Beautiful dance on the water

Published On: Fri, Jun 3rd, 2016 Current Affairs / Headlines / Legal / Real Estate News | By Nimisha Gupta An Overview of Real Estate (Development and Regulation) Act, 2016

  
There are full-page advertisements about the projects of the Builders with pictures and description surpassing one’s imagination.  The flat purchasers approach the builder and are told the price to be computed on the basis of super built up area. One does not know how it is worked out and unwillingly has to pay for it even if most of it is not his property. The agent explains the project in a glorious manner explains the type of construction, the specifications, the furnishing, and the amenities and tells that the necessary approvals are in place. Impressed, the innocent buyer without any technical and legal knowledge pays 10 % amount or any other amount fixed as payable on booking simply filing a contract form. Then comes the stage of execution of the agreement. A set format of agreement is placed before the purchaser without any option to change a word out of it. Having paid part consideration, the purchasers are left with no other option but to sign on the dotted lines. Clauses are incorporated relating to unreasonable period of completion and handing over possession with liberal grace period. Even this period is not adhered to. Strict consequences are provided for delay in payment and other defaults by the purchaser without laying any corresponding obligation on the Builder / Promoter.
In short, the purchasers are caught in a one side beneficial situation under which a builder/ promoter keeps delaying the project with impunity.  The purchasers are not only denied the pleasure of owning their house but are obliged to keep paying the EMI and rent inspite of having made the substantial payment. All this happens because the buyer being involved in the purchase of only small part of the project is in no position to have a meaningful negotiation with the builder and is always in a do or die position.
Everyone is aware of the ills of the real estate sector. There are approximately 76000 enterprises working in the sector. Nearly 10 lakh people buy flats every year which involve the investment of more than 13 lakh Crores. Strangely enough, inspite of big role played by this sector and enormity of the problems being faced by the innocent buyers, the sector remained unregulated.
 Realising the need for regulating the builders’ / promoters’ activities and safeguarding the interest of flat purchasers, the Government of Maharashtra took the lead by enacting Maharashtra Ownership Flats (Regulation of Promotion, Construction, Sale, Management and Transfer) Act, 1963 and Maharashtra Apartments Ownership Act, 1970.
Other States like Karnataka, Andhra, Delhi, Uttar Pradesh, Gujarat and West Bengal also enacted the similar Acts.
Realizing that MOFA was not able to control malpractices in the building industry because of lack of an implementing arm and other deficiencies, the Government of Maharashtra passed Maharashtra Housing (Development and Regulation) Act, 2012.  As per Section 56 of that Act, MOFA was to stand repealed on and from the date of notification for such repeal.  The Act was to come in force from the date to be notified.
The Government of India also felt concerned by the prevailing abuses and malpractices in the real estate sector and decided to have a Central Act to introduce fairness and transparency in the real estate transactions in the whole of India.  A Bill was introduced by the then UPA Government in 2013 which was referred to the select committee of Rajya Sabha.  On the basis of select committee report several amendments were approved and finally the Bill was passed by the Rajya Sabha on 10^th March, 2016 and by the Lok Sabha on 15^th March, 2016. It became the Act known as Real Estate (Regulation and Development) Act, 2016 after getting President’s assent on 26^th March, 2016. The Act will come into force after a notification is published in the government gazette. Within six months of date of publication of notification, the State Governments and/or appropriate governments will have to frame the Rules in accordance with the Act and within one year constitute Real Estate Regulatory Authority and Real Estate Appellate Tribunal.  Within three months of its establishment, the Regulatory Authority will frame regulations so that provisions of Act and Rules can be implemented.
The passing of the RERD Act by the Central Government is likely to have a significant effect in the States which have their own regulatory legislation particularly Maharashtra which had enacted the Maharashtra Housing Act in 2014.  The Section 92 of Central Act has repealed the Maharashtra Housing Act.  The Maharashtra Housing Act 2014 itself having been repealed, MOFA will continue to operate. State Act MOFA and Central Real Estate Act both will be enforceable simultaneously in the State of Maharashtra and might open up an area of judicial intervention in reconciling the provisions of the two Acts.
