HOUSING SOCIETY IS NOW A PROMOTER INSTEAD OF CO-PROMOTER IN REDEVELOPMENT - SAYS MAHARERA

Redevelopment of existing co-operative housing societies has been a subject of great interest since past many years, both to the Societies and the Developers. With the real estate prices touching a new high, residents in old buildings discovered that they have an opportunity to unlock immense value from their property by offering it to Developers for redevelopment.

However, with a passage of time, the Developers almost failed to give the Societies their homes back in time as also many of the new home buyers found themselves in deep water to get the possession of their homes due to abnormal delay attributing to numerous reasons.

Under MahaRERA Act, for the first time in the history of the redevelopment of housing societies, even though the project is developed by the Developers (in other words known as Promoters), the concerned housing society shall also become a Promoter as the Society being an owner of the land and the liabilities of such Promoters shall be as per the agreement or arrangement with the Promoters (Development Agreement in case of redevelopment).

The agreement so executed with the Promoters will decide the accountabilities of Promoters and the housing society also being a Promoter as well. Such housing society shall submit a Form-B of MahaRERA rules, 2017 and the Development Agreement with distinct terms and conditions as agreed between the Promoters and housing society shall be uploaded on the MahaRERA’s portal during the time of project registration. A specimen of Form-B is given at the end of this article.

As defined in the Government Office Order reproduced herein below, the Society shall also be the Promoter and if the selected Developer fails to deliver the promised flats to the rehab members and the new purchasers of the flats, it is feared that the Society may have to contribute and then complete the redevelopment project.

In case, the Developers fail to deliver the possession of the rehab flats to members of the Society as also the saleable flats sold to the allottees, the MahaRERA on the basis of the complaints received from the aggrieved parties and after hearing them, may take effective steps against the errant Developer. In such a case, the Societies also may suffer a setback and lose certain benefits of the redevelopment. The benefits arising out of redevelopment like additional carpet area, corpus and rent that may be reduced marginally as the other Developers in place of the previous one will have to invest their own money.

Every Developer may insist for mortgage of Society’s land to raise the funds required to complete the redevelopment task. It is most likely that henceforth the Developers may not offer any Bank Guarantee thereby, resorting to violation of the guidelines under Section 79-A of MCS Act issued on 3^rd January, 2009 by the Government of Maharashtra for redevelopment.  

There are numerous factors which are responsible for a failure/delay of any redevelopment project. The Developers go bankrupt and they abandon their projects before completing all the units and amenities they promised in their glowing brochures. Diversion of funds from one project to another is one more cause of concern and the redevelopment projects that were supposed to be completed in two to three years, are stretched out to six or seven years followed by non-payment of further rent to the members of the Society.

While selecting a Developer, both financial and quality aspects need to be considered. Most Societies focus on only quantitative financial terms which include the additional carpet area offered to each member, the corpus fund, rent for alternate accommodation and shifting charges etc. What are ignored here are the qualitative aspects of the Developer which include past experience and track record.

Please remember that going in for redevelopment without knowing the precise procedures and processes involved, is like walking on the edge of a cliff blindfolded as you have no idea when a wrong step could send you tumbling downwards. Essential information about any Developer is major concept where half knowledge is infinitely more dangerous than ignorance. Selection of a Developer without carrying due diligence study will translate all your efforts null and void.

Therefore, it is most essential on the part of the co-operative housing societies that a suitable and financially sound Developer should be identified after carrying out the due diligence exercise as stated above.

To evaluate the overall competence of contesting Developers, we have devised seven Due Diligence Formats to be furnished by them to the Society before the final selection. These formats provide accurate and reliable analysis encompassing financial and technical parameters, details of their new projects/new redevelopment projects under construction, completed and under negotiation, details of their banking transactions, loans taken, source of funding to redevelopment project, legal cases pending against them with full details, book debts, creditors, debtors, details of various contractors, material suppliers and details of entire personnel of the Developers in various discipline etc.

The Maharashtra Real Estate Regulatory Authority (Regulatory Authority) has by its Order No.12/2017 dated 4 December 2017 read with Order No. 13/2017 dated 4 December 2017 (collectively referred to as ‘the said Order’) replaced its earlier Order dated 11 May 2017 of a housing society also being a Co-promoter in real estate projects including the redevelopment projects that are registered/required to be registered with the MahaRERA.

By virtue of the Orders dated 4 December 2017, the Regulatory Authority has now redefined such‘Co-promoter’ as  a ‘Promoter’ since the Co-promoters who are either entitled to ‘Area Share’ or ‘Revenue Share’ in fact clearly fall within the definition of ‘Promoter’ as defined under the said Act and as such,the Promoters even as housing society within the meaning of the said term are therefore jointly liable for the functions and responsibilities specified in the said Act in the same manner as primary Promoter i.e. the Developer who actually obtains building permissions and carries out and construction till the Occupancy Certificate (OC) and Building Completion Certificate (BCC) is received.

