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.

Written by CA Shivam Jaiswal