There are some provisions in the Central Act, which are not found in MOFA.  Similarly, there are certain provisions in MOFA which do not exist in Central Act. Both the Acts may have provisions dealing with a particular matter but their approach may not be similar. As per section 89 of Real Estate Act, if there is inconsistency between the two Acts, the provision of Central Act shall prevail.
Scope of the Real Estate Act–
From the definitions of “Real Estate Project” and the “Promoters” it becomes very clear that Central Act has much wider scope than MOFA. Whereas MOFA regulated construction and sale of Flats only i.e. set of premises to be used for residential and commercial purposes, the RERD Act governs buildings, apartments and even plots developed for sale.  The RERD Act takes within its fold projects of even State Authorities viz. MHADA, CIDCO etc.
Setting up of a Housing Regulatory Authority and Obligations to get the project registered with it and display on its website;
Registration of Project -
The Act requires the respective State Governments or Union Territories to constitute an Authority, referred to as Real Estate Regulatory Authority, to act as effective implementing arm for the Act and ensure that legal provisions are not violated without consequences provided under the Act.  The Authority is to be constituted by the State Government within one year of the Act coming into force.
 Information to be furnished -
In order to get the registration, the Promoter / Builder has to submit an application containing information about promoter’s enterprise; brief details of the projects launched by it in past five years with their current status; authenticated copy of approvals; commencement certificate; sanctioned plan; plan of development work and proposed facilities; location details with clear demarcation of land; proforma of allotment letter; agreement of sale and conveyance deed; number, type and carpet area of apartments and garage; name of real estate agents, contractors, architects etc.  The promoter also has to make a declaration supported by affidavit certifying his title to the land, details of encumbrances, if any, and the time period within which the project is to be completed.
Display on website:
The State Government shall establish Regulatory Authority and within a period of one year from its establishment the said Authority shall create web-based online system for receiving applications from promoters for registration of their project. After the project is registered, the promoter will be given Registration Number, Login ID and Password to access the website. The promoter shall be bound to display the project details and the approvals granted by the Competent Authority on the website of the Authority, so that every interested buyer can obtain the required information making it difficult for the promoters to go back on their promise.
Revocation of registration:
The registration granted to the project is to be valid upto the time stated in the registration application for completion of the project.  The Act provides for extension as well as revocation of the registration by the Authority.  Revocation can be done by the Authority suo-moto or on the complaint, if the promoter makes any default under the Act or, violates any terms or condition of approval or, is involved in any kind of unfair practice.
 Consequences of revocation:
On the expiry of the term of registration, the web page of the promoter will be deleted and on the revocation thereof, the promoter shall be debarred from accessing its website.  The Authority will, in that case, specify his name as a defaulter, show his photograph on the website and inform the regulatory authorities of all other States about it. The Authority is also empowered to facilitate the remaining development work, by such action as it may consider proper which will include the remaining work to be carried out by the Competent Authority or by the association of allottees.  On the revocation of the registration the Authority will invite the association of allotees to complete the unfinished work.
No advertisement without registration:
Registration of the project is a necessary before a promoter can advertise, market, book, sell, offer for sale or invite anyone to purchase. Doing so without registration will entail penalty upto 10% of the project cost.  Even after getting the penalty order for violation, if the promoter continues his activities then in case of continued default the promoter can be imprisoned upto three years or he can be fined upto further 10% of the cost or both.
Projects exempted from registration:
The mandatory registration with the Regulator is not applicable to the promoter carrying on the following projects:
a)  Where the area of the land does not exceed 500 sq. mtrs. Or the number of apartments does not exceed eight included in all phases.  State Government, have, however, been enabled to reduce these limits (not increase);
b)  Where the promoter has received completion certificate prior to commencement of the Act;
c)  Where the project is for renovation or repair or redevelopment which does not involve selling or new allotment of apartment / plot or building.

