MODEL TENANCY ACT, 2021

The Union Cabinet, chaired by Prime Minister Narendra Modi, on 02.06.2021 approved the Model Tenancy Act (MTA) under which separate rent authorities, courts and tribunals would be set up in districts to protect the interest of both the owner and the tenant.

States and Union territories can adopt the Model Tenancy Act, 2021 by either enacting a fresh legislation or amend their existing rental laws.

The aim behind the MTA, as envisaged by the Central Government is to enable institutionalization of rental housing by gradually shifting it towards the formal market. The Central Government has further stated that the MTA has been enacted to facilitate unlocking of vacant houses for rental housing purposes and to give a fillip to private participation in rental housing as a business model for addressing the huge housing shortage. It would also act as means of streamlining the rental market and establishing trust between Landlords and Tenants.

The MTA impacts the commercial, residential, and educational leasing sectors. The MTA is prospective in nature and would have no impact on existing tenancies, as on date of its enactment.

IMPORTANT HIGHLIGHTS

  1. The MTA shall be prospective and shall not impact any existing tenancies.
  2. States and Union territories can adopt the Model Tenancy Act by either enacting a new legislation or amend their existing rental laws.
  3. The MTA shall be applicable to all tenancies for all premises let out for residential, commercial, and educational use. It does not bring within its ambit premises for industrial use. It also excludes premises such as hotels, lodging houses, dharamshalas or inns from its scope.
  4. The MTA shall not be applicable to premises owned by Central or State Governments; Government Undertakings; Statutory Bodies; Companies, Universities or Organizations that have rented out premises to its employees as part of their contract of service and premises owned by religious or charitable institutions, including premises owned by Auqaf under the Waqf Act or any Trust registered under the public trust law of the State/U.T.
  5. The MTA now clearly defines the responsibilities of a Landlord and a Tenant under a tenancy.
  6. The MTA stipulates that a Tenancy Agreement has to be in writing.
  7. The information of the Tenancy Agreement has to be informed to the Rent Authority (to be established) by the Landlord and Tenant jointly in the specified form provided in the First Schedule of the Act, within 2 (Two) months from the date of the Tenancy Agreement. In case of failure to inform within the period of 2 (Two) months, the Tenant and Landlord would have an additional 1 (One) month to inform the Rent Authority.
  8. The Rent Authority must, within a period of 3 (Three) months from the date of its appointment, set up a website for easier submission process.
  9. The MTA provides for all disputes qua revision of rent to be heard by the Rent Authority. In case of refusal to accept the rent, the Tenant has the option to deposit the rent with the Rent Authority.
  10. A Tenant is now required to pay security deposit subject to a cap of such deposit being equivalent to 2 (Two) months’ rent in case of residential premises and 6 (Six) months’ rent in case of non-residential premises.
  11. The MTA lays down definite parameters for compensation on account of failure of a Tenant to vacate the premises.
  12. Under the MTA, in case of the expiry of the fixed term of the tenancy or termination of the tenancy, if the Tenant fails to vacate the premises, in such an eventuality, the Tenant shall be liable to pay enhanced rent to the Landlord i.e., twice the monthly rent for the first 2 (Two) months and thereafter, 4 (Four) times the monthly rent till the date of vacation of the premises.
  13. The MTA also provides for the establishment of Rent Authority, Rent Court and Rent Tribunal.
  14. A Landlord is entitled to enter the premises after serving a notice to the Tenant, at least 24 hours before the time of entry. Such entry by the Landlord can be made only for carrying out repairs or replacement, carrying out inspection of the premises to ensure that the premises are in a habitable condition and/or for any other reasonable cause, stated in the Tenancy Agreement.
  15. A Tenant may be evicted for non-payment of rent or non-payment of arrears and other charges for 2 (Two) consecutive months, including interest for delayed payment or if the Tenant has parted with the possession of the whole or part of the premises, without obtaining consent of the land and misused the premises, despite receipt of notice from the Landlord.
  16. A Tenant is required to serve written notice, in terms of the Tenancy Agreement or a notice period of 1 (One) month before handing over the possession of the premises to the Landlord.

Below is a compilation of some important sections and subsequent impact analysis of the MTA.

