(RERA) The Real Estate (Regulations and Development) Act, 2016 : Analysis & Judgments - The Red Carpet

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Tuesday, October 12, 2021

(RERA) The Real Estate (Regulations and Development) Act, 2016 : Analysis & Judgments



 The Real Estate (Regulations and Development) Act, 2016

 

·    The Real Estate (Regulation and Development) Act, 2016, (RERA) is an act passed by the Indian parliament. The RERA seeks to protect the interests of home buyers and also boost investments in the real estate sector.

·      Under the Act, state governments are required to notify their own rules under the Act, on the basis of the model rules framed under the central Act.

 

 

Objectives of RERA

The following are the objectives of RERA:

·      To protect the interest of the allottees and ensure their responsibility

·      To maintain transparency and reduce the chances of fraud

·      To implement Pan-India standardization and bring about professionalism

·      To enhance the flow of correct information between the home buyers and the sellers

·      To impose greater responsibilities on both the builders and the investors

·      To enhance the reliability of the sector and thereby increase confidence amongst the investors.

 

 

Why did the RERA become necessary and important?

·      For long, home buyers complained that real estate transactions were lopsided and heavily in favour of the developers. RERA and the government’s model code, aim to create a more equitable and fair transaction between the seller and the buyer of properties, especially in the primary market. RERA, it is hoped, will make real estate purchase simpler, by bringing in better accountability and transparency, provided that states do not dilute the provisions and the spirit of the central act. The RERA will give the Indian real estate industry its first regulator. The Real Estate Act makes it mandatory for each state and union territory, to form its own regulator and frame the rules that will govern the functioning of the regulator.

 

 

How will RERA impact home buyers?

Some of the important compliances are:

·      Informing allottees about any minor addition or alteration.

·      Consent of 2/3rd allottees about any other addition or alteration.

·      No launch or advertisement before registration with RERA

·      Consent of 2/3rd allottees for transferring majority rights to 3rd party.

·      Sharing information project plan, layout, government approvals, land title status, sub-contractors.

·      Increased assertion on the timely completion of projects and delivery to the consumer.

·      An increase in the quality of construction due to a defect liability period of five years.

·      Formation of RWA within specified time or 3 months after majority of units have been sold.

·      The most positive aspect of this Act is that it provides a unified legal regime for the purchase of flats; apartments, etc., and seeks to standardise the practice across the country.

·      Establishment of the regulatory authority: The absence of a proper regulator (like the Securities Exchange Board of India for the capital markets) in the real estate sector, was long felt. The Act establishes Real Estate Regulatory Authority in each state and union territory. Its functions include protection of the interests of the stakeholders, accumulating data at a designated repository and creating a robust grievance redressal system. To prevent time lags, the authority has been mandated to dispose applications within a maximum period of 60 days; and the same may be extended only if a reason is recorded for the delay. Further, the Real Estate Appellate Authority (REAT) shall be the appropriate forum for appeals.

·      Compulsory registration: According to the central act, every real estate project (where the total area to be developed exceeds 500 sq mtrs or more than 8 apartments is proposed to be developed in any phase), must be registered with its respective state’s RERA. Existing projects where the completion certificate (CC) or occupancy certificate (OC) has not been issued, are also required to comply with the registration requirements under the Act. While applying for registration, promoters are required to provide detailed information on the project e.g. land status, details of the promoter, approvals, schedule of completion, etc. Only when registration is completed and other approvals (construction related) are in place, can the project be marketed.

·      Reserve account: One of the primary reasons for delay of projects was that funds collected from one project, would invariably be diverted to fund new, different projects. To prevent such a diversion, promoters are now required to park 70% of all project receivables into a separate reserve account. The proceeds of such account can only be used towards land and construction expenses and will be required to be certified by a professional.

·      Continual disclosures by promoters: After the implementation of the Act, home buyers will be able to monitor the progress of the project on the RERA website since promoters will be required to make periodic submissions to the regulator regarding the progress of the project.

·      Title representation: Promoters are now required to make a positive warranty on his right title and interest on the land, which can be used later against him by the home buyer, should any title defect be discovered. Additionally, they are required to obtain insurance against the title and construction of the projects, proceeds of which shall go to the allottee upon execution of the agreement of sale.

