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INTERPRETATION OF REAL ESTATE ( REGULATION AND DEVELOPMENT ) ACT, 2016

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29
Jan

SUMMARISED AND SIMPLIFIED INTERPRETATION OF  REAL ESTATE ( REGULATION AND   DEVELOPMENT ) ACT, 2016

INTRODUCTION

Indian Economy in past couple of years has shown a tremendous change, from Demonetization to the famous Goods and Services Tax. The Indian government has been bringing up new standards in every filed. One of such change is the Real Estate sector. Real estate has shown a significant growth in recent years, yet it has been largely unregulated, with the absence of uniformity, standardization, and professionalism. Although it plays a critical role in fulfilling the demand for housing for the various socio-economic classes, it lacks in the protection of consumers. Since past few years, several forums laid emphasis on regulating this sector. In view of this, the Union Ministry attempted to bring standardization and uniformity in the sector by way of the Real Estate (Regulation and Development) Act of 2016.

Establishment of RERA

The Real Estate Regulatory Authority   (hereafter referred to as RERA) will come into existence one year from the date of commencement of the act, by a notification, which will be issued by the appropriate government. The Government or Governments, as the case may be, have the discretion of establishing just one RERA for two or more states, or establish more than one RERA in a single state. The Government can appoint any authority to carry out the functions of a RERA for as long as the RERA is not established. As soon as the RERA is established, all the cases would be transferred from the authority acting as RERA to the established RERA. Any aggrieved person may file a complaint with the Authority or the adjudicating officer for any violation of the provisions of the Act against any promoter allottee or real estate agent.

Functions of RERA

  1. To register and regulate real estate projects and real estate agents.
  2. To publish and maintain a website of records, publicly accessible, of all projects with details.
  3. To maintain a database online, publicly accessible, of defaulter Promoters with their names and photographs.
  4. To maintain a database online, publicly accessible, of registered real estate agents and a list of those whose registration has been rejected or revoked.
  5. To advice and make recommendations to the Government to facilitate the growth and promotion of a healthy, transparent, efficient and competitive real estate sector.
  6. To ensure compliance of the provisions of the Act.

Powers of RERA

  1. To impose penalty or interest on Promoter/Allottee/Agent in regard to any contravention of obligations.
  2. To regulate its own procedure.
  3. To suo motumake reference to Competition Commission of India of any matter that has an effect of the market power of monopoly situation being abused for adversely affecting the interest of allottees.
  4. To, suo motuor upon a complaint, call upon Promoter/Allottee/Agent at any time and order to furnish in writing information or explanation.
  5. Authority may appoint one or more persons to investigate and inquire in relation to the affairs of Promoter/Allottee/Agent.
  6. RERA may have the following powers, same as a civil court, namely: Direct the discovery and production of books of accounts and other documents.
  7. Summon and enforce the attendance of persons and examine them on oath.

iii. Issue commissions for the examination of witnesses or documents. 

  1. To restrain Promoter/Allottee/Agent from carrying any act until the conclusion of the inquiry, which it believes to be in contravention of the Act. (Interim Orders).
  2. To give directions to Promoter/Allottee/Agent, that would be binding on them. To amend orders passed by it, only within 2 years of the date of passing of order.
  3. To recover interest/penalty/compensation from Promoter/Allottee/Agent.
  • To enforce orders or directions of any adjudicating officer or the Regulatory Authority or the Appellate Tribunal, as the case may be.

IMPLEMENTATION

The Ministry through this Act has delegated responsibility to each state for efficient management of its Real estate sector. The execution of this Central Act requires the cooperation of the State Governments. The statute requires the State Government to compulsorily set up a Real Estate Regulatory Authority and a Real Estate Appellate Tribunal in all the States. The states can assign as many regulators as they want. The authority so assigned would make appropriate rules under which the Act will operate.

Although the RERA strives to maintain a balance of interest of both the consumers and promoters, yet it is more consumer-centric in nature. The salient features of the act seek to establish symmetry of information between buyer and the promoter, transparency in transactions, high accountability standards, increase in investment in the sector, and a fast and effective dispute resolution mechanism. This article seeks to give a brief evaluation on this newly developed Act which will include its implementation and issues associated with it. Moreover, the statute fills the gaps in the real estate market by establishing comprehensive provisions and setting a strict penalty for irregularities. Following are some glimpse of provisions that are included in the act:

Registration: The Act provides and prohibits the Builders and Developers not to book, sell or offer for sale, or invite persons to purchase any plot, apartment or building, as the case may be in any real estate project before registering the same with Real Estate Regulatory Authority Provided that any project of area more than 500 Sq. Mts and having more than 8 apartments should be registered with RERA.

