This article is written by Nihar Ranjan Das, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.
It is nothing, but a story between the Land owner and the Builder/Developer.
A landowner having a piece of land has various opportunities to get revenues out of it. He may lease it out to get continuous income or can use it as a commercial property. Apart from that he may like to wait for the price of the land to appreciate and sell it for a good amount or he can construct a commercial building over there. Our discussion is exactly related to this. If a Land owner decides to construct a commercial building over his land, there are certain things he has to look after. First of all the Land owner will have to arrange a huge amount of funds for the construction as well as he will also have to get approvals from the appropriate authority and also have to take the responsibility of construction. So to get those things done, he might not have that requisite expertise, time and fund to initiate the plan.
Here, the Builder/Developer makes the entry into the story. The Land owner has enough land to construct a commercial building but doesn’t have requisite knowledge and funds. A Builder on the other hand, having the expertise in those areas can easily fill that gap which the Land owner doesn’t have. So to get a solution, the Land owner and the Builder/Developer together take the responsibility to start the development work jointly.
But how is it possible?
Joint Development Agreement (JDA)
It is an arrangement between the Land owner and the Builder/Developer, where the Land owner contributes his land and the Developer takes the full responsibility of obtaining approvals, construction, launching and marketing the project with the help of financial resources. The Land owner in return gets the consideration in form of lump-sum or percentage of sales revenue or some specific percentage of constructed area in the project, it purely depends upon the terms and conditions as mutually agreed by the parties.
In this manner, the Land owner and the Developer with the engagement pooled together with the help of appropriate resources and requisite expertise, so as to bring out the maximum productive result. Mostly there are 2 kinds of JDA:
- Area sharing Joint Development Agreement
- Revenue sharing Joint Development Agreement
General Power of Attorney (GPA) Agreement
Before discussing the Agreement, first we must have to understand the General Power of Attorney. It is the authority or power provided by the Principal/Grantor to the Agent/Attorney Holder to perform some certain task on behalf of the Principal.
In our above example, if the Land owner decided to transfer the authority or power to the Builder/Developer to perform or construct the building/apartment in his own land, so the Land owner as a Principal through his power to the Builder as his Attorney Holder, to perform only the development work.
So the authorization is only limited to the development work. So the Attorney Holder can’t perform any other task, as expressly granted by the Principal.
For such engagement, the Principal and the Attorney Holder must enter into an Agreement, commonly known as General Power of Attorney Agreement, in which all the rights and liabilities shall be mentioned in clarity to avoid any further disputes and misunderstanding, which may arise from such transfer.
How does the JDA and GPA Agreement actually work
Again with the above example, let’s discuss this:
Land Owner with the help of a Joint Development Agreement with the Builder/Developer, engages the developer to take the full responsibility of development works including the necessary approvals, construction, launching and marketing the project with the help of financial resources. But the Joint Development Agreement will never allow the Developer to sell the Apartment or flat in any manner.
The JDA is only an arrangement between the Land owner and the Builder/Developer, where the Land owner contributes his land and the Developer takes the full responsibility of Development work.
Here, the GPA Agreement will come into force. The Land owner confers the authority to the Builder/Developer to develop in the said land and sell the Apartment/Flat on behalf of the Land owner and the Land Owner will get some share from the overall profit or may charge a lump sum amount as per the terms and conditions set forth in the Development Agreement. Usually the Land owner gets 30-40% share in the total outcome.
As per the provision of the Transfer of Property Act, 1882, the Developer shall not be the transferee or buyer of the development work, under the Joint Development Agreement. The ownership still lies with the Land owner only. So the Land owner confers the authority to the Builder/Developer by way of a General Power of Attorney and the same General Power of Attorney must be registered with an appropriate value of stamp paper with the Registrar, which shall legally bind both the parties. The stamp duty for such a GPA under the Joint Development Agreement may vary from state to state.
Even after registration of both JDA and GPA, it is required for both the parties to cooperate with each other at every instance. After the completion of the Flat/Apartment and granting of occupancy right by the competent authority, the Land owner himself will grant the conveyance deed in favour of the buyers. So even after the execution of those Agreements, co-operation from the Land owner and the Developer is very much essential.
If the Land owner fails to cooperate with the developer, the Developer shall have the sufficient rights for specific performance to sue against him in a court of law and if in case of any breach of the terms of the Agreement done by the Developer, the Land owner also have the right to revoke the Power of Attorney as well as the legal action against that Developer.
Let’s take an example of such type of Agreement for Sale, where the engagement of the Land Owner and the Developer shall be done by executing both the JDA and GPA.