Section Provision Impact Analysis and comments
Section 2(d)

Definition of “premises”

 (d)“premises” means any building or part of a building which is, or is intended to be, let on rent for the purpose of residence or for commercial or for educational use, except for industrial use and includes–– (i) garden, garage or closed parking area, vacant land, grounds and out-houses, if any, appertaining to such building or part of the building; and (ii) any fitting to such building or part of the building for the more beneficial enjoyment thereof, but does not include premises such as hotel, lodging house, dharamshala or inn. The definition of premises does not extend to industrial purposes. Also excludes premises such as hotel, lodging house, dharmshala or inn from its scope.

Includes Commercial, Residential and Education purposes.
Section 3 (1)

“Act not Applicable to”

 Nothing in this Act shall apply to any-

  1. premises owned or promoted by the Central Government or State Government or Union territory Administration or local authority or a Government undertaking or enterprise or a statutory body or Cantonment Board;
  2. premises owned by a company, University or organisation given on rent to its employees as part of service contract;
  3. premises owned by religious or charitable institutions as may be specified, by notification by the State Government/Union territory Administration;
  4. premises owned by Auqaf registered under the Waqf Act, 1995 or by any trust registered under the public trust law of the State/Union territory for the time being in force;
  5. other building or category of buildings specifically exempted in public interest by notification by the State Government/Union territory Administration.
 The following shall not be governed by the MTA:

  1. Premises owned by Central or State Govt. Administration or a Govt. Undertaking or Statutory Body;
  2. Premises owned by a Company, University or Organization that have been rented to its employees as part of their contract of service;
  3. Premises owned by religious or charitable institutions, specified by the State Government/Union territory Administration;
  4. Premises owned by Auqaf registered under the Waqf Act, 1995 or by any trust registered under the public trust law of the State/Union territory; and
  5. Any other building or category of buildings specifically exempted in public interest by notification by the Govt.
Section 3(2)

“Act not to apply to certain premises.”

 (2)Notwithstanding anything contained in sub-section (1), if the owner and tenant of the premises referred to in clause (a) to clause (e) of the said sub-section agree that the tenancy agreement entered into between such landlord and tenant be regulated under the provisions of this Act, such landlord may inform the Rent Authority of the agreement to do so at the time of information of the tenancy agreement under Section 4. As per Section 3, the Act would not apply to any premises owned or promoted by the government or its agencies; premises owned by a company, University or organisation given on rent to its employees as part of service contract; premises owned by religious and charitable organisation notified by government; premises owned by Auqaf registered under the Waqf Act, 1995 or any registered trust; other categories exempted by government notification.

However, Sub- Section 2 allows the application of the Act, provided it is explicitly agreed to by the tenant and the landlord. Upon such application of the Act, the Landlord and Tenant are bound to inform the Rent Authority of the same in terms of Section 4.
Section 4(1) and (2)

“Tenancy agreement”
  1. Notwithstanding anything contained in this Act or any other law for the time being in force, no person shall, after the commencement of this Act, let or take on rent any premises except by an agreement in writing, which shall be informed to the Rent Authority by the landlord and tenant jointly, in the form specified in the First Schedule within a period of two months from the date of tenancy agreement.
  2. Where the landlord and the tenant fail to jointly inform the execution of the tenancy agreement referred to in sub-section (1), the landlord and tenant shall separately inform the execution of tenancy agreement to the Rent Authority within a period of one month from the date of expiry of the period specified in sub-section (1).
  1. Agreement has to be in writing;
  2. Information of the Agreement has to be informed to the Rent Authority by the landlord and tenant jointly, in a specified form, provided in the First Schedule of the Act;
  3. Such information qua the tenancy agreement has to be provided to the Rent Authority within 2 months from the date of the tenancy agreement.
  4. In case of failure of the landlord and tenant to inform the Rent Authority qua the execution of the Rent Agreement within the prescribed period of 2 months, the landlord and tenant ought to inform the Rent Authority separately, within 1 month from the date of expiry of the limitation mentioned in Section 3 (1).
Section 4(3)

“Setting up a digital platform”

 (3) The Rent Authority shall, within three months from the date of its appointment, put in place a digital platform in the local vernacular language or the language of the State/Union territory for enabling submissions of document in such form and manner as may be prescribed. Rent authority must set up a website for easier submission process.
Section 5(3)-

Period of tenancy.

