Will Two-Month Cap On Security Deposit Promote Rental Housing?

New Delhi: The Ministry of Housing and Urban Affairs has come out with the draft Model Tenancy Act, 2019, which seeks to weed out the trust deficit between the landlord and the tenant and promote rental housing in the country.

Why the Act:

1. In the absence of a legislation governing the rental market in the country, landlord-tenant disputes remained unresolved, often ending in ugly spats.

2. Lack of legislation has made both landlords and tenants vulnerable to exploitation, especially in the metros.

3. In the absence of a policy, property owners find it challenging to evict tenants defaulting on monthly rents or misusing the property. Hundreds of homes in urban areas remain vacant owing to these complications.

What does the Act propose: 

1. No house owner can ask for security deposit exceeding two months and one month in case of non-residential property.

2. In case the tenant fails to vacate the premises after the tenancy has been terminated, the landlord is entitled to compensation, which is double the monthly rent for two months and four times the monthly rent thereafter.

3. The proposed Act prevents the landlord from demanding a mid-term hike or disconnecting water and electricity supply.

4. For the benefit of the tenant, the landlord must give a notice of three months before raising the rent.

5. The landlord is also responsible for fixing structural damages and undertaking whitewashing and painting of doors and windows.

Who will adjudicate the house owner-tenant disputes:

# The proposed Act calls for engaging an officer of the rank of Deputy Collector to act as rent authority to adjudicate cases arising out of rental disagreement.

Problems in implementation: 

# The proposed act may not be binding on the states as land and urban development are state subjects.

# Some states have their own tenancy act and therefore the respective state government may not be inclined to adopt it. However, it lays a clear road map for the states to follow, said Anuj Puri, Chairman at ANAROCK Property Consultants, who has authored an article about the proposed rental legislation.

# Moreover, the Model Act is prospectively applicable and will not affect the existing tenancies. The repeal of the Rent Control Act can be governed by political exigencies and may not be that simple in cities like Mumbai where tenants have occupied residential properties in prime areas for a pittance.

# The cap on security deposit may not find favour with landlords in big cities such as Mumbai and Bengaluru where a 10-month security deposit is a usual norm.

(With inputs from BloombergQuint)