HOW TO DRAFT DEVELOPMENT AGREEMENT

The venture of redevelopment of any property involves a massive volume of multi-crore of rupees as also the fate and future of all the resident members of the society. Once the property is handed over to the Developers, the society has only legal documents in their hand to rely and fall back upon in case of any adverse situation in accomplishing the successful task of the redevelopment.

The timely approach of legal experts/counsellors like us, who are well versed in redevelopment laws in respect of drafting/analyzing all the legal documents pertaining to the redevelopment in a scientific and systematic manner, can save the menace of such unforeseen adversities.

Drafting of any document pertaining to the redevelopment is very important component of legal practice and advocacy; one must understand that perfection in drafting is not achieved, unless one understands the relevant provisions under the Acts, Laws and Rules as also facts, figures and language of its terms and conditions. Many housing societies/landlords suffer in course of litigation due to inferior drafting, lack of documentation skills and without proper understanding of redevelopment laws.

Generally, the drafts of all the legal documents pertaining to redevelopment are prepared by the advocates of the Developers and sent for approval of the society or the landlord. The societies in turn, approach us for its scrutiny. We, as senior counsellors, are well adept in the field of scrutiny and vetting all types of legal documents in most defined and methodical manner. After precise and meticulous study, these drafts are scrupulously vetted, scanned and scrutinized by us.

Thereafter, the gray areas, pitfalls and shortfalls are uncovered and a written report is given to our client societies or landlords by apprising them the areas of alerts and awareness and impress upon and compel the Developers to correct/include/provide due coverage before finalizing all the legal documents of redevelopment.

A Redevelopment Agreement, as the name suggests, is an agreement between the residents and the Developers for the reconstruction of a new building by demolishing the old building. But it's not as simple as it sounds; the housing society needs to exercise necessary caution to ensure that the residents' corporate interest is safeguarded.

Even seemingly simple things such as getting the Redevelopment Agreement registered with the sub-registrar, paying proper stamp duty and registration charges by the Developers is very important.

In most cases, the Developers negotiate the deal of redevelopment with the Managing Committee of the society. In which case, the entire onus is on the Managing Committee to ensure that the interests of all the members are protected and they need to take all the precautions to avert litigation at a later date.

It's advisable to discuss the draft of Development Agreement in detail at the General Body Meeting so as to arrive at a consensus about its terms and conditions in order to avoid later hassles. As with any property dealing, when it comes to a redevelopment contract, it's of utmost importance to ensure that the Developers have a sound reputation. The members of the Managing Committee must visit the site of some of the previous projects redeveloped by the Developers so that they get first-hand information about the working skills.

Considering that the property of so many residents is at stake, it makes sense to seek the help of professionals like us in getting a clear picture about the redevelopment contract that the society is entering into. Sound advice from legal professionals before signing on the dotted line is sure to help the society make a responsible decision.

In order to ensure the smooth implementation of such a contract, the obligations of the Developers and all the consequences of the breach, if any, need to be put down in writing clearly in the Development Agreement. For instance, the time of completion of the project and the consequences of non-completion in the stipulated time must be specified in the Development Agreement so that the Developers do not drag on the work.

When drafting a Development Agreement, some of the important points and clauses are to be taken care of. As preamble, there should be a brief history of how the conveyance deed was executed with the society. The registration number of the society under the Maharashtra Co-Operative Societies Act, 1960 (MCS Act, 1960) should be mentioned in the Development Agreement.

There should be particulars of the existing flats with carpet area of the flats occupied by each of the member of the buildings. The area of the plot as per the 'Property Register Card' should be mentioned. The total estimated FSI area that can be constructed by premium FSI or by utilizing the TDR on the plot should be mentioned.

Transparency in floor area, (carpet, built-up, super built-up, hyper built-up), status of project (cause of delay, approximate completion time etc), quality of products used, design philosophy adopted, quality and construction standards adopted etc are very important to be taken care of while analyzing/drafting of the Development Agreement.

The Development Agreement should clearly mention the additional carpet area which will be made available to the members in the new building. The schedule of payment of various considerations such as corpus fund, rentals, brokerage and transportation should be specified in the Development Agreement. There should be a mention of the tentative date of procuring the IOD followed by vacating the flats by the members which should also be linked with the plans being approved by the concerned authority.

The number of open car parking space, stilt car parking, staked parking and closed parking which will be given to the members in the new building should be mentioned in the Development Agreement. Usually the Developers obtain at their own costs the rights under the Development Right Certificate (DRC) in accordance with the provisions of the Development Control Regulations for Greater Bombay, 1991 (DCR).

Further, the Developers get the building plans approved, obtain the commencement certificate and sanction of building plans from the MCGM and pay all the requisite deposits, fees and premiums to various authorities including the MCGM and the same should be clarified in the Development Agreement.

It should be spelt out in the Development Agreement that neither the society nor the members shall be expected to pay any type of expenses. It must be clarified in the Development Agreement that each prospective buyer of a flat in the new building who intends to be a member of the society will be required to pay to the society an entrance fee and share allotment money as well as a sum as approved by the society towards the capital and sinking fund of the society.

The time period for completion of the new building on the plot owned by the society shall be defined in the Development Agreement. In the event the Developers fail to complete the entire work within the stipulated period, a penalty clause must be mentioned in the Development Agreement.

It should be specified in the Development Agreement that from the date of taking complete vacant possession of the existing structure till the date of receipt of Occupation Certificate (OC) in respect of the new building and till such time that the Developers intimate the members to take possession of their respective flats, the Developers shall bear and pay all municipal taxes and other payments required to be paid to the concerned authorities.

The Development Agreement should list out the broad specifications and amenities to be provided for the flats in the new building on the plot owned by the society. It should have a proper schedule of the property at the end of the agreement which should specify the location of the property along with the name of the suburb, final plot number, CTS number, area of the plot and municipal ward number.

Another distinguishing feature of Development Agreement is the fact that the property viz. the land and building continues to remain the property of the society in the Property Card. What is given to the Developers is the right of development to exploit the percentage of development potential of the area to be kept by him as free sale area which he is entitled to dispose of and make profit there from.

This was clearly stated by the Bombay High Court in Chaturbhuj Dwarkanath Kapadia V/s. CIT 260 ITR 491 when it observed that “the object of entering into a Development Agreement is to enable a professional builder/contractor to make profits by completing the building and selling the flats at a profit. The aim of these professional contractors is only to make profits by completing the building and, therefore, no interest in the land stands created in their favour under such agreements”. Such agreements are only a mode of remunerating the Developers for their services of constructing the building as stated in Gurinder Developers Vs. Kurla Konkan Niwas Co-operative Housing Society (2000) 3 Mah Lj 131.

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