·      Standardisation of sale agreement: The Act prescribes a standard model sale agreement to be entered into between promoters and homebuyers. Typically, promoters insert punitive clauses against home buyers which penalised them for any default while similar defaults by the promoter attracted negligible or no penalty. Such penal clauses could well be a thing of the past and home buyers can look forward to more balanced agreements in the future.

·      Penalty: To ensure that violation of the Act is not taken lightly, stiff monetary penalty (up to 10% of the project cost) and imprisonment has been prescribed against violators.

 

 

Which projects come under RERA

·      Commercial and residential projects including plotted development.

·      Projects measuring more than 500 sq mts or 8 units.

·      Projects without Completion Certificate, before commencement of the Act.

·      The project is only for the purpose of renovation / repair / re-development which does not involve re-allotment and marketing, advertising, selling or new allotment of any apartments, plot or building in the real estate project, will not come under RERA.

·      Each phase is to be treated as standalone real estate project requiring fresh registration.

 

 

Impact of RERA on real estate industry

·      Initial backlog.

·      Increased project cost.

·      Tight liquidity.

·      Rise in cost of capital.

·      Consolidation.

·      Increase in project launch time.

 

 

How will RERA impact insurance cost for construction and land title

·      Land and approval costs to be meted out of internal accruals as prelaunch concept may end. It may lead to a shift in equity financing from debt financing prevailing currently. The cost of capital may go up as developers may now have to fund the land and approval cost through equity.

·      With frequent delay in obtaining approvals, debt funding may not be an ideal route for developers. With entry in the sector made difficult, the sector may witness consolidation.

·   Strong financial and execution capability is required to launch a project. The development model/agreement may gain prominence.

·      The project launch time may increase since a lot of time will be involved in finalizing finer details before launching a project.

·      Details such as complete drawings, utilities layout, etc., needs to be finalized before project starts.

 

 

Benefits of RERA

 

Industry

Developer

Buyer

Agents

·      Governance and transparency

·      Project efficiency and robust project delivery

·      Standardisation and quality

·      Enhance confidence of investors

·      Attract higher investments and PE funding

·      Regulated Environment

  • Common and best practices
  • Increase efficiency
  • Consolidation of sector
  • Corporate branding
  • Higher investment
  • Increase in organised funding

 

·       Significant buyers protection

·       Quality products and timely delivery

·       Balanced agreements and treatment

·       Transparency – sale based on carpet area

·       Safety of money and transparency on utilisation

  • Consolidation of sector (due to mandatory state registration)
  • Increased transparency
  • Increased efficiency
  • Minimum litigation by adopting best practices

 

 


Main duties or compliances mentioned in the Act for a real estate developer

 

Section

Title 

Compliance/Duty/Right of the Promoter

Section 3

Prior registration of the real estate with the Real Estate Regulatory Authority

·    Cannot advertise, market, sell or offer to sell without registration.

·  In case the project is ongoing before the enactment, and CC has been not issued, Promoter needs to make an application to the authority for registration in 3 months.

·       In case of development beyond the planning area, with local authorities permission, permission may be granted in allottees interest.

·     Land-500 Sq. Mtrs, 8 Apartments, where CC has been received prior, for repair or re-development purpose no registration necessary.

Section 59

Punishment for Non-registration

·  Contravention of Section 3 – Penalty extending up to 10% of the estimated cost of the project.

·  Contravention of order, or continuance of violation of S.3, imprisonment up to 3 years, further extension of 10% of the fine.

Section 4

Application for registration of real estate projects

·       The compulsion of a promoter to apply for registration, a fee as specified by the regulations, made by an authority with a List of documents (mentioned at the end) to be enclosed:

·     The promoter shall withdraw from the separate account only in proportion to the work complete, with certification from an engineer, architect, and CA.

·      Promoter required to get accounts audited within 6 months of every financial year.

Section 60

Penalty for contravention of Section 4

·   In case of false information or contravention of section 4 –penalty up to 5% of the estimated cost

Section 11

Functions and duties of a promoter

·   After receiving Log in ID and Password, create a web page on the website of the authority – all details to be entered as under section 4, for public viewing, including the list at the end of this article.