Submission of documents: Following documents shall be submitted along with the application for registration under RERA:

  1. Details of the Promoter: Name and type of enterprise, Registered Address, particulars of registration, Name and Photographs of the Promoter.
  2. Details of the Projects launched in the preceding Five years: status of development, any delays in completion, pending cases.
  3. Authenticated copy of the Approvals and Commencement Certificate.
  4. Details of the Project: The location, sanctioned plan, layout plan, plan of development works, and other specifications of the proposed project.
  5. Ownership Documents: Proforma of the Allotment Letter, Agreement for Sale, and the Conveyance Deed proposed to be signed by the allottees.
  6. Details of Apartment: the carpet area, number and types of apartments along with areas of balcony/exclusive open terrace. Also, the number and areas of garages.
  7. Details of Real Estate Agents: Names and addresses of all real estate agents to be engaged.
  8. Details of Persons Involved in Development: Names and addresses of Architects, Engineers, Structural Engineer, and any other person involved.
  9. Declaration by the Promoter: That he has legal title to the land along with proof thereof, that the land is free from encumbrances or with details of the encumbrance, that prescribes the time period in which the project is to be completed, that 70% of the amount for the project from allottees shall be deposited in a separate account, and shall be used only for that purpose, that the Promoter shall take pending approvals on time, and that he has furnished such other document as may be prescribed by the Act.

RERA shall have an operational online system for submitting applications for registration, within a period of one year from the date of its establishment. 

Grant and Extension of Registration:  The Authority shall within a period of 30 days from receipt of application reject or grant registration. If registration is granted, then RERA shall provide a registration number, including a Login Id and password to the applicant for accessing the website of the Authority and to create this web page and to fill therein the details of the proposed project. No application can be rejected unless the applicant has been provided with an opportunity to be heard. If neither rejected or granted registration, within 30 days time, the application shall be deemed to be granted registration. Registration shall be valid for the duration of time as mentioned by the Promoter in the application, the time in which the project is to be completed. A registration may be extended by an application from the Promoter for reasons of force majeure.

Revocation of Registration: RERA may, suo motu, or on receipt of a complaint, or on the recommendation of the competent authority, revoke registration on the following grounds:

  1. Default and violation of terms and conditions by promoter: Promoter makes default in doing anything required under the Act or Rules, or Promoter violates terms and conditions of the approval granted by a competent authority, or
  2. Unfair Trade Practices: Promoter is involved in any kind of unfair practices (false representation of the standard of services, of approval or affiliation that does not exist, or any other false or misleading representation regarding the services, or practice of any fraudulent practices). Revocation may only be done after RERA gives in writing, a 30 days’ notice stating the grounds for proposed revocation, and consideration of any cause shown by the Promoter within the notice period.

Effects of  revocation by Rera:

  1. It shall debar the Promoter from accessing the Authority’s website in relation to the project and the name of the Promoter shall be added to the list of defaulters along with his photograph on the website. Other State RERAs shall be intimated of such revocation.
  2. It shall facilitate the remaining development works to be carried out as per the decision was taken by it, which may include carrying out of the remaining development works by a competent authority or by the association of allottees.
  3. It Shall direct the bank holding the project bank account to freeze it, and thereafter may direct the bank to de-freeze it for the purposes of facilitating the completion of the project.

Setting up of Arbitration Tribunal: The Act also provides for redressal bodies and tribunal to be set up to solve disputes. This act focuses on a quick redressal of grievances. The Tribunal shall have the powers same as a civil court and it will not be bound by the procedure in the Code of Civil Procedure, 1908 or by the rules of evidence contained in the Indian Evidence Act, 1872 but shall be guided by the principles of natural justice. Applicant/Appellant may either appear before the tribunal in person or authorize one or more of the following: accountants, company secretaries, cost accountants, legal practitioners, or any of its officers. Every order made by the Tribunal shall be executable by itself or via civil court having local jurisdiction as if it were a decree made by the court. The appeal against the order of the Tribunal can be made to the High Court within a period of sixty days from the date of communication of the decision or order of the Appellate Tribunal, one may file an appeal to High Court on the grounds specified in section 100 of the Code of Civil Procedure, 1908.