The said Order further specifies that at the time of filing on line application, it is necessary to distinguish and/or identify whether such Promoter is (i) land owner or (ii) investor or (iii) is actually obtaining the building permissions for carrying out the construction. Therefore, Promoters will now be classified as Land Owner Promoter or Investor Promoter or a Promoter i.e. the Developer who actually obtains building permissions and actually carries out construction.

In case of existing projects that are registered with the Regulatory Authority, such land owner Promoters or Investor Promoters who have registered themselves as Co-promoters shall now be known as the “Promoter (land owners/investors)” at per with the Promoter i.e. the Developer.

For the purpose of withdrawal from the separate bank account, i.e. ‘Escrow Account’, the obligations and liabilities of all such Promoters shall be at par with each other.

The written agreement (i.e. the ‘Development Agreement’ in case of a housing Society being a land owner Promoter) or arrangement entered between such Promoters shall clearly specify the rights and shares of each Promoter and copy of the same should be uploaded on the portal of the Regulatory Authority.

Such Land Owner Promoter/Investor Promoter shall also submit declaration in Form-B as prescribed under the said Rules and in case of Area Sharing they shall open a separate Bank Account i.e. ‘Escrow Account’ for deposit of 70% sales realizations.

The said Order further clarifies one important feature that housing societies involved in a redevelopment project with a Promoter and if, are entitled to ‘only rehabilitated portion’ of their new flats without any ‘Area Share’ in the newly developed building as Permanent Alternate Accommodation, may not be required to register themselves as Promoters.

Writ Petition Challenging housing society being a Co-Promoter Order dated 11 May 2017:

The Co-promoter Order as above was challenged by Ismail Ibrahim Patel and six others under a Writ Petition No. 2773 of 2017 filed in the High Court of Judicature at Bombay against the State of Maharashtra, Regulatory Authority, Union of India and Shiv Krupa Enterprise.

The grounds of challenge are set out below:

The said Act, itself does not define Co‑Promoter but defines the word ‘Promoter’ and the Regulatory Authority is not empowered to coin a new definition of ‘Promoter’ and notify the same in absence of any statutory authority under the said Act and hence, the definition of Co-promoter in the Co-promoter Order has added confusion amongst stake holders.

The Regulatory Authority rightly argued before the Court that the Co-promoter Order had been issued to elaborate the definition of ‘Promoter’ under the said Act only, as and by way of a clarification and to bring in more transparency in the registration process.

The Regulatory Authority further submitted that in order not to disturb the various steps that are already taken by all stake holders and to dispel various apprehensions expressed by the petitioners during the course of the arguments, the Regulatory Authority has now decided to withdraw and appropriately replace the Co-Promoter Order within a period of 3 (three) weeks from the date of final disposal of the Writ Petition, i.e. 3 weeks from 14 November 2017.

Accordingly, the Bench of Justice Naresh H Patil and Justice R.G. Ketkar vide Order dated 14 November 2017, disposed of the Writ Petition thereby permitting the Regulatory Authority to withdraw the Co-promoter Order dated 11 May 2017and appropriately replace the same within a period of 3 (three) weeks from 14 November 2017 i.e. with effect from the same date i.e. 11 May 2017.

Both theOrders i.e. No.12/2017 dated 4 December 2017 and the Order No. 13/2017 dated 4 December 2017 are reproduced below for careful study and its implementation.

 

MAHARASHTRA REAL ESTATE REGULATORY AUTHORITY

No. MahaRERA/Secy./File

No.27/3321 '2017

Date: 04/12/2017

MahaRERA Circular No: 12/2017

       Subject: Land Owners/Investors having Area/Revenue Share in Real Estate Project to be treated as Promoter (landowner/investor)

Re:     1. Office Order No. MahaRERA/LA132/2017 dated 11^th May 2017 issued by the MahaRERA Authority

        2. Order dated 14t^h November 2017 passed by the Hon'ble Bombay High Court in Writ Petition (L)No. 2023 of 2017

   Whereas, under Section 37 of the Real Estate (Regulation and Development) Act, 2016 ("said Act") the MahaRERA is vested with the power to issue directions from time to time to the promoters, allottees or real estate agents, as it considers necessary from time to time.

    Whereas, the Chairperson, MahaRERA is also vested with the powers of general superintendence and directions in the conduct of affairs of the Authority under Section 25 of the said Act

    Whereas, under powers granted to the MahaRERA and its Chairman under the aforesaid provisions of the said Act and since the MahaRERA considers it necessary in the interest of the promoters and the allottees, the present Circular is issued exercising powers under the aforesaid provisions of the said Act.