Obligation of promoter regarding Accuracy of advertisement :
Where any person makes an advance or deposit on the faith of any information contained in any advertisement or on the basis of any model apartment, plot or building and sustains loss or damage by reason of any false statement, the promoter will be liable to compensate that person.  The affected person will also have the right to withdraw from the project in which case he will be entitled to refund of entire amount paid along with interest at the prescribed rate and also the compensation as may be decided by the Adjudicating Officer appointed by the Authority.

Prohibition to accept more than 10% of cost without execution of agreement  
Promoter is debarred from accepting more than 10% of the cost of the apartment, plot or building as advance or application fees without first entering into a written agreement of sale and registering the same under the Indian Registration Act. The Agreement of Sale is to be in the form as may be prescribed and shall contain all important particulars including internal and external development works, schedule of payment, date of giving possession as well as the rate of interest payable by allottee and the promoter in case of their respective defaults.

The promoter is to adhere to the sanctioned plans, lay out plans and project specifications  
A very common issue is departure by the promoters from the sanctioned plan and disclosed specifications about internal and external development, amenities to be provided and material to be used.  The Act takes care of such practices by putting an obligation on the promoter to develop and complete the construction in accordance with sanctioned plans, layout and specifications as approved by the Competent Authorities.  Even when there is a contrary stipulation, the promoter cannot make any addition or alteration from the sanctioned plan and specifications in respect of the apartment, plot or building without the previous consent of the buyer.
The Act further provides that in case any structural defect or any defect in workmanship, quality or provision of services is brought to the notice of the promoter within five years from the date of handing over of possession, the promoter will be bound to rectify such defects, free of any charge, within 30 days and in the event of his failure to do so, the allottee will be entitled to receive appropriate compensation.

Promoter not to shift the money received to any other project:
The Act takes care of such practices and obliges the promoter to deposit atleast 70% of the amount realized from the allottees of a project in a separate account with a scheduled bank which can be used only to cover the cost of construction and the cost of the land relating to that very project.  The promoter can withdraw amount from such separate account in proportion to the percentage of the completion of the project.  He is also required to get his accounts audited within six months after the end of every financial year and produce a statement of account.

Promoter not to transfer the project to third party
The Promoter is debarred from transferring or assigning his majority rights to a third party without obtaining prior written consent from two-third allottees and without the prior written approval of the Authority.

Promoter to complete the project in time
In case the promoter fails to complete and give possession in accordance with the terms of the agreement by the agreed due date for any reason including discontinuance of business on account of suspension or revocation of registration, the allottee will have the option to withdraw from the project and will get the refund of amount paid with interest at the prescribed rate and compensation.  This will be without prejudice to other remedies available to him.  In case he decides not to withdraw, he will be entitled to interest on the amount paid by him for every month of delay at the prescribed rate which, as stated by the Minister on the floor of the house, is likely to be at par with the interest that he would have been liable in case of default in payment by him.
The Promoter has the responsibility, to obtain the completion certificate or the occupancy certificate or both as per local laws and make it available to the allottee or their association.

Promoter to enable the formation of Society of allottees  
After majority of allottees have booked their plot / apartment / building, the promoter is to enable the formation of an association or society or co-operative society of the allottees or a federation, as per the applicable laws.  In the absence of any applicable law, such association should be formed within three months of such booking. The responsibility to enable the formation of society etc. might be interpreted as responsibility of extending cooperation with the actual formation remaining with the allottees.
One thing that the Act has not provided for is the unilateral formation of association in case the promoter fails to act in the matter.  Such a provision exists in MOFA. In my opinion State Government may frame rules in exercise of power vested under Sec. 84 of Real Estate Act paving the way for unilateral registration of the society.

Promoter to transfer title of land to the association of allottees
The Act makes the promoter bound to execute registered conveyance deed of the apartment/building/plot in favour of the allottees and of undivided proportionate title in the common areas to their association and hand over physical possession thereof to the allottees and the association.  This is an unique provision where a composite property is divided into building and undivided proportionate share in common area with provision to convey each part to different person/entity. How will it work out in practice will remain an area needing clarification.
There is no direct provision for Deemed Conveyance in the Real Estate.  However, since MOFA will remain in the statute book simultaneously with RERD Act, the provision of deemed conveyance will remain in force as there is nothing repugnant to it in the central legislation. A discussion about it is therefore made in a separate article.

Obligation of promoter to get the project insured
The Promoter is bound to obtain all such insurance policies as may be notified by the appropriate government and pay the premium and charges in respect of it before transferring the insurance policies to the association of allottees.

Establishing Real Estate Appellate Tribunal (Sec. 43 to 58)
Any relief mentioned in the legislation is meaningless until the same can be enforced within a reasonable time. MOFA provides for obligations on the promoter but the aggrieved allottee had only to approach the civil courts or the consumer forums for redressal of his grievance. The Maharashtra Housing Act (which has been repealed) appreciated this problem and provided for setting up of a special Tribunal referred to as Housing Appellate Tribunal to hear appeals against the orders and directions of the Housing Regulatory Authority. The Central Act has also provided for setting up of a Real Estate Appellate Tribunal to be established by the respective State Governments or the Union Territory within a period of one year from the date of coming into force of the Act.