No appeal shall lie against any decision or order made by the Appellate Tribunal with the consent of the parties.

Functions and Duties of Promoter:

  1. Audit of Accounts: The promoters should get their accounts audited with a Chartered Accountant within a period of 6 months from the end of financial year.
  2. Creation of Web Page: The promoter should  create a web page on the site of RERA after receiving Login ID and Password and share details of proposed project for public viewing including quarterly updates of bookings of apartments, flats, garages and quarterly updates of projects, approvals and other information as may be necessary and prescribed by the RERA.  Advertisement if any of the promoters should contain prominently the web page address on the website of RERA, where all details regarding the project are available.  
  3. The issue of Documents and duties at the time of booking and issue of allotment letter :
  4. Sanctioned plans, layout plans with specifications as approved by competent authority, by display at site or as may be prescribed by RERA; and
  5. Stage-wise schedule of completion of the project.
  • Warranties to be provided by the promoter for the project property and its title.
  1. Insurance is to be obtained by the promoter for the title, construction of the

project and the final outcome.

Issue of documents and duties after the booking and issue of allotment letter following details and Duties :

  1. i) To handover Completion Certificate or Occupancy Certificate to the allotted or association of allottees.
  2. ii) To provide and handover Lease Certificate to the allottees or association of allottes at the time of giving possession of project, if a project is developed on leasehold land.

          iii) To provide all essential services at reasonable charges till handing over possession of project to the allottees or                        association of allottees.

  1. iv) To take effective steps in the formation of an association of allottees and to do all acts and take all necessary steps to register the association of allottees.
  2. v) The promoter should ensure the execution of registered conveyance deed in favour of the allottee along with undivided proportionate title in common area to the association of allottees.
  3. vi) The promoter should pay for all outgoings for which collections made from allottees until the transfer of physical possession to allottees or association of allottees. Not to mortgage or create charge on the apartment, building or plots after allotting the same to the allottees, which has an effect on the rights of allottees.

vii) The promoter also has the right to cancel allotment be in accordance with the rules and regulation prescribed under the Act and the Agreement with the allottees. Although, allottee shall have the right to approach the Authority aggrieved by such cancellation citing it unilaterally and not in accordance with the terms of the agreement of sale.

  1. Advance or Deposit :
    1. An obligation has been imposed on the promoters to keep 70% of the amount realized from allottees in a separate bank account and same will be expanded only on the project for which it is received on the basis of stage of completion as certified by the Architect or Chartered Accountant or other authority as may be prescribed.
    2. The promoter is liable to compensate any person making advance or deposit for any loss sustained by reason of any false statement in any advertisement or prospectus.
  • Not to accept any advance or deposit or application fees more than 10% of the cost of apparent plot or building without first entering into an agreement for sale and registering the same agreement.
  1. The Agreement of Sale should be in standard form and should contain provisions as may be prescribed. The project should be completed according to the sectioned plan or layout approved by the competent authority.
  2. Changes in Sanctioned Plan and structural defects by the promoter: Not to make any alterations or additions to sanctioned plans, layouts plans and specifications other than minor additions or alterations without previous written permission of at least two third of the allottees other than the promoters.  The promoter shall also first obtain a consent form two-third allottees and written approval of the Authority before transferring or assigning his majority rights and liabilities in the project. In case of changes in sanctioned plan and structural defects  the promoter will be liable for followings:
  3. i) Liability to rectify structural defects or defects in workmanship within a period of 30 days if brought to the notice of the promoter within a period of 5 years from the date of handing over the possession of the project to the association of allottees. On failure, promoter has to compensate the allottees.  The project should be completed according to the sectioned plan or layout approved by the competent authority.
  4. ii) Liability to compensate allottees for loss caused by defective title. The claim for such compensation shall not be barred by the law of limitation. Liability to compensate allottee for failure to discharge obligations imposed by the Act or rules or regulations thereunder or by agreement for sale.
  • Failure to give the possession at the right time: If Promoter is unable to complete or give possession on time as stipulated in the agreement for sale due to discontinuance of his business as a developer on account of suspension or revocation of the registration under this Act or for any other reason, he shall be liable, if the allottee wishes to withdraw from the project, to return the investment with interest on it as well as compensation for the same. If the allottee does not wish to withdraw, then the Promoter shall be liable to pay interest for every month of delay till possession. The promoter is liable to pay compensation for failure in discharging any other obligation imposed on him under the Act or the agreement for sale.