·  The Advertisement issued by promoter shall have prominent website address of the authority.

·       List of enclosures to be provided to the allottee

·   Promoter – Responsible for all obligations, responsibilities and functions,  till conveyance and common areas thereof, Responsibility with respect to defect continues as mentioned in section 14.

·      To obtain Completion/Occupancy certificate and make it available to the allottees.

·      To obtain lease certificate, in case of leasehold land, specifying the period of the lease, clearance of dues etc.

·      Maintain essential services on the reasonable charge, till taken over the association of allottees.

·  Enable the formation of the association.

·  Execute a registered deed of conveyance of apartments, plot, building etc to the allottees, with the undivided proportionate title in the common places to the association/competent authority.

·       Pay all outgoings till the transfer of physical possession is made, in case of delay in such payment, promoter liable to pay even after such transfer is made.

·   After the agreement for sale is executed, any charge created on the said property, shall not affect the rights of the allottee.

·      An allotment can cancelled as per the terms of the agreement of sale – allottee may approach authority in case of aggravation by such cancellation.

Section 12

Section 13

Section 14

Section 15

Section 16

Section 17

Obligations of Promoter

Section 12 – Obligations of promoter regarding the veracity of the advertisement or prospectus

 

Section 13- No deposit or advance to be taken by promoter without first entering into the agreement for sale

 

Section 14- Adherence to sanctioned plans and project specifications by the promoter

 

Section 15 – Obligations of a promoter in case of transfer of a real estate project to a third party

 

Section 16 – Obligations of promoter regarding insurance of real estate project

 

Section 17 – Transfer of title

·    In case of any advance payment on the basis of false statement/advertisement/model house, the loss suffered therein shall be compensated by the promoter.

·      In case of withdrawal on the same grounds, entire investment along with interest rate to be provided.

·       The amount more than 10% shall not be accepted as advance/application fee, without entering into a written agreement for sale.

·     Agreement of sale requires having all specifications of the development of the project.

· The proposed project to e completed in accordance with the sanctioned plans.

·  After the said sanctions, and disclosure to the said allottee, no alterations to be made except without the consent of that person, except minor alterations/additions can be done on due recommendation and verification of engineer/architect.

·  Any alteration/addition to the sanctioned plans, layout plans or building specifications cannot be changed with the written consent of 2/3rd of the allottees.

·    In case of structural defects or other obligations is brought to the notice of the promoter, within a period of 5 years, the duty of the promoter to rectify it – in case of failure, allottees entitled to apt compensation.

·   No transfer/assignment of majority rights and liabilities without the written consent from 2/3rd allottees.

·       Such transfer shall not result in the extension of time.

·       Intending promoter needs to independently comply with all the pending obligations, and no changes in the allotment shall effect with the transfer of the erstwhile promoter.

·       Insurance in respect of land and building as a part of the real estate project and construction of the real estate, insurance to obtained and premium to be paid by the promoter, before transferring it to the association. The transfer shall stand transfer on entering of the agreement for sale. On the formation of the association, all documents related to insurance to be handed over the association.

·       Execute a registered conveyance deed in favor of the allottee along with the undivided proportionate title of the common areas to the association and other title documents within 3 months (in absence of local laws)

·       After obtaining the occupancy certificate and handing over physical possession shall be the duty of the promoter to hand over  necessary documents and plans within 30 days (in absence of local laws)

Section 18

Return of Amount and Compensation

* In case of failure to complete/handover the possession in accordance with the agreement/deal to discontinuance of business/cancellation, liable, on demand of allottees:

1. On withdrawal, the amount received so far, along with interest in a manner provided by the act.

 

2. On non-withdrawal, interest for every month.

 

The promoter shall compensate for the loss, due to the defective title, and such claim not barred by limitation.

In case of failure to discharge any duties, compensate as provided by the act.

Section 61

Offenses, Penalties & Adjudication — The penalty for contravention of other provisions of this Act.

·       In cases of contravention of sections other than 3, 4 – penalty up to 5% of the estimated cost.

Section 4

List of Documents to be enclosed under Section 4

·       a brief details of his enterprise

·       a brief detail of the projects launched by him, in the past five years

·       an authenticated copy of the approvals and commencement certificate from the competent authority, for each of such phases.

