This issue of LexCognito, which in Latin means 'awareness about law', seeks to provide you an insight into significant legal and regulatory developments that have taken place very recently in India.

Date: 5 June 2021
Cabinet of Ministers approves Model Tenancy Law
On June 2, 2021, the Union Cabinet has approved The Model Tenancy Act, 2021 (“MTA” or the “Act”) to streamline the process of renting property in India and aid the rent economy in the real estate sector. As per the proposed law, separate rent authorities, courts, and tribunals will be set up in districts to resolve disputes and protect the interests of the tenants and property owners. It will be open to the States in India to adopt the MTA verbatim or incorporate them into their existing state-wise rental laws, as appropriate. The Central Government states that this Act aims to formalise the shadow market of rental housing, unlock vacant properties, increase rental yields, ease/remove exploitative practices, reduce procedural barriers in registration, and increase transparency and discipline.

The Model Tenancy Act, 2021

The MTA lays down the regulatory framework for renting including the rights and obligations for every stakeholder and the recourse available to it which aims at reducing litigation and building trust between the landlords and the tenants. 

Applicability: The proposed law will have no retrospective application, i.e. will not affect any existing tenancies and will only be applicable prospectively i.e. from the date of its implementation. The Act seeks to cover urban as well as rural areas.

Salient features of the Act
  • It mandates a written agreement for all new tenancies which must be submitted to the concerned district ‘Rent Authority’.
  • It prescribes the maximum security deposit for residential premises which can be no more than two months of the rent amount and six months of the rent amount for commercial premises.
  • It provides that if the tenancy has not been renewed, the tenancy shall be deemed to be renewed on a month-to-month basis on the same terms and conditions as were in the expired tenancy agreement, for a maximum period of six months.
  • It does not provide for any monetary ceiling, which permits parties to negotiate the tenancy agreement on mutually agreed terms.
  • It prescribes the roles and responsibilities of the landowners and the tenants for the duration of the lease, or tenancy. It stipulates construction and structural works to be the sole responsibility of the landlord or owner whereas maintenance-related expenses will fall under the purview of responsibilities of the tenant.
  • It stipulates that no essential supply can be withheld by the landlord to the premises occupied by the tenant. The landlords will have to provide a 24-hour notice to tenants before undertaking any repair work that may disrupt utilities' supply.
  • It provides that where the tenant fails to vacate the premises let out on rent in accordance with the tenancy agreement on the expiration of the period of tenancy or termination of tenancy by an order or notice under the provisions of this Act, such tenant shall be liable to pay the landlord –(a) twice the monthly rent for the first two months; and (b) four times the monthly rent thereafter till the tenant continues to occupy the said premises.
  • It provides that a landowner or property manager may enter a premise in accordance with written notice or notice through electronic medium served to the tenant at least twenty-four hours before the time of entry.
  • It provides that if the landlord fails to make any refund, he shall be liable to pay simple interest to the tenant at such rate as may be prescribed from time to time on the amount which he has omitted or failed to refund.
  • It provides for a time-bound and robust grievance mechanism. If a dispute emerges between the owner and tenant, they will have to first approach 'Rent Authority'. If any party is not satisfied with the Rent Authority's order, 'Rent Court' can be approached, followed by a 'Rent Tribunal'.
  • It provides that in case of a force majeure event, the landlords shall allow the tenants to continue in possession until a period of one month from the date of cessation of such disastrous event, on the terms of an existing tenancy agreement.
CHRI Comment
The purport of the legislation is to promote healthy lending and occupancy tendencies in the country. The implementation of MTA is intended to give confidence to the owners to rent their vacant premises to prospective tenants who previously due to a variety of fears such as illegal occupancy among other reservations do not rent out their premises. Additionally, this Act further seeks to give tenants the confidence that they would not be taken undue advantage of, by the landlord. The implementation may vary between states who are free to decide upon the parameters of such implementation.
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Chambers of Rajan & Indraneel 
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Chambers of Rajan & Indraneel is a premier full service law firm headquartered at New Delhi, India. The Firm represents amalgamation of vast experiences and practices of two eminent lawyers. Indranil Ghosh is highly reputed as a disputes lawyer. He was a senior partner and head of litigation practice in one of the oldest Indian law firm Fox Mandal for several decades before setting up his own practice. Rajan D Gupta is a rank holder Chartered Accountant turned Corporate Lawyer. He is also a licensed Insolvency Resolution Professional. He has been associated with internationally renowned big law firms in past and has held senior level positions in firms like PwC, Fox Mandal, Khaitan & Co. and SRGR Law, etc. before starting the Firm.

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This newsletter contains general information available in public domain at the time of its preparation. It is intended as a general news update and is not intended to be comprehensive nor to provide specific business, financial, investment, legal, tax or other professional advice or opinion or services. This newsletter is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business. Before making any decision or taking any action that may affect you or your business, you should consult a qualified professional adviser and refer to the source pronouncement/documents on which this business alert is based. It is also expressly clarified that this newsletter is neither a solicitation nor an invitation of any sort whatsoever or a source of advertising from our firm or any of its partners or lawyers or other professionals to create any adviser-client relationship. Whilst every effort has been made to ensure the accuracy of the information contained in this news alert, this cannot be guaranteed, and neither our firm nor any related person/entity shall have any liability to any person or entity that relies on the information contained in this publication. Any such reliance is solely at the user's risk.
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