   Whereas, the Section 2(zk) of the said Act defines the term 'a Promoter' as follows:

i) "promoter" means, a person who constructs or causes to be constructed an independent building or a building consisting of apartments, or converts an existing building or a part thereof into apartments, for the purpose of selling all or some of the apartments to other persons and includes his assignees; or

(ii)    a person who develops land into a project, whether or not the person also constructs structures on any of the plots, for the purpose of selling to other persons all or some of the plots in the said project, whether with or without structures thereon; or

(iii)   any development authority or any other public body in respect of allottees of— (a) buildings or apartments, as the case may be, constructed by such authority or body on lands owned by them or placed at their disposal by the Government,— ('b) plots owned by such authority or body or placed at their disposal by the Government, for the purpose of selling all or some of the apartments or plots; or

(iv)   an apex State level co-operative housing finance society and a Primary co-­operative housing society which constructs apartments or buildings for its members or in respect of the allottees of such apartments or buildings; or

(v)  any other person who acts himself as a builder, colonizer, contractor, developer, estate developer or by any other name or claims to be acting as the holder of a power of attorney from the owner of the land on which the building or apartment is constructed or plot is developed for sale; or

(vi)   such other person who constructs any building or apartment for sale to the general public.

Explanation: For the purposes of this clause, where the person who constructs or converts a building into apartments or develops a plot for sale and the persons who sells apartments or plots are different persons, both of them shall be deemed to be the promoters and shall be jointly liable as such for the functions and responsibilities specified under this Act or the rules and regulations made there under;

Whereas, keeping in view the overall purpose, object and the intention behind enacting the said Act, more particularly various duties, responsibilities and obligations imposed thereby upon the MahaRERA so as to inter-alia bring in,

(i) maximum transparency in the real estate sector and resultantly to promote it

(ii) awareness about the provisions of the said Act and educate general public about nuances of it, it is found requisite by the MahaRERA to issue appropriate clarification and/or explanation, for the better understanding, working and implementation of the said Act and the Rules framed there under, as also for the removal of doubts, if any and if at all, in regard to the aforesaid definition of the term 'Promoter' contained in the said Act.

Whereas, during the online registration process, especially for on-going projects, it was observed that several developers (who actually obtain building permissions and construct) of the real estate project, have entered into arrangement with individuals/organizations like land owners or investors, by which the said individuals/organizations are entitled to a share of the total revenue generated from sale of apartments or share of the total area developed for sale which are also marketed and/or sold by such individuals/organizations.

Whereas, a careful consideration of the aforesaid definition in the light of the true object and purpose of the said Act leaves no manner of doubt that such individuals/organizations are also covered and clearly fall within the aforesaid definition of the term 'Promoter' and as such are Promoters within the meaning of the said terms for the purpose and for the implementation of the said Act and all the rules framed there under. They are therefore jointly liable for the functions and responsibilities specified in the Act in the same manner as the Promoter who actually obtains building permissions and carries out construction.

Whereas, for the ease of filing online registration application and for the benefit of the consumers it is necessary to distinguish and/or identify whether such Promoter is the land owner, investor or is actually obtaining the building permissions for carrying out the construction and is in fact carrying out construction.

Therefore, it is directed that,

(1) Such individuals/organizations that fall within the aforesaid definition of the term 'Promoter' on account of being landowners or investors shall be specified as such, at the time of online registration with MahaRERA

(2) Though liabilities of such land owner Promoter or investor Promoter shall be as co-terminus with the written agreement/arrangement governing their rights in the real estate project, for the purpose of withdrawal from the designated bank account of a real estate project, the obligations and liabilities of all such Promoters shall be at par with each other.

(3) A copy of the written agreement or arrangement between Promoters (whether landowner or investor) which clearly specifies and details the rights and shares of each Promoter, should be uploaded on the MahaRERA website, along with other details for public viewing.

(4)  Such Landowner Promoter and Investor Promoter should also submit declaration in Form-B of Maharashtra Real Estate (Regulation and. Development) (Registration of Real Estate Projects, Registration of Real Estate Agents, rates of Interest and Disclosures on website) Rules, 2017.

(5)  Further each such landowner Promoter or investor Promoter, who is entitled to a share of the total area developed, should also open separate bank account for deposit of 70% of the sale proceeds realized from the allottees of their share.

This circular shall replace the MahaRERA Order No MahaRERA/LA/32/2017 dated 11^th May, 2017 and shall be effective from 11t^h May 2017.

