security deposit.

In case of stubborn tenant's prolonged default, a landlord is entitled for double the monthly rent for the first two months and thereafter, four times of the monthly rent in case of default by tenant to vacate the premises after termination of tenancy.

Issues of sub-letting, reclamation of possession of property, eviction, interest on delayed refund of security deposit, obligation of maintenance of premises and other such common and recurring issues have been adequately addressed within the MTA.

As an overall assessment of the legal provisions of the MTA, it seeks to clarify long standing understandings of the landlord-tenant relationship with clarity on a balanced set of rights and obligations, wherein vulnerable tenants can find certainty of their rights.

Force Majeure and Tenancy: A Covid Special

The initial phase of lockdown witnessed numerous discussions regarding the presence of a Force Majeure clause in tenancy agreements, and the specific wording of such clause, to determine the impact of the rights of the landlord and tenants, in residential as well as commercial spaces. Multiple tales were heard, where tenants were being summarily evicted in trying times or forced to pay rent despite a lockdown, or, to the contrary, landlords facing defaulters of rent. While there is sufficient grey area in the law to seek relief in all such circumstances, especially through the Covid phase, the Supreme Court and the Delhi High Court had their opportunity to discuss the issue of suspension of rent on account of Force Majeure.

The MTA envisages a very particular scenario of the occurrence of a Force Majeure event at the time of expiration of the tenancy, wherein the landlord must extend the tenure of tenancy by a month, to ease the transition process.

While this does provide some comfort for a fraction of possibilities which could be impacted by Force Majeure, a plethora of other scenarios which are made apparent by the pandemic outbreak have been overlooked. The MTA misses an opportune chance to clarify and provide comfort to a population still worried about the impact of potential Force Majeure events, on tenancy agreements.

Introduction of Rent Courts and Rent Tribunal

A fast-track quasi-judicial dispute resolution mechanism for tenancy disputes is a welcome move within the MTA. The introduction to Rent Courts and Rent Tribunals would increase access to justice amongst tenancy disputes, as has been seen by introduction of other specialized tribunals. The largest apprehension of a migrating individual is to avoid legal battles and quietly exit a place of establishment, even if monetarily detrimental. Likewise, unless eviction upon default has become unavoidable, landlords are looking for easy work arounds, as opposed to attaching in lengthy legal battles. The expense of time and money under the civil courts route in quick moving tenancy market has been averse to legal procedures. As an adequate fix to this, the introduction of ad-hoc tribunal mechanism would increase the propensity to justice and discipline to the market.

However, the newly made tribunals does not solve the long-lasting issue of arbitrability. There has been an ongoing legal confusion regarding the arbitrability of tenancy disputes relating to eviction and recovery of rent. Considering matters of tenancy dispute as non-arbitrable, as they are governed by special legislations like respective State rent control acts, as per the Supreme Court'sNatraj Studios (P) Ltd. v. Navrang Studios [(1981) 1 SCC 523], with further reference to Himangni Enterprises v Kamaljeet Ahluwalia [(2017) 10 SCC 706], stating that the mere exclusion of a state's special rent control act does not ipso facto make the Arbitration Act applicable. While the question of arbitrability still remains abyss, the MTA misses an important opportunity to settle this position of law regarding the arbitrability of disputes that would otherwise fall within the jurisdiction of Rent Tribunals.

Way Forward!

In a post-Covid world, where there is speculation around diminishing need for physical office spaces, such issues of tenancy matters pervade space and time. While this is only a suggestive draft, which is optional for States for adopt in lieu of their respective existent laws, as land is state subject, it is important to recognize an attempt to formalize a large sector of housing which has faced issues of practicality for decades now. In the event none of the states decide to adopt the Model Tenancy Act, 2020, there may be no affirmative impact of the principles envisaged herein.

This is a momentary opportunity for a large population of India being impacted by a regular hunt for fair deals of tenancy, landlords and tenants alike, to send in suggestions and inputs to the Ministry of Housing and Urban Authority, by November 28, 2020, for the Model Tenancy Act, 2020.

Disclaimer: The views shared are the personal views of the author and not reflective of the Firm's stance on the subject matter