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October 21, 2020

Mumbai Pagdi Tenants have to pay Market Rate Rent as per new Model Rent Act

Mumbai Pagdi Tenants have to pay Market Rate Rent as per new Model Rent Act

The government while pursuing its ambitious dream to provide ‘Housing for All by 2022’, the Central Government circulated the draft Model Rent Act, in order to boost supply in the rental housing segment. The Model Tenancy Act was enacted to establish the Rent Authority for regulating renting of premises in an efficient and transparent manner and to balance the interests of owner and tenant by establishing adjudicating mechanism for speedy dispute redressal and to establish Rent Court and Rent Tribunal to hear appeals and for matters connected therewith or incidental thereto.

The Rent Act, a legacy of the British Raj, froze rents, made it extremely difficult for landlords to evict tenants and made tenancy inheritable. Landlords, in order to generate some value from their properties, started a system of transaction called pagdi, using money as an inducement for the tenant to leave the property. The incoming tenant would pay a major chunk of the value of the property upfront, which would be shared between the old tenant and the owner. The new tenant would then move in, and start paying the existing nominal monthly rent.

With time and rising costs all around, the low rents often failed to pay even for the basic upkeep of the building. A situation emerged in which some owners lost interest entirely, and allowed the building to simply crumble. On the other hand, tenants, despite having paid substantial amounts initially, had no option but to stay on in the increasingly unsafe structures over which they did not have complete property rights.

The Model Tenancy Act will affect the interest of the tenants. Tenants, whose families have been residing in old buildings and chawls since the past 80-100 years by paying meagre rents, could now face the prospect of shelling out market rents to their landlords. The interest of the tenants could be adversely affected in the following ways:

Freedom to landlord to impose whatever rent they wish for:

The proposed Act will allow landlords to levy whatever rent and increase it as they deem fit. It will apply to all tenants, tenancies and premises, and will not protect even those who in the past paid huge ‘pagdi’ (a deposit which is almost equivalent to the market price of the flat) to landlords to occupy tenanted premises. Many of these tenants have paid to repair the properties over the decades.

Revision of rent

The landowner shall give a notice in writing three months before the revised rent becomes due.

If a tenant, who has been given notice of an intended rent increase, fails to give the notice of termination of tenancy to landowner, in such case the tenant shall be deemed to have accepted whatever rent increase has been proposed by the landowner.

In case the premises have been let for a fixed term, rent may not be increased during the currency of the tenancy period unless the amount of increase or method of working out the increase is expressly set out in the Tenancy Agreement.

No tenant shall directly or indirectly sublet or assign, whole (or part) of the premises for a rent that is higher than the rent (or the proportionate rent) charged by the landowner to the tenant.

Where the landowner, after the commencement of tenancy and with agreement with the tenant has incurred expenditure on account of improvement, addition or structural alteration in the premises occupied by the tenant, which does not include repairs necessary to be carried out, the landowner may increase the rent of the premises by an amount as agreed between the landowner and the tenant, prior to the commencement of the work and such increase in rent shall become effective from one month after the completion of work.

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Security Deposit

The security deposit to be paid by the tenant in advance shall be as determined by the agreement and as agreed mutually between ‘the Landowner and the Tenant’ subject to a maximum of two months’ rent in case of residential property and, minimum of one month’s rent in case of non-residential property.

The security deposit shall be refunded to the tenant at the time of taking over vacant possession of the premises, after making due deduction of any liability of the tenant. This mandatory security deposit will now be an additional burden on the tenants.

Repair and maintenance of property

The landowner and the tenant shall be bound to keep the premises in a good condition as it was at the commencement of the tenancy, except for normal wear and tear, and shall be responsible for their respective repairs and maintenance.

In the event of tenant’s refusal to carry out scheduled or agreed repairs the landowner shall get the repairs done and deduct the amount from the Security Deposit.

If the cost for the scheduled or agreed repairs exceed the security deposit, the tenant shall be liable to pay the same to the landowner within 1 month from the issuance of notice to tenant by the landowner.

In case the landowner refuses to carry out the scheduled or agreed repairs, the tenant can get the work done and deduct the same from periodic rent. However, in no case, the deduction by tenant from monthly rent on account of repair of the premises, shall exceed 50% of agreed monthly rent, payable by tenant.

Repossession of the premises by the landowner

A tenant shall not be evicted during the continuance of tenancy agreement except when:

  • the landowner and tenant have failed to agree to the rent payable
  • the tenant has not paid the arrears in full of rent payable and other charges payable for 2 months, including interest for delayed payment as may be specified for in the tenancy agreement or prescribed, as the case may be, within 1 month of notice of demand for the arrears of such rent and all charges payable being served on him by the landowner

No order for eviction of the tenant on account of default of payment of rent shall be passed, if the tenant makes payment to the landowner or deposits with the Rent Court all arrears of rent including interest within 1 month of notice being served on him

This relief shall not be available again, if the tenant defaults in payments of rent consecutively for 2 months in any 1 year subsequent to getting relief once:

  • 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 landowner
  • the tenant has continued misuse of the premises even after receipt of notice from the landowner to stop such misuse.

Compensation in case of non-vacancy

A landowner is entitled to get compensation of double of the monthly rent for 2 months and 4 times of the monthly rent thereafter, for the use and occupation of a premise by a tenant who does not vacate the premises after his tenancy has been terminated by order, notice or as per agreement.

Payment of rent during eviction proceedings

When the tenant contests the claim for eviction, the landowner may at any stage of proceedings, apply to the Rent Court to direct the tenant to pay to the landowner rent payable and the Rent Court may order the tenant to make such payment and all other charges due from the tenant along with penalty, if any, due to delay in the same.

Permission to build additional structures

Where the landowner proposes to make any improvement or construct any additional structure on any premises which has been let to a tenant and the tenant refuses to allow the landowner to make such improvement or construct such additional structure and the Rent Court on an application made to it in this behalf by the landowner is satisfied that the landowner is ready and willing to commence the work, the Rent Court may permit the landowner to do such work and may make such other order as it may think fit.

The draft Model Rent Act circulated by the central government to the states, if implemented, is likely to affect around 25 lakh tenants who live mainly in 14,000 old buildings and chawls in Mumbai alone. The majority of the tenants living in old and broken down chawls in the city belong to the lower income category. They have paid nominal rents for decades. The question is that, if under the Model Act the landlord is effectively given unilateral power to increase rent, where will these people go?

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