In case of loss caused to the Promoter due to the defective title of land or failure to discharge any other obligations imposed on him under this Act, he is liable to compensate the allottees according to the Act.

  1. Charge or encumbrance on the property: The law prohibits developers to create any kind of charge or encumbrance on any of the project after executing the agreement of the same. In case, any charge or encumbrance is created, it will not affect the right and interest of the concerned allottee.

  1. Compensation for loss/damage due to incorrect or false information provided by Promoter: Promoter shall have to compensate any person who makes a payment on the basis of information in the notice advertisement or prospectus or model apartment and sustains loss or damage due to incorrect, false information. If such person shall decide to withdraw from the project then his entire investment along with interest shall be returned to him along with the compensation.

Rights and Duties of Allottees:

  1. Allottee shall be entitled to obtain information regarding sanctioned plans, layout plans with specifications as approved by the competent authority, and any other information as provided for in the Act or the agreement for sale.
  2. Allottee shall be entitled to obtain stage wise schedule of completion of the project.
  3. Allottee shall be entitled to claim possession of the apartment on such date as declared by the Promoter to be the date of completion.
  4. Allottee shall be entitled to obtain a refund with interest and compensation from the Promoter if the Promoter fails to give possession of the apartment in accordance with terms of the agreement of sale or due to revocation/suspension.
  5. Allottee shall be entitled to have the necessary document and plans, including that of common areas after physical possession of the apartment.
  6. Allottee shall be responsible to make payments within such time and in the manner as prescribed in the agreement for sale for an apartment, including any taxes and charges.
  7. Allottee shall be liable to pay interest for any delay in payment towards any amount or charges mentioned above. Obligations and liabilities of the Allottee shall be reduced when mutually agreed upon by allottee and promoter.
  8. Every Allottee shall participate in forming an association of allottees.
  9. Allottee shall take physical possession of the apartment within 2 months of issuance of the occupancy certificate.

Registration of Real Estate Agents: Before facilitating the sale or purchase of any unit part of a real estate project registered under the Act, being sold by the Promoter, the real estate agent (for short ‘Agent’) must have obtained registration under this section.

Application for registration as a Real Estate Agent:  For registration as an Agent under this Act, one must make an application to RERA, along with such fee and relevant documents, as may be prescribed. Registration may be granted to an Agent for the entire state or union territory, as the case may be. Registration may be valid for the prescribed period, and subject to renewal, in the manner and on payment of such fee, as may be prescribed. A registered Agent shall have a registration number, which shall be quoted in all sales facilitated by him.

Revocation or Suspension of registration of Real Estate Agent: Registration of an Agent may be revocable or suspendable on the grounds such as breach of provisions of the Act, or when the Authority is satisfied that such registration has been obtained by the Agent via misrepresentation or fraud. Opportunity to be heard in this regard shall be given before any such revocation or suspension.

Functions of Real Estate Agents:                                      

  1. To maintain proper books of accounts and records as prescribed;
  2. Not to facilitate sale or purchase of area under an unregistered planning area;
  3. He should not engage itself in any unfair trade practices;
  4. To provide all documents/information to the allottee required at the time of booking, and perform other functions as prescribed.

Penalties & Punishment for Promoter: 

  1. For non-registration: Promoter found in contravention of section 3 (registration) shall be liable to a penalty up to the extent of 10% of the estimated cost of the project. Repeat violation or non-compliance of the above shall be punishable with imprisonment of up to 3 years or with fine up to the extent of 10% of project cost, or both. 
  2. For providing false information under Section 4: (Application for Registration). A Promoter for providing false information or contravention of Section 4, shall be liable to a penalty up to 5% of project cost.
  3. For Contravention of any other Provisions: A Promoter for contravention of provisions other than Sections 3 & 4, shall be liable to pay a penalty up to 5% of project cost.
  4. For failure to comply with orders of Authority: A penalty for every day during which default continues extending up to 5% cost of the project.
  5. For failure to comply with orders of Appellate Tribunal: Punishable with imprisonment for a term which may extend up to three years or with fine for every day during which such default continues, which may cumulatively extend up to 10% of project cost.