(3) Where a tenancy for a fixed term ends and has not been renewed or the tenant fails to vacate the premises at the end of such tenancy, then such tenant shall be liable to pay an enhanced rent to the landlord as provided in Section 23.

Provided that notwithstanding anything contained in this section, if the term of tenancy expires at a time when the locality where the premises let out on rent is situated is affected by any disastrous event of force majeure, then, subject to requisition by the tenant, the landlord shall allow the tenant to continue in possession of the said premises till a period of one month from the date of cessation of such

disastrous event on the same terms and conditions of the tenancy agreement already entered.

Explanation- For the purposes of this section, “force majeure” means a situation of war, flood, drought, fire, cyclone, earthquake, or any other calamity caused by nature affecting.

 Enhanced rent if tenant fails to vacate the premises after the end of the tenancy.

As per Section 23

such tenant shall be liable to pay the landlord –– (a) twice the monthly rent for the first two months; and (b) four times the monthly rent thereafter till the tenant continues to occupy the said premises.

The Proviso to Section 5 states that if the locality where the premises that have been let out is locates is affected by a force majeure event, even after the expiration of the tenancy term, the landlord is bound to allow the tenant to continue in possession of the premises for a period of one month from the date of the cessation of the force majeure event.
Section 9(2)

“Increased rent on account of Structural Change”

 (2)Where, after the commencement of tenancy, the landlord has entered into an agreement in writing with the tenant prior to the commencement of the work and has incurred expenditure for carrying out improvement, addition or structural alteration in the premises occupied by the tenant, which does not include repairs necessary to be carried out under Section 15, the landlord may increase the rent of the premises by an amount as agreed to between the landlord and the tenant, and such increase in rent shall become effective from one month after the completion of such work. If any structural changes are made to the premises by the landlord, not including the repairs that the landlord is bound to carry out, the landlord can charge increased rent subject to an agreement entered prior to start of the said construction.

Increased rent can be charged only one month after the completion of such work.
Section 10

“Rent Authority to determine revised rent in case of dispute”

10. In case of any dispute between landlord and tenant regarding revision of rent, the Rent Authority may, on an application made by the landlord or tenant, determine the revised rent and other charges payable by the tenant and also fix the date from which such revised rent becomes payable. All disputes with respect to the revision of rent between a landlord and a tenant shall be adjudicated by the Rent Authority.
Section 11(1)
“Security Deposit”		 (1) The security deposit to be paid by the tenant in advance shall be such as may be agreed upon between the landlord and the tenant in the tenancy agreement, which shall –– (a) not exceed two months’ rent, in case of residential premises; and (b) not exceed six months’ rent, in case of non-residential premises. Put limits on security deposits that can be charged by the Landlords. Distinction made between Commercial and Residential premises
Section 14(1) & (2)

“Deposit of rent with Rent Authority”
  1. Where the landlord refuses to accept any rent and other charges payable or refuses to give a receipt, the rent and other charges shall be paid to the landlord by postal money order or any other method, in such manner as may be prescribed, consecutively for two months, and if the landlord refuses to accept the rent and other charges within such period, then the tenant may deposit the same with the Rent Authority in such manner as may be prescribed.
  2. Where the tenant is unable to decide to whom the rent is payable during the period of tenancy agreement, the tenant may, in such case, deposit the rent with the Rent Authority in such manner as may be prescribed.
 In case of a dispute and refusal on the part of the landlord to accept rent, the tenant has an option of depositing the rent with the Rent Authority
Section 17(1)

“Entry into premises for inspection”
  1. Every landlord or the property manager may enter the premises let out on rent after serving a notice, in writing or through electronic mode, to the tenant at least twenty four hours before the time of entry under the following circumstances, namely: –
  2. to carry out repairs or replacement or to do or to get work done in the premises; or
  3. to carry out an inspection of the premises for the purpose of determining whether the premises are in a habitable state; or
  4. for any other reasonable cause for entry specified in the tenancy agreement.
 Notice can be digital or physical. It has to be served at least 24 hours in advance. No person shall enter the premises before sunrise and after sun set.
Section 20(1) & (4)

“Withholding essential supply or service”
  1. No landlord or property manager shall, either by himself or through any other person, withhold any essential supply or service in the premises occupied by the tenant.

