Unlocking India’s rental market with draft model tenancy act, 2015: JLL

The following is the report by Ashwinder Raj Singh, CEO – Residential Services, JLL India

A change is in the air after almost 70 years as far as rental market is concerned. With the Draft Model Tenancy Act 2015, more of India’s budget-strong families can expect to have a roof over their heads at a cost that is affordable, and to live with dignity.

The NDA government has finally started moving on the Draft Model Tenancy Act 2015. The previous UPA government initiated it almost four years back, but did not complete the process. Housing is a major problem in India, and this Act looks forward to making an impact on it in the most constructive manner.

Will this Act will change the market dynamics and if so, how?

The Draft Model Tenancy Act, 2015 is an improvement on its obsolete predecessor, the Rent Control Act, 1948. The latest draft will make things much easier for the landlords who were short-changed by the previous law. The Rent Control Act was applicable only to tenancy of more than 12 months, had put a cap on rent and made it extremely difficult to evict a tenant who did not pay the revised rents despite living in the same premises for years. The new draft, on the other hand, will ensure that landlords are able to charge market rates for their residential or commercial properties, get the rents revised periodically and also get their premises vacated easily without getting into the long-drawn legal proceedings.

What is Draft Model Tenancy Act, 2015 responding to?

There was a need to unlock the greater potential of the housing sector. Property owners were sceptical about giving their house on rent, and most of them avoided it out of the fear that tenant will never vacate their property. With these changes, house owners can relax and a huge number of properties lying vacant can be used to not only generate additional income for them, but also solve the housing problem of millions.

Who will benefit from the new Act?

Apart from the benefits to landlords, the new draft Act also works well for tenants. As per the draft, rent ceiling will be fixed in consultation with the state government to avoid arbitrary hikes. Besides this, landlords won’t be able to evict tenant as per their whims and fancies, as there will be a written agreement. Also, the security deposit charged from the tenant will be capped at three times the monthly rent, which is currently charged more or less on an ad hoc basis. Another plus point for tenants is that they can claim a reduction in rent if the quality of services available to them deteriorates in any way. In short, it’s a win-win situation for both house owners and tenants if they play by the rule book.

Will the new Act succeed where the previous one failed?

Yes, it will. The new Act safeguards the interests of both the parties in a special court of law, so there is no reason to believe that it will fail to have an impact. Landlords can expect rent that their property deserve and tenants will be saved from unexpected rental raise and surprise evictions. The only thing to be considered here is the implementation of the Act in its right spirit.

The purpose of this Act is to help unlock the pent-up potential lying in the housing segment. While the UPA government’s avowed intention of constructing houses for millions will take a lot of time and regulatory approvals, unlocking the doors of houses already built but not utilized is a faster and comparatively easier process of addressing the goal of Housing For All.

Will there be an immediate impact?

The expected change – meaning the increased willingness for property owners to rent out their properties – might not happen overnight. House owners will first like to test the waters. However, with a long-term view, house owners have everything to gain by letting out their property without having to worry about seeing them vacated. A lot will depend on the execution of the rules mentioned in Act to help landlord raise rents and get trouble-making tenants evicted.

State-level applicability of the act

Since land is a subject of state, this Act is not binding on the states and therefore is called a draft. It is left on the states to decide whether to accept it or not. Given the vote-bank scenario, most state governments might not adopt this draft, but in the long run they would have to accept it since it is beneficial for tenants in a big way. Presently, the rent laws in most states have become archaic and are not serving the purpose of the current day and age. Additionally, lots of tenants have to undergo the harrowing experience of either giving in to arbitrary rent hikes or face eviction. This Act can help bring transparency as well as ease of doing business for both the parties involved.

A change is in the air after almost 70 years as far as rental market is concerned. With the Draft Model Tenancy Act 2015, more of India’s budget-strong families can expect to have a roof over their heads at a cost that is affordable, and to live with dignity. The sooner the respective state governments adopt the new Rental Act, the sooner they will be able to reap the benefits.