Model Tenancy Act (MTA) will Usher a New Era for Rental Markets in India

The day before yesterday, the Indian Cabinet approved the Model Tenancy Act (MTA), heralding a new era in the Indian rental business. Drawing parallel with RERA, which was notified in 2016, MTA can bring a lot of positive changes in the unregulated rental markets of India. It will institutionalize the rental agreement between tenants and homeowners and enforce a lot of transparency.

Mentioned below are some of the salient features of MTA and how it will positively impact the Real Estate industry in general and rental markets in particular.

MTA will Safeguard the Rights of Tenants: By outlining clearly defined policies, MTA will greatly safeguard the interest of tenants. The security deposits have been capped at 2 months in the case of residential properties. In the case of a commercial property, it has been capped at 6 months. From now onwards, all the repair of structural damages such as paint, whitewashing will be the onus of the owner. Owners can’t increase rents midway and will have to give at least 3 months’ notice before increasing rents.

 It Will Restore the Interest of Owners: The policies underlined in MTA will also restore the interest of the owner community. MTA mentions that tenants are now allowed to sublet the property. Similarly, once the owner fulfills all the requirements before asking the tenant to vacate (such as notice period, etc.), owners are entitled to increase the rent twofold if the tenant fails to vacate the premises upon termination of the contract. After two months, the owner can increase it fourfold. Thus, MTA strikes the right balance between the interests of the tenant and homeowners.

 Establishment of Fast track Courts: To further ensure smoother transactions, fast track courts will be formed for the speedy redressal of disputes between tenants and homeowners. Similarly, tribunals will be built in every state and union territory to register each tenancy.

 The Act Will Reform the Rental Market: MTA is a prudent step towards reforming the rental market and bringing in an unprecedented amount of structure and transparency. Currently, there are more than 1 Crore vacant homes and one of the main reasons cited is the lack of clearly outlined tenancy laws. With MTA coming into the act, speedy uptake of the vacant inventories will be possible. This will also help in managing the existing housing gap.

 It Will Attract Big Ticket Size Investments: MTA will attract large ticket size investments in the rental space. Despite an attractive investment with the potential for elevated yields, big investors have stayed away from the rental market due to a lack of substantive policies. However, MTA will draw the attention of HNIs, PE players, institutional investors, etc to play out loud in the field.