(4)The Rent Authority may, after giving a reasonable opportunity of being heard, award a compensation not exceeding two months’ rent to be paid by the person responsible for withholding the essential supply, so as to compensate the loss incurred.

 For the purposes of this section, essential services include supply of water, electricity, piped cooking gas supply, lights in passages, lifts and on staircase, conservancy, parking, communication links and sanitary services.

Compensation to tenant capped at two months’ rent paid by the person responsible for the act.
Section 21

“Eviction and recovery of possession of premises by landlord”
  1. A tenant shall not be evicted during the continuance of tenancy agreement unless otherwise agreed to in writing by the landlord and tenant, except in accordance with the provisions of subsection (2) or in accordance with the provisions of section 22.
  2. The Rent Court may, on an application made to it by the landlord in such manner as may be prescribed, make an order for eviction and recovery of possession of the premises on one or more of the following grounds, namely: –
  3. that the tenant does not agree to pay the rent payable under section 8;
  4. that the tenant has not paid the arrears of rent and other charges payable in full as specified in sub-section (1) of section 13 for two consecutive months, including interest for delayed payment as may be specified in the tenancy agreement within a period of one month from the date of service of notice of demand for payment of such arrears of rent and other charges payable to the landlord in the manner provided in sub-section (4) of section 106 of the Transfer of Property Act, 1882;
  5. that the tenant has, after the commencement of this Act, parted with the possession of whole or any part of the premises without obtaining the written consent of the landlord;
  6. that the tenant has continued to misuse the premises even after receipt of notice from the landlord to desist from such misuse.
 The landlord can make an application to the Rent Court for the eviction of a tenant during the continuance of the tenancy on the following grounds:

  1. The tenant has not paid rent;
  2. The tenant has not paid arrears of rent for 2 consecutive months;
  3. The tenant has parted with the possession of the premises, without the written consent of the landlord
  4. The tenant has continued to misuse the premises even after receipt of notice from the landlord to desist from such misuse.
Section 22 (2)

“Eviction and

recovery of

possession of

premises in case

of death of

landlord.”

 (2) The Rent Court may, on an application made to it under sub-section (1), if it is satisfied that the legal heirs of the deceased landlord are in bona fide requirement of the premises let out on rent, pass necessary orders against the tenant for handing over vacant possession of the said premises to the legal heirs of the deceased landlord. Rent Court can evict tenants if the legal heirs can show a bona fide requirement of the premises in question.
Section 23

“Enhancement of rent in case of refusal by tenant to vacate.”

 23. Where the tenant fails to vacate the premises let out on rent in accordance with the tenancy agreement on the expiration of the period of tenancy or termination of tenancy by an order or notice under the provisions of this Act, such tenant shall be liable to pay the landlord ––

  1. twice the monthly rent for the first two months; and
  2. four times the monthly rent thereafter till the tenant continues to occupy the said premises.
 The tenant is liable to pay enhanced rent for continuing to occupy the premises despite expiration of the tenancy or the termination of the tenancy by the landlord.
Section 24 (1) & (2)

“Refund of

advance rent

by landlord.”

 (1) Where a landlord exercises the right of recovery of possession under sub-section (2) of Section 21 or under Section 22, and he had received any rent or any other payment in advance from the tenant, he shall before recovery of possession, refund to the tenant such amount after deducting the rent and other charges due to him.

(2) If the landlord fails to make any refund, he shall be liable to pay simple interest to the tenant at such rate as may be prescribed from time to time on the amount which he has omitted or failed to refund.

 Before the landlord exercises the right of recovery of possession, he must refund any rent or any form of advance payment to the tenant, after deducting the charges due to him.

Failure to do the same makes the landlord liable to pay simple interest on the amount due.
Section 26

“Permission to build

additional

structures.”
  1. Tenant shall not carry out any structural change or erect any permanent structure in the premises let out on rent without the written consent of the landlord.
  2. Where the landlord proposes to make any improvement in or construct any additional structure on any premises which has been let out to a tenant and the tenant refuses to allow the landlord to make such improvement or construct such additional structure, the landlord may make an application in this behalf to the Rent Court.
  3. On an application made by the landlord under sub-section (2), if the Rent Court is satisfied that the landlord is ready and willing to commence the work which is necessary, the Rent Court may permit the landlord to do such work and may make such other order as it may deem fit:

Provided that such improvement or additional structure shall not decrease or diminish or deteriorate the accommodation or housing services in the premises which may cause undue hardship to the tenant.

