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Key Takeaways

  • Laws govern the leasing of commercial and residential property and are important to protect both landlord and tenant civil rights and to avoid deception.
  • There is a transfer of interest in a tenancy agreement, and it establishes the tenant's non-eviction by the owner.
  • The Model Tenancy Act of 2021 is significant because it ensures that both the landlord and the tenant are protected.
  • Both landlords and tenants will benefit from state tenancy regulations based on the draft of Model Tenancy Act.
  • The article elaborately discusses the history of rental laws and the features and essentials of a rental agreement along with the rights of the tenant and landlord.

Introduction

In India, property and real estate rules affect everyone, and landlord-tenant disputes are one of the most common. The parties must sign a rental agreement describing the parameters of the agreement in order to rent a property. As a result, it becomes a legally enforceable contract between the landlord and the renter, requiring both parties to abide by the contract and fulfil their respective rights and obligations. The rent agreement must specify the amount of the rent, the amount of the security deposit, the date on which the rent is to be deposited, and any other terms and circumstances that apply to the use of the premises. In the event of a breach of contract, the aggrieved party may seek relief in civil courts.

The 21.72 million rented households in urban India, according to the 2011 Census of India, provide a substantial market opportunity for market participants to focus on housing projects primarily for rental purposes. In India, 76.5 percent of these urban rental households, or 16.63 million, are dispersed among eight states and union territories. The significant urban employment hubs of Tamil Nadu (16.5%), Andhra Pradesh (13.8%), Maharashtra (13.5%), Karnataka (11.3%), Gujarat (6.1), West Bengal (5.9%), Uttar Pradesh (5.1%), and the NCT of Delhi (4.3%) account for a large percentage of total rental households in urban India.

History of Rental Laws

Despite the fact that rent control legislation has existed since before Independence, the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) has made it a sensitive subject. Rent control was implemented in India after WW-II to prevent a false scarcity of rental accommodation. After the First World War, the first rent control legislation was passed in Bombay in 1918, followed by a similar legislation in Calcutta in 1920. Almost all of the country's main cities and towns were covered by rent control laws by the end of World War II. All of these laws, which arose from the inflationary aftermath of World War I, were intended to provide temporary respite to renters facing high rent demands and indiscriminate eviction by landlords due to a scarcity of housing in urban areas.

The rules governing rent control in India are divided into three phases. The first generation of laws are those enacted prior to Independence. The second generation of laws are those enacted after Independence to preserve tenant rights. The laws enacted after the publication of the Model Rent Control Legislation, 1992 (MRCL) marked the beginning of the third generation of rent control legislation.

Only four states accepted the Model Rent Legislation, which was supposed to provide the foundation for state law change. The Law Commission of India acknowledged in its 129th Report that eviction issues account for the greatest number of cases waiting in courts. The laws allowed for the requisitioning of houses that were vacant and in rentable condition. Despite the fact that it was intended to be a temporary solution, rent control legislation has become a policy decision.

Housing is a state topic in India, according to the Constitution. Individual states are responsible for enacting and enforcing rent control legislation. The federal government may provide guidance to the states, but it is up to the states to carry out and change these laws. In 1992, the Ministry of Urban Development produced a Model Rent Control Legislation (MRCL) based on a series of consultations with State Governments and numerous specialists to address this scenario. According to the MRCL outline, rent control legislations were to be implemented in 1992 in towns with a population of more than three lakhs as of the 1991 Census.

Despite the Central Government's distribution of a Model Rent Control Law to all states in 1992, nothing significant has been done to change the existing legislation. Essential rights, such as the right to receive payment of rent, are not covered by all of the laws. These types of services should be standardised across all states. In many states, increase in rent is only permitted when the landlord makes additions or modifications to the premises with the tenants' approval.

Rent Control Act

In 1948, the legislature approved a Central Rent Control Act. It establishes the rules for renting a property and ensures that neither the landlord’s, nor the tenants' rights are exploited. It should also be mentioned that each state currently has its own Rent Control Act, which, while mostly similar, has some minor variances.The real estate sector has struggled to thrive in some locations due to the 1948 Act's strict and pro-tenant provisions. Some residences that have been rented out since 1948 are still paying the same amount of rent, despite inflation and rising property values.

