Draft tenancy law: Cap on security deposit, fine on overstaying tenant

Unable to find a good house to rent in urban areas? Soon, millions of new properties could be up for renting as the Centre has proposed a model tenancy law to regulate renting of houses. 

Finance Minister Nirmala Sitharaman, while presenting the 2019 Union Budget, announced that a model tenancy law will soon be finalised. The current tenancy laws are "archaic" as they do not address the relationship between the lessor and the lessee fairly, she had said.

The model tenancy law is aimed at promoting rental housing in urban areas in view of the large migration of population from rural areas to cities. About 11 million properties are lying vacant as landlords either fear they would lose their property if they rent it out or prefer keeping their premises empty rather than risk likely litigation, according to The Times of India

"We want to put a system in place that encourages people to rent out their properties," an official told the English daily. 

Here are the other proposals of the draft Model Tenancy Act according to the newspaper

  • Security deposits: In urban cities like Mumbai, property owners tend to take four-five times the rent as security deposit. In a relief for tenants, the draft proposes to limit the security amount to two months' rent. 
  • Overstaying to attract hefty amount: Tenants who overstay in premises beyond their agreement would end up paying two times the rent for the first two months and four times afterwards. 
  • Authority to regulate renting: In order to balance the interests of both the owners and tenants, states would set up Rent Courts and Rent Tribunals for addressing any disputes. An authority would also be appointed to look into the details of the rent agreement like the rent and tenure.  
  • Defaulting on rent: If a tenant fails to pay the rent for two months, the rent court can be moved. If the tenant pays the dues within a month after the matter has been taken up with the authority, he/she would be allowed to stay. However, this won't be valid if the rent default exceeds a year. 
  • Repairs and damages: The details of fixing minor and major repairs should already be mentioned in the rent agreement. If the owner then refuses to carry any repair out, the tenant can deduct the amount from the rent. Similary, if a tenant refuses to carry out repairs, the owner can deduct the amount from the security deposit. In case the property becomes inhabitable due to any damage, the tenant can vacate the house after giving 15 days' notice. 

The draft policy has suggested a host of fiscal incentives to encourage rental housing with a view to achieve the goal of housing for all by 2022. To avoid controversies, the draft also proposes that the laws would not have any retrospective effect on the states. This means that landowners getting meagre rent for prime locations are not likely to get any relief. 

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