The recently approved Model Tenancy Act, 2021 is expected to help create an effective rental market in India and urban India’s 21.72 million rented households offer a huge market opportunity for market participants to focus on housing projects solely for rental purposes, said a joint report by Knight Frank India and legal firm Khaitan & Co.

Around 76.5% or 16.63 million of these urban rented households in India are spread across eight states and Union Territories. The high percentage share of the total rented households in urban India can be attributed mainly to key urban employment hubs in Chennai, Hyderabad, Mumbai, Pune, Bengaluru, Ahmedabad, Kolkata, and the National Capital Region (NCR).

The Union Cabinet, in June 2021, approved The Model Tenancy Act, 2021 for circulation to all states and UTs for adoption by way of enacting new legislation or amending the existing rentals laws.

By putting down the ground rules of tenancy in black and white, the Model Tenancy Act, 2021 aims to create an effective regulatory ecosystem in India to govern landlord-tenant relationships.

The relationship between landlord-tenants has been tainted due to trust issues in the past as there was no uniform rental housing law in the country. Despite many states adopting the Rent Control Act in the past, there was a need for a dispute resolution mechanism as tenancy laws in India are popularly perceived as ‘pro-tenant’.

The absence of a regulatory framework to demarcate the rights and obligations of both parties have always resulted in long-drawn legal battles.

“As most of the populations in top eight cities lives in informal rental housing accommodation, concerning the new Act, it will provide a huge opportunity for private housing operators and institutional investors in the organized rental housing market. Once the Act is implemented across the country, India may be ready to introduce rental housing models such as Build-To-Rent and Rent-to-Own,” said Shishir Baijal, Chairman & Managing Director, Knight Frank India.

According to Sudip Mullick, Partner, Khaitan & Co, the Act deals with both residential and commercial property. The framework brings in an intention and promise to give impetus to boosting investment in both these sectors and balances the rights and obligations of the stakeholders including speedy relief in case of disputes.

“However, certain provisions need to be relooked and the contractual rights of the parties should not be regulated, as such regulations will be frowned upon by the investors who would look to return on their investment. Investor sentiments and return on investment is quintessential for the development and growth of both the sectors in turn leading to development and employment,” Mullick said.

The report also highlights some challenges in the implementation of the Model Tenancy Act, 2021 such as non-applicability for certain types of premises like central and state government. It also states that as the Act deals with both commercial and residential, it would be better to address both types of transactions under the force majeure clause. Merely stating what would constitute Force Majeure and linking the same with habitability only may not help the stakeholders.

Some of the other issues include the time period required for on-ground implementation of The Model Tenancy Act, 2021 by all states and UTs across the country. Since real estate is a state subject, for states where old Rent laws have to be repealed or amended, it may take even longer. There may be a few states which may not implement the Act at all.

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