Institutionalising India’s rental housing market

The Model Tenancy Act is a key step forward to balance the tenant-landlord relationship in India, which can help institutionalise the rental housing market by creating an accountable and a transparent environment for renting premises in a disciplined and efficient manner. A joint report by Knight Frank India and Khaitan and Co tells us how.

The Model Tenancy Act is a key step forward to balance the tenant-landlord relationship in India, which can help institutionalise the rental housing market by creating an accountable and a transparent environment for renting premises in a disciplined and efficient manner. A joint report by Knight Frank India and Khaitan and Co tells us how.

The proposed MTA provides for a fragmented, yet highly valuable segment of housing by providing guidelines to some key aspects of rental housing.

There are multiple reasons that create frequent conflicts between both parties (see: table) due to which there was a need to carve out a law to smoothen the dealings between the two.

Challenges for Landlords
Fear of illegal possession by tenants High transaction costs and dependence on brokers Upkeep of the premises along with common areas of access High property tax to be paid, as renting is a commercial activity Risk of long-drawn legal battle

Challenges for Tenants
Fear of untimely eviction
Bias in renting properties to certain population groups
No control over security deposit demands
Disputes with respect to property maintenance
Restrictions related to lifestyle habits due to difficult landlords

AMBIGUITIES IN THE DRAFT MODEL TENANCY ACT, 2019

From the landlord's perspective:
Part of Section 16, dealing with the tenant to look after the premises, states that the premises’ contents including fixtures and fittings are to be kept “reasonably habitable” with regards to its condition at the commencement of tenancy and the normal incidence of living. It does not specify any parameters to be taken into consideration for a “reasonably habitable” condition and remains ambiguous.

From the Tenant's perspective:
Rental revision percentage should have been capped to avoid disputes with landlords.

Section 23 (2), pertaining to default in making any refund of the amount of advance rent that the landlord has omitted or failed to refund, does not specify the rate at which the landlord is liable to pay interest, which can be a bone of contention with tenants. The rate of interest in this situation should be governed by the provision of the tenancy agreement executed between the parties.

Section 25, pertaining to building of additional structures as a part of improvement to premises or new construction, can be misused by landlords to try and evict tenants due to bias.

From a 60 per cent share in total investment in Indian realty in 2011, the share of residential sector declined to 24 per cent by the end of 2017 and nosedived further in subsequent years. Since rental housing has been a much-neglected sphere, India does not have any residential stock specifically developed to incentivise investments in this space. In view of existing demand for rental housing and this Draft Model Tenancy Act, 2019 to act as a supply side intervention, the upcoming stock for rental housing has the potential to attract investments. Though the rental housing phenomenon is still evolving in India, rental housing models such as ‘Build To Rent’ (BTR) and ‘Rent To Own’ (RTO) are vital components of the mainstream housing market across the globe.

Source: Times of India