By the approval of Chairperson, MahaRERA

(Dr. Vasant Prabhu) 

Secretary,
MahaRERA

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MAHARASHTRA REAL ESTATE REGULATORY AUTHORITY

 

No. MahaRERA/Secy./File

No.27/537 /2017

Date: 04/12/2017

MahaRERA Circular No: 13/2017

               Sub: Co- Promoter is known as Promoter (Land owner/ Investor)

Re: 1. Office Order No. MahaRERA/LA/32/2017 dated 11th May 2017 issued by the MahaRERA Authority

      2. Order dated 14th November 2017 passed by the Hon'ble Bombay High Court in Writ Petition (L) No. 2023 of 2017

      3. MahaRERA Circular No 12 dated 04th December 2017

Whereas, under Section 37 of the Real Estate (Regulation and Development) Act, 2016 ("said Act") the MahaRERA is vested with the power to issue directions from time to time to the promoters, allottees or real estate agents, as it considers necessary from time to time. Whereas, the Chairperson, MahaRERA is also vested with the power of general superintendence and directions in the conduct of affairs of the Authority under Section 25 of the said Act;

Whereas, under powers granted to the MahaRERA and its Chairman under the aforesaid provisions of the said Act and since the MahaRERA considers it necessary in the interest of the promoters and the allottees, the present Circular is issue exercising powers under the aforesaid provisions of the said Act.

Whereas, during the online registration process, especially for on-going projects, it was observed that several developers (who actually obtain building permissions and construct) of the real estate project have entered into arrangement with individuals/ organizations are entitled to a share of the total revenue generated from sale of apartments or share of the total area developed for sale which are also marketed and/or sold by such individuals/organizations.

Whereas, for the case of filing online registration application and for the benefit of consumer it was necessary to distinguish and/or identity whether such Promoter is the land owner, investor OR is the one who has actually obtained/ obtaining the building permissions for carrying out the construction and has been/is in fact carrying out construction. Therefore, such Promoters have filed applications showing land owners, investors as 'Co-promoters' in accordance with MahaRERA Office Order No. MahaRERA/ LA/32/2017 dated 11th May, 2017. Accordingly, about 4346 projects have already been registered with such land owners/investors as 'Co-promoters': They shall now be known as 'Promoters (Land Owners/Investors)'.

The necessary changes in this regard have been effected on MahaRERA Web Site https://maharera.mahaonline.gov.in. Therefore, directions contained in MahaRERA Circular No.12 of 2017 shall mutatis mutandis apply to such projects too.

This shall be applicable with immediate effect.

By the approval of Chairperson, MahaRERA

 

 

 

                                                                                         (Dr. Vasant Prabhu) 

                                                                                       Secretary, MahaRERA

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FORM ‘B’

[See rule 3(4)]

DECLARATION, SUPPORTED BY AN AFFIDAVIT, WHICH SHALL BE SIGNED BY THE PROMOTER OR ANY PERSON AUTHORIZED BY THE PROMOTER

Affidavit cum Declaration

Affidavit cum Declaration of Mr/Ms _________ promoter of the proposed project/duly authorized by the promoter of the proposed project, vide its/his/their authorization dated______;

I, _________/promoter of the proposed project/duly authorized by the promoter of the proposed project do hereby solemnly declare, undertake and state as under:

1.     That I/promoter have/has a legal title to the land on which the development of the project is proposed

OR

__________________ have/has a legal title to the land on which the development of the proposed project is to be carried out

AND

a legally valid authentication of title of such land along with an authenticated copy of the agreement between such owner and promoter for development of the real estate project is enclosed herewith 

2.     That the said land is free from all encumbrances.

OR

That details of encumbrances ________________ including details of any rights, title, interest or name of any party in or over such land, along with details. 

3.     That the time period within which the project shall be completed by me/promoter is _________. 

4.     That seventy per cent of the amounts realized by me/promoter for the real estate project from the allottees, from time to time, shall be deposited in a separate account to be maintained in a scheduled bank to cover the cost of construction and the land cost and shall be used only for that purpose.

5.     That the amounts from the separate account, to cover the cost of the project, shall be withdrawn in proportion to the percentage of completion of the project. 

6.     That the amounts from the separate account shall be withdrawn after it is certified by an engineer, an architect and a chartered accountant in practice that the withdrawal is in proportion to the percentage of completion of the project. 

7.     That I/promoter shall get the accounts audited within six months after the end of every financial year by a chartered accountant in practice, and shall produce a statement of accounts duly certified and signed by such chartered accountant and it shall be verified during the audit that the amounts collected for a particular project have been utilized for the project and the withdrawal has been in compliance with the proportion to the percentage of completion of the project.

8.     That I/promoter shall take all the pending approvals on time, from the competent authorities. 

9.     That I/promoter have/has furnished such other documents as have been prescribed by the rules and regulations made under the Act. 

10.   That I/promoter shall not discriminate against any allottee at the time of allotment of any apartment, plot or building, as the case may be, on any grounds.

 

Deponent 

Verification

The contents of my above Affidavit cum Declaration are true and correct and nothing material has been concealed by me therefrom.

Verified by me at ________ on this ____ day of _______

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