•  The Tribunal will function in benches and each bench shall consist of one judicial member and one Technical or Administrative member. The chairperson will be a sitting or retired judge of a High Court and shall be appointed in consultation with the Chief Justice or his nominee. The Judicial/Technical or Administrative members are to be appointed on the recommendations of a Selection Committee consisting of the Chief Justice or his nominee, the Housing Secretary and the Law Secretary.
•   The aggrieved party including the appropriate Government or the Competent Authority (MHADA, CIDCO, and DDA) and Local Authority can prefer appeal against the order of the Regulatory Authority or the adjudicating officer. The appeal has to be filed within sixty days and is expected to be disposed of within sixty days. In case it is not disposed of within sixty days the Tribunal will have to record reasons for not disposing of within time.
•  It is provided that after the Tribunal is established, all pending matters with the designated Tribunal shall stand transferred to this Tribunal and shall be heard from the stage, at which the appeal is transferred.
• It is also provided that in case the appeal is filed by the promoter against any penalty ordered by the Authority, it will be entertained only after he deposits with the Tribunal atleast 30% of the penalty imposed or such higher amount as may be determined by the Tribunal. In case the appeal is against any amount payable to the allottee including the interest and compensation, the appeal can be entertained only after the total amount is so deposited by the promoter.
• Every order of the Tribunal shall be executable as a decree of the civil court and therefore, it will have all the powers of a civil court in respect of summoning any person, discovery and production of accounts, receiving evidence on affidavits, issuing commission, reviewing the orders dismissing matters ex-parte. All proceedings before it will be judicial proceedings. The Tribunal has also the power to transmit any of his order to a civil court to be executed as if it is an order of the court. Further appeal from the orders of the Tribunal shall lie to the High Court.
• The Tribunal will not be bound by the procedure laid down in the Civil Procedure code but shall be guided by principle of natural justice. It shall also not be bound by the rules of evidence in Indian Evidence Act.

Adjudication of Compensation 
The Act provides for compensation to be paid by the Promoters in the following situations:-
i)  Where person making advance or deposit suffers loss as a result of incorrect information in advertisement.
ii) Where defects or deficiencies brought to the notice of the promoter are not rectified.
iii) Where the promoter fails to complete or is unable to give possession within time specified in the Agreement or on account of revocation of registration under this Act or discontinuance of business of a developer.
For determining the amount of compensation, the Authority shall appoint in consultation with the appropriate government one or more judicial officers who is a working or retired District judge, as the Adjudicating officer for holding enquiry and adjudicating compensation. Further, the Adjudicating officer will be empowered to adjudicate on complaints received from any aggrieved person in respect of violation or contravention of the provisions of this Act. The adjudicating officer is expected to dispose of the matter within sixty days. In case the aggrieved person has already approached the Consumer Dispute Redressal forums, he can withdraw the complaint and file application before the Adjudicating officer.

•  Appeal lies against the orders of the adjudicating officer to the Real Estate Appellate Tribunal

Rights and duties of allottees
The rights of the allottees are-
i) To obtain information relating to sanctioned plan, layout plan alongwith specifications
ii) To know stage-wise time schedule of completion of the project.
iii) To claim possession of apartment, plot or building. The association of allottees will be entitled to claim possession of common areas
iv) To claim refund alongwith interest and compensation from the promoter in the event of his failing to hand over possession
v) To receive the necessary documents and plans after receiving of possession from the promoter

The duties and responsibilities of the allottee are –
i) To make necessary payment at the proper time and pay all charges and dues
ii) To pay interest at prescribed rate for delay in payment
iii) To participate towards the formation of association of allottees or the Federation
iv)To take physical possession within two months of the issue of the occupancy certificate
v) To participate towards registration of conveyance deed.

Regulation of real estate agents
The Act seeks to regulate not only the conduct of the promoters and the allottees but also that of real estate agents who facilitate the sale or purchase of the apartment etc in a registered project. For this purpose it prohibits any person to act as agent without obtaining registration from the Authority. For the purpose of registration as an agent he has to make an application in the prescribed form.
-          The Authority is to take decision on the application within the prescribed time. In case of not taking decision within time, the registration will be deemed to have been granted. The registration will be valid for the period as may be prescribed and can be renewed.
-          The registration can be revoked if the agent commits breach of any condition of registration or of any terms or conditions under the Act, or where the Authority is satisfied that registration has been obtained through misrepresentation or fraud.
-          The registered agent shall quote the registration number in every sale made through him. He is prohibited from arranging any sale in any planning area which is not registered with the Authority. He is not to involve himself in any unfair practice which include making any statement which falsely represents the services as of a particular standard or grade or, representing false approval or affiliation of himself or the promoter or, permitting publication of false advertisement or, making a false or misleading representation concerning the services. He is also obliged to facilitate possession of all information and documents which the allottee is entitled to.