The Central Government attempted to alter the Act in 1992 using a proposed approach to ensure that property values were not devalued. Unfortunately, the sitting tenants were opposed to the revisions, thus they did not take effect.

In India, renting or letting out any property for residential or commercial use is subject to a number of rules and regulations. By law, both parties must have a written agreement enumerating all of the tenancy's terms and conditions.

In the following situations, an agreement struck without being expressly written down is not a legitimate contract:

  • Any adjustments, regardless of the sort of correction, must be documented.
  • Both parties, the landlord and the renter, must date and sign the agreement.
  • The contract must be stamped and registered before it can be used.
  • The landlords’ and tenant's rights and obligations cannot be enforced or protected by law without a proper rental agreement.

The Rent Control Statute does not apply to premises leased to banks, public sector undertakings, corporations founded by or under any state or federal act, foreign embassies, multinational corporations, or international organisations. Rent Control Acts do not apply to premises leased to private limited and public limited firms with a paid-up share capital of one crore rupees or more.

The leasing agreement is subject to the Transfer of Property Act if the monthly rent payable exceeds 3500 rupees (TPA). It imposes obligations on the landlord, including the revelation of information about material faults in the property. The landlord-tenant rental agreement regulations in India are antiquated. The Central Government is urging local governments to ease these regulations in order to boost development and housing investment.

Rental Agreement

The popularity of 11-month rental or licence agreements is one of the most typical elements when entering into a property rental transaction in India. Because there are two forms of agreements that deal with property rental in India, lease agreement and leave & licence agreement, most landlords choose an 11-month period when engaging into property rentals.

Rental agreements that last more than a year must adhere to tight rent control legislations that favour tenants. Currently, rental control regulations prohibit landlords from overcharging tenants and protect tenants from eviction without cause. In the case of a lease agreement, the right to ownership of the property is also passed from the landlords to the renters, making it more difficult for the landlord to evict a tenant. As a result, landlords prefer not to enter into long-term leasing agreements.

Leave and licence agreements, on the other hand, are signed for an 11-month period with the opportunity to renew the agreement at the end of the term. Rent control rules do not apply because an 11-month rental agreement is simply a licence for the renter to occupy the premises for a limited time. Furthermore, 11-month rental agreements give the landlord greater options, in the event the tenant is evicted from the property. As a result, most landlords prefer to enter into an 11-month rental agreement with the option to renew at the end of the term.

Features of the rental laws

  • When renting out a property for commercial or residential use, there are a number of requirements that must be followed. Regardless of the size of the property being rented, laws are in place to assist potential tenants in locating and securing suitable rental accommodations.
  • These regulations regulate rental rates, ensuring that reasonable rentals are enforced within established rental ranges that vary by state. A landlord cannot charge more than these rates to his or her tenants.
  • These regulations were also enacted to safeguard tenants from being evicted unfairly by their landlords owing to any form of discrimination.
  • Landlords' responsibilities and obligations to their tenants are also defined by law. This covers the property's maintenance terms and conditions.
  • On the other side, it also establishes the landlord's rights, which he may exercise if a tenant fails to meet their duties, such as paying rent on time or misusing property in any way. This also means that the landlord has the right to object to the usage of his property for grounds that aren't listed in the lease.

Essentials to be Included in Agreement

  • The parties agree on the amount of rent and the method of payment, which is commonly cash, check, or demand draft. The contract must also state the length of time for which the rent must be paid. Payment is required on a daily or weekly basis for paying guests, serviced apartments, and other short-term accommodations. Long-term payments are made on a monthly basis.
  • Gas, electricity, phone, television, internet, and water, as well as their connections, must be included in the rental agreement. It is also mentioned if the rates are included in the rent or must be paid separately.
  • A landlord may opt to impose lifestyle restrictions on his or her tenants. This is quite frequent in South India, as most rental properties forbid renters from cooking non-vegetarian meals on the grounds. Other factors are taken into account, such as marital status and gender.