·       the sanctioned plan, layout plan and specifications of the proposed project or the phase thereof

·       the sanctioned plan, layout plan and specifications of the proposed project or the phase thereof including fire fighting facilities, drinking water facilities, emergency evacuation services, use of renewable energy.

·       the location details of the project, with clear demarcation of land dedicated for the project including the latitude and longitude of the end points of the project.

·       proforma of the allotment letter, an agreement for sale, and the conveyance deed proposed to be signed with the allottees.

·       the number, type and the carpet area of apartments for sale

·       the number and areas of a garage for sale in the project

·       The names and addresses of his real estate agents, if any

·       The names and addresses of the contractors, architect, structural engineer, and other persons concerned with the project.

 

A declaration, supported by an affidavit, which shall be signed by the promoter, stating his:

(A) The legal title along with documents validating such authentication

 

(B) No declaration or details of encumbrances, if any,

 

(C) time period estimate

 

(D) 70% amounts deposited by allottees, from time to time be deposited in a separate account to cover the cost of construction/land.

Section 11

List of Disclosures to be made under Section 11

·       Details of the registration granted by the Authority

·       Quarterly up-to-date the list of number and types of apartments or plots, as the case may be booked

·       Quarterly up-to-date the list of the number of garages booked

·       Quarterly up-to-date the list of approvals taken and the approvals which are pending subsequent to commencement certificate

·       Quarterly up-to-date status of the project; and

·       Such other information and documents as may be specified by the regulations made by the Authority.

 

 

 

 

Applicable penalties under RERA

 

Applicable sections

Offences committed

Applicable penalties

Section 9 (7)

·       Registration secured through misrepresentation or fraud

·       Breach of terms for which registration obtained

·       Revocation of Agent Registration Number

Section 62

·       Contravention of Section-9 & Section 10

·       Penalty of INR 10,000/-day during which the default continues extending up to 5% of cost of unit sold

Section 65

  • Contravention of orders of RERA authorities

·       Penalty up to 5% of cost of unit sold

Section 66

·       Contravention of orders of Appellate tribunal

·       Imprisonment for up to 1 year or with fine extend up to 10% of cost of unit sold

 

 

Relevant Judgments

 

1.     Deepak Pande v. Larsen & Toubro Ltd., Complaint No. CC006000000100256, MahaRERA

Issue – “Whether the Complainants are entitled to claim refund for difference/variation in area of the said apartment and interest thereon from date of payment of the excess amount?”

Decision — “If the promoter is duty-bound to honour the agreement for sale in its true letter and spirit so also the allottee is duty-bound to adhere to the terms of the agreement for sale and either party cannot shun their duties and responsibilities under the agreement for sale.”

 

2.     IREO Grace Realtech (P) Ltd. v. Abhishek Khanna, (2021) 3 SCC 241

·       25.8. We are of the view that it was a mandatory requirement under the Haryana Fire Service Act, 2009 to obtain the fire NOC before commencement of construction activity. This requirement is stipulated in the sanctioned building plans, as also in the environment clearance.

·       34. We are of the view that the incorporation of such one-sided and unreasonable clauses in the apartment buyer's Agreement constitutes an unfair trade practice under Section 2(1)(r) of the Consumer Protection Act. Even under the 1986 Act, the powers of the consumer fora were in no manner constrained to declare a contractual term as unfair or one-sided as an incident of the power to discontinue unfair or restrictive trade practices. An “unfair contract” has been defined under the 2019 Act, and powers have been conferred on the State Consumer Fora and the National Commission to declare contractual terms which are unfair, as null and void. This is a statutory recognition of a power which was implicit under the 1986 Act.

·       35. In view of the above, we hold that the developer cannot compel the apartment buyers to be bound by the one-sided contractual terms contained in the apartment buyer's Agreement.

·       36. The Consumer Protection Act, 1986 was enacted to protect the interests of consumers, and provide a remedy for better protection of the interests of consumers, including the right to seek redressal against unfair trade practices or unscrupulous exploitation.

·       37.5. An allottee may elect or opt for one out of the remedies provided by law for redressal of its injury or grievance. An election of remedies arises when two concurrent remedies are available, and the aggrieved party chooses to exercise one, in which event he loses the right to simultaneously exercise the other for the same cause of action.

