Saturday Feb 21, 2026
Saturday Feb 21, 2026
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The proposed bill defined as the Protection of Occupation Bill has caused considerable attention in the Media and various personalities have expressed their opinions on the impact the bill will cause to the property and real estate market in the country.
In this article, I share some of the concerns which will be faced by the connected stakeholders once this bill is enacted and becomes a Law.
At present, it is no exaggeration to state many of the property owners termed as ‘Landlords’ are reluctant to give their properties on rent or lease due to their fear of being unable to repossess their properties whenever they need it. The aforesaid scenario ultimately compels the ‘Landlords’ to seek the intervention of the Courts to eject the uncooperative tenant which needless to state is a time consuming process apart from the legal expenditure. We have witnessed many cases where it has taken more than two decades to obtain a final determination during which period the tenant continues to possess the luxury of occupying the premises without paying a single rental. This is the reality faced by the landowners. Many houses and apartments remain vacant due to the fear of the owners getting vacant possession when the need arises.
The proposed bill give complete protection to the tenants.
Impact on bank collateral
Apart from the aforesaid, it will have a major impact on the real estate market and the Bank Collateral, both of which are interconnected. A property developer, whether individual or commercial, needless to state is dependent on the Banks for Financial Assistance. The Banks on the other hand depend on such collateral towards effectively securing their exposure. In case of an eventuality they have the option of auctioning the property by invoking “Parate Action”.
Let me give a simple example to drive my concern.
John(not the real name), resides in his ancestral property inherited from his parents. He is married and is having a daughter, his only child. He is concerned of the future of his child and is desirous of constructing a house within his ancestral property to be gifted to his daughter once she gets married. Due to his limited financial avenue he seeks the assistance of his Bank for a long term housing loan towards the construction of the house. The Bank, after ascertaining his repayment capacity has no hesitation in granting the facility, the major deciding factor being the collateral as he has pledged and agreed to mortgage the property on which the house is to be constructed. On completion of the construction the value of the property will be substantial. The Bank is fully secured by having a very valuable immovable property as collateral; in addition John has provided a salary confirmation from his employer who has pledged to remit the salary to the Bank towards the recovery of the monthly instalment and interest. This is an irrevocable undertaking. In addition John has intimated to the Bank of his intention to rent out the house on completion of the construction and the rental income which will be substantial too will be remitted to his account. The Bank has mitigated all possible risks.
John finds a suitable tenant, namely Rohan(not the real name) enters into a Lease Agreement and rents out the newly constructed house on a two year Lease with the concurrence of the Bank. After the expiry of the initial Lease he wants to renew the lease, at which time he needs to review the rental as he cannot renew at the existing rates due to high inflation. The tenant declines to the new terms and the extension of the lease and refuses to vacate the house, even though the Lease has expired.
At this stage what are the available options to the landlord John. He is compelled to seek the intervention of the Courts for which he has to expend considerable expenditure by way of legal expenditure. At this state due to the expiry of the Lease and nonpayment of the rental, John’s monthly income has been affected. He is unable to service the loan, which has gone into arrears. The lending Bank threatens him with Legal action towards recovery. All attempts by the Bank towards the recovery of the arrears of instalments have not had the desired effect which is beyond the control of the landowner John. The Bank is left with no other alternative other than to go for “Parate Action” towards auctioning the property. The Bank proceeds with “Parate Action”. Even though it is a very valuable property, due to the property being occupied by an illegal tenant(as the Lease agreement has expired), there are no buyers.
The aforesaid explains the reality. The Landlord John is affected after expending considerable expenditure and his desire towards ensuring his daughter is given a house of her own has not had the desired effect. The Bank is left with a collateral which has no value, and the aforesaid circumstances will compel the Bank to institute legal action against the borrower towards the recovery of its exposure. The borrower John who is now a Senior Citizen, is in great misery due to circumstances which were beyond his control. All his hard-earned money is in the drain. This is the reality.
Importance of occupancy
when an immovable property is obtained as Collateral for a facility by banks, they consider many aspects towards its acceptability. However, the major aspect is the occupancy of the property offered as collateral. The aforesaid is an important component which ultimately determines its acceptability, hence if the rights of the property owner diminishes, it may deter the banks and financial Institutions in accepting properties as collateral and such a course of action needless to state will seriously hamper the real estate market.
Indian Model
It has been reported that the proposed Protection of Occupants Bill will be put on hold for the time being, with further decisions to be made after considering the legal matters related to issues. Perhaps it will be the opportune moment for the authorities to consider a mechanism towards strengthening not only the rights of the tenants but also the property owners desirous of renting out their houses and apartments.
It will be feasible for the authorities to consider the Indian model towards expeditious determinations. In India, it was reported in the Media, specialised legal mechanisms to deal with defaulting tenants have transitioned from traditional, slow-moving civil courts to faster, dedicated, and quasi-judicial bodies, especially under the Model Tenancy Act (MTA), 2021.
Some of the salient features of the Act are:
The Model Tenancy Act, it has been reported, aims to replace the slow, traditional, civil court processes with a more transparent, speedy, and fair mechanism, shifting from lengthy civil lawsuits to focused, fast-track rent tribunals.
at a time when the prevailing interest rates are down, people inclusive of Senior citizens, venture into various other options such as the real estate market by investing their hard earned money towards deriving additional income; this is the current reality. Effective mechanism towards strengthening the rights of the property owners is an important priority in ensuring the rental market is not affected. Weakening their rights will not only discourage them in renting out their properties, it will also restrict the people in venturing into the real estate market. The proposed bill will result in severe shortage in the rental industry as most of the land owners will be reluctant to rent out their properties, as they will not have the peace of mind.
(The writer is the Author of “Techniques of Securities for Bank Lending with an Insight to Life and Times of a Banker”, “Pinnacle of Five Decades of Banking - A Journey Beyond” and “Lending Against Collateral – What you should know.” He is a member of the Resource Panel of the Centre for Banking Studies, Central Bank of Sri Lanka. )