Penalties & Punishments for Real Estate Agent:

  1. For Non-registration and Contravention of Sections 9 & 10: Any Agent if contravenes Section 9 (Registration) or Section 10 (Functions), he shall be liable to a penalty of Rs. 10,000/- for every day during which default continues, which may extend up to 5% of the cost of an apartment.
  2. For failure to comply with orders of Authority: Liable to a penalty for every day during which such default continues, which may cumulatively extend up to 5% of the estimated cost of an apartment.
  3. For failure to comply with orders of Tribunal: Punishable with imprisonment for a term which may extend up to 1 year or with fine for every day during which such default continues, which may cumulatively extend up to 10% of the estimated cost of the apartment.

Penalties for Allottee:

  1. For failure to comply with orders of Authority: Liable to a penalty for the period during which such default continues, which may cumulatively extend up to 5% of the apartment.
  2. For failure to comply with orders of Tribunal: Punishable with imprisonment for a term which may extend up to 1 year or with fine for every day during which such default continues, which may cumulatively extend up 10% of the apartment.

HURDLES INVOLVED IN THE IMPLEMENTATION OF ACT

RERA is a significant move towards a standard platform for all real estate market. Despite it being a well-crafted piece of a statute, it has its own shortcomings. Following mentioned pointers highlights some issues associated with the Act:

  • Political Influence: The implementation of the Act may not be an easy task due to delaying schemes in an implementation of the provisions of the Act. This may be due to conflict of interest of the politicians who have a major stake personally in the real estate sector. Hence, political reluctance might be a major obstruction.
  • Compliance Issue: As mentioned in Section 4 of the Act to deposit seventy percent of the project amount into a separate account will create a sort of problem as now the builders will have the responsibility to inform about every transaction. In addition to it, the requirement of approval by the project’s engineer, architect, and a Chartered account is an exercise in futility as they are likely to make report favorable to the builder.
  • Delays due to the various types of Govt approvals: The entire approval procedure as mentioned in the Act is to be obtained before the initiation of the project. It is pertinent to mention here that, there is no single window clearance of the entire approval process and therefore, it would definitely lead to delay in projects that would ultimately attract penalties for the promoters. The act does not accommodate for the delay in projects because of state agencies.
  • Black money and related issues: There is no conclusive system for the usage of black money in a transaction, nor does it addresses the issue of availability of housing stock across all the income groups, or the title system of land.
  • Centre and State disputes: There might to a contradiction between Central and State laws with respect to rights over land and land improvements which might bring problem in the implementation of this act.

For example- Land Laws in the states of Maharashtra and Haryana differ from the Central Law and there might be a conflict between the two laws.  

CONCLUSION

The Real Estate sector works at two levels, i.e. at a micro level, of individuals and at a macro level, of the entire market and the Act will affect both the levels positively. RERA consists of a comprehensive set of provisions that will change the entire real estate model. With the extensive set of guidelines available for the promoters to launch a project, would eventually change the entire real estate business system. Both the changes as mentioned above will affect the economy positively.

Further, with certain modification, RERA will lead to a successful statute, ending the lack of accountability and unwarranted project delays, and will bring the transparency, informative asymmetry between the consumers and builders and consumers satisfaction.

The newly implemented law holds the key to the future growth of the Indian Real Estate sector as it is expected to bring transparency and boost the demand in the sector. Finally, consumers can breathe free and invest confidently in the project by relying on the law. Below mentioned are the mentioned are pointers highlighting some of the benefits associated with the Act.

 

HARI GLOBAL ADVISORY SERVICES

(Legal Advisors in Corporate, Taxation and Financial Laws)

Written by Mr. Arun Sharma, B.Com (H), F.C.A., L.L.B.

And Supported by Advocate Shivali.

For any additional Information reach out to us at

teamlegal@hariglobal.com

or

arun@hariglobal.com

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