 

 

3.  Imperia Structures v. Anil Patni,  (2020) 10 SCC 783

23. It has consistently been held by this Court that the remedies available under the provisions of the CP Act are additional remedies over and above the other remedies including those made available under any special statutes; and that the availability of an alternate remedy is no bar in entertaining a complaint under the CP Act.

This extract is taken from Imperia Structures Ltd. v. Anil Patni, (2020) 10 SCC 783 : (2021) 1 SCC (Civ) 1 : 2020 SCC OnLine SC 894 at page 809

24. Before we consider whether the provisions of the RERA Act have made any change in the legal position stated in the preceding paragraph, we may note that an allottee placed in circumstances similar to that of the complainants, could have initiated the following proceedings before the RERA Act came into force:

(A) If he satisfied the requirements of being a “consumer” under the CP Act, he could have initiated proceedings under the CP Act in addition to normal civil remedies.

(B) However, if he did not fulfil the requirements of being a “consumer”, he could initiate and avail only normal civil remedies.

(C) If the agreement with the developer or the builder provided for arbitration:

(i) in cases covered under Clause (B) hereinabove, he could initiate or could be called upon to invoke the remedies in arbitration.

(ii) in cases covered under Clause (A) hereinabove, in accordance with law laid down in Emaar MGF Land Ltd. v. Aftab Singh [Emaar MGF Land Ltd. v. Aftab Singh, (2019) 12 SCC 751 : (2018) 5 SCC (Civ) 652] , he could still choose to proceed under the CP Act.

This extract is taken from Imperia Structures Ltd. v. Anil Patni, (2020) 10 SCC 783 : (2021) 1 SCC (Civ) 1 : 2020 SCC OnLine SC 894 at page 810

25. In terms of Section 18 of the RERA Act, if a promoter fails to complete or is unable to give possession of an apartment duly completed by the date specified in the agreement, the promoter would be liable, on demand, to return the amount received by him in respect of that apartment if the allottee wishes to withdraw from the Project. Such right of an allottee is specifically made “without prejudice to any other remedy available to him”. The right so given to the allottee is unqualified and if availed, the money deposited by the allottee has to be refunded with interest at such rate as may be prescribed. The proviso to Section 18(1) contemplates a situation where the allottee does not intend to withdraw from the Project. In that case he is entitled to and must be paid interest for every month of delay till the handing over of the possession. It is up to the allottee to proceed either under Section 18(1) or under proviso to Section 18(1). The case of Himanshu Giri came under the latter category. The RERA Act thus definitely provides a remedy to an allottee who wishes to withdraw from the Project or claim return on his investment.

This extract is taken from Imperia Structures Ltd. v. Anil Patni, (2020) 10 SCC 783 : (2021) 1 SCC (Civ) 1 : 2020 SCC OnLine SC 894 at page 811

31. Proviso to Section 71(1) of the RERA Act entitles a complainant who had initiated proceedings under the CP Act before the RERA Act came into force, to withdraw the proceedings under the CP Act with the permission of the Forum or Commission and file an appropriate application before the adjudicating officer under the RERA Act. The proviso thus gives a right or an option to the complainant concerned but does not statutorily force him to withdraw such complaint nor do the provisions of the RERA Act create any mechanism for transfer of such pending proceedings to authorities under the RERA Act. As against that the mandate in Section 12(4) of the CP Act to the contrary is quite significant.

This extract is taken from Imperia Structures Ltd. v. Anil Patni, (2020) 10 SCC 783 : (2021) 1 SCC (Civ) 1 : 2020 SCC OnLine SC 894 at page 811

32. Again, insofar as cases where such proceedings under the CP Act are initiated after the provisions of the RERA Act came into force, there is nothing in the RERA Act which bars such initiation. The absence of bar under Section 79 to the initiation of proceedings before a fora which cannot be called a civil court and express saving under Section 88 of the RERA Act, make the position quite clear. Further, Section 18 itself specifies that the remedy under the said section is “without prejudice to any other remedy available”. Thus, the parliamentary intent is clear that a choice or discretion is given to the allottee whether he wishes to initiate appropriate proceedings under the CP Act or file an application under the RERA Act.



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