Rights of Tenant

  1. Right Against Unfair Eviction: The Act states that a landlord cannot evict a tenant without good reason. The rules for eviction range slightly from one state to the next. In some areas, if a landlord wants to evict a tenant, he or she must go to court and get a court order. In some areas, if a renter is prepared to accept any modifications to the rent, he or she cannot be evicted.
  2. Fair Rent: When renting out a residence, the landlord cannot charge exorbitant rent. The rent value of a property is to be determined by the property's value. If the tenant believes the amount of rent being demanded is excessive in comparison to the property's value, he or she may seek recourse in court. The rent should typically be between 8% and 10% of the property's value, including all costs incurred during construction and the property's fixtures.
  3. Services that are absolutely necessary: It is the tenant's fundamental right to have access to vital utilities such as water and electricity. Even if the renter has not paid rent on the same or another property, the landlord does not have the right to terminate these services.

Rights of Landlord

  1. Eviction Rights: The right to evict a renter varies from state to state. In some places, a landlord may evict a tenant for personal and legitimate reasons, such as the desire to dwell there. In Karnataka, such a justification is not a legitimate reason for eviction. In most circumstances, the landlord will have to go to court to evict the renter. The landlord must also provide proper notice to the tenant before going to court, as required by law.
  2. Charge Rent: As the property owner, the landlord has the right to charge the renter rent. Because there is no official legislation establishing a rent ceiling, the landlord is free to keep raising the rent charges as he sees fit. In such instances, it is important to include the amount of the increase and the condition of the increase in the rental agreement itself. Rent is usually increased by 5% to 8% per year.
  3. Temporary Repossession of Property: The landlord has the right to temporarily seize the property in order to improve its condition, alter it in any way, or make improvements to it. However, such improvements to the property must not result in a financial loss to the tenant or have a major impact on his tenancy.

Model Tenancy Act

The draught Model Tenancy Act, which was written by the Ministry of Housing and Urban Affairs in 2020, was approved by the Union Cabinet in 2021. According to the 2011 Census, nearly 1 crore residences in metropolitan areas are unrented and vacant. Various problems in landlord-tenant relationships, fear of repossession, non-payments, late payments, damage to the premises, delayed court procedures, archaic local rental laws of each State that have not been modified for decades, and so on, are among the concerns for the same. With the Model Tenancy Act, 2021, the Union Cabinet wants to upgrade and improve the status of rent regulations after two years of announcement and one year of drafting the bill.

Because each state already has local rent laws, when the Model Tenancy Law takes effect, state governments can either enact and adopt entirely new rent legislation eliminating the prior Rent Act, or they can change their existing rent law to include the Model Tenancy Law's provisions.

Features of the Act

  1. The Act will establish a three-tiered redress system, with Rent Authorities, Rent Courts, and Rent Tribunals. These regulatory entities will relieve the civil courts of the load of tenancy disputes and aid in the resolution of disputes quickly.
  2. Security deposit demand is capped: The Act limits the security deposit which must be paid in advance by a tenant, to a) not more than two months' rent in the case of residential premises and b) not more than six months' rent in the case of non-residential premises.
  3. Landlords and tenants' rights and obligations: The dos and don'ts of each party (landlords and tenants) are clearly defined, covering a variety of topics such as the retention of original tenancy agreements, rents and other charges due, property repair and maintenance, entry into premises, as well as information and duties of a property manager and the consequences of failure to perform essential duties.
  4. Tenant eviction and landlord reclaim of premises: In the past, rent control regulations in several states, such as the Delhi Rent Control Act and the Maharashtra Rent Control Act, established reasons for eviction that were hotly contested in Court. This Act aims to bring a systematic strategy to addressing these challenges at the ground level by restricting the grounds for eviction and termination of tenancies.
  5. Property managers' responsibilities: It outlines the role of property managers, their responsibilities, and the penalties that will be imposed if they violate the law. The Act compels property managers to register with the Rent Authorities and provide information such as their name, PAN number, Aadhar number, address, and contact information. Any people or legal entity will be included here, including the rental agency which manages the property on behalf of the landlord and represents him in transactions with the renter.

Conclusion

The Indian rental laws must be amended to safeguard the owner and his or her property from the tenant. If these rules are adopted and strictly enforced, more investors may be enticed to enter the real estate market in order to profit from rental payments. This is especially true in the business world. It is also necessary to change the tax laws so that renting houses becomes a financially viable choice. Several states' Rent Acts have been amended, which is a good step.


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