Model Tenancy Act can stimulate labour market, lower cost of living

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Among the events that I covered as a fresh television news journalist in 1994 were the protests against amendments to the Delhi Rent Control Act. The central government had got the legislation to make it easier for the city’s property owners to evict tenants ─ based on a model law ─ approved by both houses of the Parliament. The trading community had erupted in anger.

Kala knoon vapis lo (take back black law), they chanted. The legislation got the President’s approval but was not notified. Tangentially, I got an introduction to Punjabi phonetics: the first syllable of words like kanoon is compressed.

The central government proposed model tenancy agreements in 1992, 2011, and 2015 for states to enact. But so strong was the opposition that in 2011-12, CAG, the constitutionally-appointed auditor that reports to the Parliament, found only ten states had made some progress, though funds under a special mission for urban renewal required reform of rental laws.

A ‘rent authority’ will be established

The government has made yet another attempt. On 2 June, the Cabinet approved a model tenancy law. Under this law, no tenancies can happen without an agreement in writing and intimation in a prescribed form to a rent authority to be established. Upon doing that, a unique identification number will be given. The information must be conveyed to the authority jointly by the landlord and tenant within two months of the agreement, or failing that, within a month thereafter by either of them. The two parties will agree on the rent among themselves as well as the tenure of the tenancy. The security deposit cannot be more than two months’ rent for residential accommodation and six months’ rent for non-residential premises.

The rent authority is to be headed by an officer, not below the rank of a deputy collector. The rent court for dispute resolution will be presided over by the additional district collector or additional district magistrate. Appeals against the rulings of the rent court will be heard by a rent tribunal to which a district judge or additional district judge will be appointed. The disputes will have to be disposed of within sixty days, failing which reasons will have to be given in writing. There is a limit on the number of adjournments. Witness testimony will be through affidavits, though they can be summoned in person as well.

Key provisions for landlords and tenants

If a tenant does not vacate the premises on expiry of the agreement or after the termination of the tenancy, they will have to pay double the rent for the subsequent two months and four times the rent thereafter. Tenancies are inheritable and the agreed terms apply to the successors. A landlord’s successors can apply for eviction of a tenant if they need the premises for their own use. There is relief from eviction in case of natural calamities for the duration of those events.

A tenancy can be terminated for encroachment, unauthorised use, or non-permitted alterations to the premises. The obligations of both the parties are enunciated in a schedule to the law. Owners can enter the let-out premises on giving notice in writing (including via email or phone messages) but not before sunrise and after sunset. In other words, they cannot just drop in for drinks and dinner!

The law permits sub-letting of premises; the supplementary agreement will have to be uploaded on the rent authority’s website. The information to be provided includes the names and addresses of the landlord, the tenant, and the property manager if any, their email IDs, mobile phone numbers, Aadhar numbers, permanent account numbers, rent amount, details of the premises, and past tenancies if any. One expects these details not to be publicly displayed.

If a tenancy is not registered, no protection will be available. States can exclude any building or category of buildings from the purview of the law. This might help to stem opposition from tenants who had paid pagdi or large lumpsum amounts to property owners in the 1960s and 1970s in return for very low rents. Many tenancies in South Mumbai and in old and central Delhi are based on this system where the tenants are co-owners and enjoy shared rights with the owners of sub-letting and even sale. In 2016, Maharashtra had proposed to exempt residences bigger than 847 sq. ft and shops and offices larger than 540 sq. ft from rent control. It was opposed not only by opposition leaders but also by members of the ruling party due to a pushback mainly from such tenants.

Bridging the gap

If states enact the tenancy law, it will stimulate the rental market by removing the trust deficit between owners and tenants. It will boost the labour market as migrant workers will not be deterred from job opportunities by the dearth of affordable housing. New migrants will get a toehold in cities before they earn enough to buy their own homes.

More people who can work will actively seek it – known as workforce participation – if there is rental housing. According to a 2018 study by IDFC Foundation, Bengaluru had the highest share of rental housing among Indian cities at 60%, and these were concentrated in wards that were part of industrial corridors or had large-scale construction activity.

The fear of tenants not vacating has forced owners to lock up their premises. The 2011 census estimated there were 11 million vacant housing units even as a technical group on urban housing shortage set up by the ministry of housing and urban poverty alleviation estimated the unmet demand for rental housing at seven million units. India is perhaps unique in plentiful rentable houses coexisting with a shortage.

The fear of sticky tenancies has made owners adopt alternatives. In Mumbai, 11-month leave-and-license agreements are so common that even the government has recognised them. Under this arrangement, tenants have the license to use the premises; they don’t have the rights to sub-let or sue trespassers in their own name. The agreements are governed by the Indian Easements Act, a 19th-century law.

Easier tenancy laws are an important ingredient in the recipe for affordable housing. Zoning restrictions will have to be eased. State agencies like the Delhi Development Authority (DDA) should be compelled to make hoarded land available. Otherwise, demand for rental housing will drive up land prices – and rents. Indian rental yields – rent as a percentage of property cost – are among the lowest in the world. IDFC Foundation calculated that in 2018 they were 2.18% in Mumbai, 2.28% in Delhi, 2.38% in Chennai and 4.37% in Hyderabad. In Dubai, the yields were 10.22% and in New York 5.65%.

A combination of unfavourable tenancy laws, high rates, and steep land prices has thwarted initiatives to make rental housing affordable to low-income workers like security guards, delivery persons, and cleaning staff. IDFC Foundation says Aarusha Homes wanted to service these workers in Hyderabad but was deterred by high costs. Its hostels had to be registered as hotels for which it had to pay commercial rates for water and electricity, take a trade license, and pay stiff property taxes. It turned to students and IT professionals.

(Vivian Fernandes is a senior journalist and former editor. Views expressed are personal)