What you need to know about the Tenancy Act 2021

The provision of housing or renting of properties is regulated by the State Governments. Accordingly, each state government has its own law and in Karnataka, we have The Karnataka Rent Act, 1999 (as amended in 2001). This law is mostly on paper, not actively used by the parties concerned.

To give a new look and feel (akin to renovation or re-doing!), the Union Government under the Ministry of Housing and Urban Affairs brought out a Model Tenancy Act 2021, which can be adopted by the State Governments with suitable modifications.

You would have heard about institutions like SEBI the regulator of the Stock Market, IRDA the regulator of the Insurance sector, RERA the regulator of the Real Estate Sector. Who is the regulator for Renting properties? As of now – nobody! The model Act suggests establishing a Rent Authority in each State.

Rent Authority will regulate renting of premises, provide speedy redressal of disputes between the landlord and tenants.

What types of properties will be regulated by this Authority?

Any property let out for rent for the purpose of residential or commercial use, including garden, garage, closed parking area, out-houses, etc., except hotels, lodging house, Dharamshala, inn, are governed by this Authority.

Buildings owned by Governments, Trusts and Companies for their own use are also outside the ambit of this Act.

Important features of this Act

  1. It is mandatory to have a written Rent Agreement, in duplicate, signed by both Landlord and tenant, and one each of such original agreement shall be retained by the landlord and tenant.
  2. Inform the Rent Authority in the specified Form along with a rental agreement, within 2 months of the date of the agreement. (online submission through a digital platform)
  3. After the submission of the documents, the Authority will assign a unique identification number to the landlord and tenant. (It’s a new thing, no such thing exists as of now)
  4. If the tenant continues to stay, after the end of the tenancy, the tenant is liable to pay an enhanced rent to the landlord. (it’s a new thing, not in current practice)
  5. In case of any dispute between the landlord and tenant concerning the increase in Rent, upon an application from one of them, the Rent Authority will determine the revised rent and fix a date from which such revised rent becomes payable.
  6. Sub-Letting can’t be done through a clause in the main agreement, the way it is done now. If the tenant wants to sub-let, he has to enter into a supplementary agreement with the landlord and inform the Authority within 2 months of its execution. (It’s a deviation from the current practice)
  7. Rent Deposit – shall not exceed 2 months rent in case of residential premises and shall not exceed 6 months in case of commercial premises. (This is another important change from the current practice of taking 10 months’ rent in advance)
  8. What about deduction towards painting and repairs out of the Security Deposit at the time of vacating the premises? (The primary reason for the usual fight or unpleasant sendoff ceremony between the owner and the tenant! Am I right?) The specifics of maintenance to be done as per the Second Schedule of the Act or as per the Tenancy Agreement. (Arbitrarily, the owner can’t deduct the amount, as a parting gift for himself!)
  9. The Rent Court and Rent Tribunals will deal with all disputes such as vacating the premises between the parties. If the tenant fails to vacate, the landlord is entitled to double the monthly rent. (Overstayers – watch this clause)

What happens to the existing agreements? Should they rush to register as soon as the Authority is set up? The Act applies prospectively, existing contracts can continue to function as is now.

Formalizing the Rental Market – As all of us know the pain and pleasure of Renting the premises from Individual owners. At some point in the past, you were a tenant! Practically, renting happens in an unorganized and informal sector.

Now, with the new model law, what all can happen? My guess –

  • Companies (in the housing sector) will sign up with the individual owners for a rent for a fixed period (mostly long-term contracts).
  • Do the makeover of the premises (furnished or unfurnished)
  • Brand it under their logo and name
  • Let out to prospective tenants, collect rent through cheque/electronic mode, issue receipts.
  • All these things will happen through mobile apps. The companies who are in the broking business, PG business may enter this untapped space.
  • The companies may provide add-on services such as housekeeping, security, house-maid services. Even those sectors may tag on with formalizing the market.

By doing this, will the rentals go up? Can’t say. It may even come down or go up based on demand and supply. Good properties, as usual, will fetch a premium, reputed companies will negotiate for higher rentals.

Is the State Government obliged to adopt this law? It is their individual choice.  The BJP ruled states will surely adopt this at the earliest. As it looks today, my intuition says, this Act will draw a positive response from society.

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About B E Kumar Prasad

B E Kumar Prasad
He is a Practicing Chartered Accountant in Bengaluru, India. He has 25+ years of experience in income tax, business setup, and NRI matters. He is also an Insolvency Professional and Registered Valuer (F&SA).Prasad welcomes your comments and questions. Please email him at [email protected]

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Y T Nagendra
Y T Nagendra
3 months ago

2 month rent as security deposit is not acceptable. If tenant fails to pay rent for 2 or 3 months for genuine reason and he vacant suddenly what about repairs and repainting. Owner will be in loss.
10 months rent as security is correct

3 months ago

I welcome new amendments made in renting properties. I want to give my views suggessions and comments by discussing with our members if fkcci. And property owners and tenants

3 months ago

Another Regulatory Authority in the making. Will this Regulator have extra judicial powers to forcefully vacate the defaulting tenant after the mandatory period of six months provided in the new Tenancy Act 21 if the tenant does not vacate the premise. What will happen if the tenant stops making extra or penal rent payment after the expiry of the initial contract. Govt makes rules without adequately covering these aspects .
As we know most of the state govts have the draft Tenancy act ready since long but not willing implement it as a law. If the Federal govt so concerned about implementing new Tenancy Act 21 they should have first consulted all stake holders and made it compulsory for all state govt to give effect to the new act. But the central govt has left it open for the state govts to adopt the new rent act. I don’t know how many states are going to adopt the new Rent Act as promulgated by central govt. There is a need for us to have one nation one rent act policy.

3 months ago

Deposit ..minimum 3 to 6 months rent

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