 The Tenant is not permitted to make any structural changes to the premises, without the written consent of the landlord.

No structural change shall lead to a decrease or deteriorate the premises that may cause hardship to the tenant.
Section 29

“Provisions regarding notice of giving up possession by tenant”

 Notwithstanding anything contained in this Act or any other law for the time being in force, a tenant may give up possession of the premises on giving such written notice as is required under the tenancy agreement and in the absence of any stipulation relating to such notice, the tenant shall give notice to the landlord of at least one month before giving up possession of the premises. The tenant has to give at least one-month notice to the landlord before giving up the premises.
Section 30

“Rent Authority”

 The District Collector or District Magistrate shall, with the previous approval of the State Government/Union territory Administration, appoint an officer, not below the rank of Deputy Collector, to be the Rent Authority within his jurisdiction. Rent authority cannot be an officer below the rank of Deputy Collector.
Section 33

“Rent Court”

 The District Collector or District Magistrate shall, with the previous approval of the State Government/ Union territory Administration, appoint Additional Collector or Additional District

Magistrate or an officer of equivalent rank, to be the Rent Court for the purposes of this Act, within his jurisdiction.

 Appointments to the Rent Court shall be made by the district collector or magistrate after getting prior approval from the State Government or Union territory Administration.
Section 34

“Rent Tribunal”

 The State Government/ Union territory Administration may, in consultation with the jurisdictional High Court, may by notification, appoint District Judge or Additional District Judge as Rent Tribunal in each district. The section details the creation of the Rent Tribunal which has to be in consultation between the State/Union territory administration and jurisdictional High Court
Section 35(7)

“Procedure to be followed in Rent Court and Rent Tribunal.”

 (7) Every application under clauses (a), (b), (e), (f) and (g) of sub-section (2) of Section 21 or under Section 22 shall be decided within ninety days from the date of filing of such application in the Rent Court. The grounds for eviction include: Eviction dealing with failure to pay rent; Arrears of rent and other charges payable in full for 2 months; Necessary repair or construction carried out by the landlord which requires vacation of the premises by tenant. Where Landlord enters into agreement for the premises on account of notice by the Tenant to vacate, but fails to do the same.

These have to be decided within ninety days from the date of filing of such application in the Rent Court
Section 35(8)

“Procedure to be followed in Rent Court and Rent Tribunal.”

 (8) The Rent Court shall decide every application filed under clause (c) and (d) of sub-section (2) of Section 21 within thirty days from the date of filing of such application. Grounds include: Tenant has parted with possession of whole or any part of the premises without landlords consent and misuse of the property.

These have to be disposed of within 30 days from the date of filing of such application.
Section 37 (1) and (2)

“Appeal”

 (1) Any person aggrieved by an order passed by the Rent Court, may prefer an appeal along with a certified copy of such order to the jurisdictional Rent Tribunal within the local limits of which the premises is situated, within a period of thirty days from the date of that order.

(2) The Rent Tribunal, upon filing an appeal under sub-section (1) shall serve notice, along with a copy of appeal to the respondent and fix a hearing not later than thirty days from the date of service of notice of appeal on the respondent and the appeal shall be disposed of within a period of sixty days from such date of service.

This section imposes time limits on the appeal procedure in order to guarantee a smooth operation of Tenancy laws and ensure the market remains attractive to Landlords.

We hope you find the above note informative and would be happy to address any queries or have a more in-depth discussion on the impact of this new legislation with you and your team. Please feel free to reach out to us.

Authored by Namitha Mathews, Partner, Poorva Pant, Senior Associate and Purva Kohli, Associate.

This material and the information contained herein prepared by Algo Legal is intended to provide general information on a subject or subjects and is not an exhaustive treatment of such subject(s). Algo Legal is not, by means of this material, rendering professional advice or services. The information is not intended to be relied upon as the sole basis for any decision. Algo Legal shall not be responsible for any loss whatsoever sustained by any person who relies on this material.

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