The Union cabinet on Wednesday approved the Model Tenancy Act, which will bring about wide-ranging reforms, including setting up of separate rent authorities, courts and tribunals in every district to protect the interests of both the owner and the tenant.

Under the Act, for residential premises, tenants will have to submit a security deposit of maximum two months’ rent, while in case of commercial properties, six months rent will have to be deposited.

States and Union territories can adopt the Model Tenancy Act (MTA) by enacting fresh legislation or they can amend their existing rental laws suitably.

The government said that it is expected to give a fillip to private participation in rental housing as a business model to address the huge housing shortage in the country.

The Act calls for a written agreement for all new tenancies, which will have to be submitted to the concerned district ‘rent authority’.

The government said that the MTA will be applicable prospectively and will not affect existing tenancies.

Rent and duration of tenancy will be fixed by mutual consent between owner and tenant through a written agreement.

According to the Act, if a tenant fails to vacate the premises let out on rent in accordance with the tenancy agreement, he or she will be liable to pay the landlord twice the monthly rent for the first two months and then four times till the latter continues to occupy the said premises.

“If the landlord fails to make any refund, he shall be liable to pay simple interest to the tenant at such rate as may be prescribed from time to time on the amount which he has omitted or failed to refund,” it stated.

If any dispute emerges between the owner and tenant, they will have to first approach ‘Rent Authority’. If any party is not satisfied with the Rent Authority's order, ‘Rent Court’ can be approached and then 'Rent Tribunal’.

Union housing and urban affairs minister Hardeep Singh Puri said that the move will help overhaul the legal framework with respect to rental housing across the country. During a press conference, Puri said that according to the Census 2011, more than 1 crore houses were lying vacant in urban areas across the country.

Making the 1 crore vacant houses available on rent will complement the vision of ‘housing for all by 2022’, the minister said.