Example of an Agreement for Sale by and between the Land owner and Developer (who is also the Attorney holder):
Agreement for sale
This Agreement for Sale (“Agreement”) executed on this (Date) day of ______ (Month), 2020 at Bhubaneswar, Odisha.
By and between
1) Mr. A Jaiswal, 2) Mr. B Jaiswal, Mouza-*****, Unit-33, Tehsil- Bhubaneswar, hereinafter referred to as the “Land Owner” (which expression shall unless repugnant to the context or meaning thereof be deemed to mean and include his/her heirs, executors, administrators, successors-in-interest and permitted assigns) of the of the First Part;
************(Pvt.) Ltd., (CIN__________________), a company incorporated in India under the provisions of the Companies Act, [1956 or 2013, as the case may be], having its registered office at Nilakantha Nagar, P.O/P.S: Nayapalli, Bhubaneswar, Dist- Khordha, represented by its Managing Director Mr. X, (Aadhar no __________________), Aged about___, S/O- Late ******, hereinafter referred to as the “Promoter/Developer” (which expression shall unless repugnant to the context or meaning thereof be deemed to mean and include its successor-in-interest, and permitted assigns) of the of the Second Part;
Mr./Mrs__________________________, son / daughter of ______________, aged about _________, (Aadhar no.__________________) an Indian inhabitant residing at ——, (PAN ___), hereinafter referred to as the “Purchaser” (which expression shall unless repugnant to the context or meaning thereof be deemed to mean and include his/her heirs, executors, administrators, successors-in-interest and permitted assigns) of the of the Third Part;
The “Land Owner”, “Promoter/Developer” and “Allottee/Purchaser shall thereafter collectively be referred to as the “Parties” and individually as a “Party”.
- The Promoter/Developer/Land Owner is the absolute and lawful owner of [khata no. **, Plot No. **, totally measuring an area Area Ac.0.** Dec], [khata no. **, Plot No. ***, totally measuring an area Area Ac.0.*** Dec and [Khata No. **, Plot No. **, Area Ac.** Dec situated at Mouza-Bhubaneswar, Tehsil- Bhubaneswar, District- Khordha, (detailed property mentioned in Schedule-A)at the office of the District Sub-Registrar, Bhubaneswar;
- Mr. X, Managing Director of ****** (Pvt.) Ltd., holding the G.P.A of Schedule- B Property, vide Registered G.P.A No. ******, Dt. 08/10/2010, G.P.A No. *****, Dt. 08/10/2010, G.P.A No. ******, Dt. 26/11/2019, has also obtained the permission under Sub-Section (3) of Section- 16 of Orissa Development Authorities Act, 1982 for construction of the said Project (as mentioned hereunder);
The Developers are entitled and enjoined upon to construct buildings on the project land in accordance with the recitals hereinabove;
- The Promoter/Developer being the G.P.A holder and lawful Land Owner of the abovementioned land, total measuring an Area Ac. 5.536 Dec. and the same has already been converted into “Home Shed/Gharabari” status.
- Also for your reference the Party of the First Part (Land Owner) and the Party of the Second Part (G.P.A holder) have already entered into a Joint Development Agreement for the said Project, vide Notarized Document Number:_____________, Dt._____;
- The Promoter/Developer has proposed to construct on the Project Land [residential unit/Apartments/Flats],
- The Promoter/Developer is fully competent to enter into this Agreement and all the legal formalities with respect to the right, title and interest of the Promoter/Developer regarding the Said Land on which Project is to be constructed/have been completed as per the Legal Opinion submitted by Adv. ***;
- The Bhubaneswar Development Authority (hereinafter referred as B.D.A) has granted the commencement certificate to develop the Project vide approval dated 15/02/2020, bearing Letter no.4330/BDA Bhubaneswar;
- The Promoter/Developer has obtained the final layout plan, sanctioned plan, specifications and approvals for the Project and also for the apartment, plot or building, as the case may be, from B.D.A/ B.M.C. The Promoter/Developer agrees and undertakes that it shall not make any changes to these approved plans except in strict compliance with Section-14 of the Real Estate (Regulation and Development) Act, 2016 and other laws as applicable;
- The Parties, relying on the confirmations, representations and assurances of each other to faithfully abide by all the terms, conditions and stipulations contained in this Agreement and all applicable laws, are now willing to enter into this Agreement on the terms and conditions appearing hereinafter;
- The Parties have gone through all the terms and conditions set out in this Agreement and understood the mutual rights and obligations detailed herein;
- The Parties hereby confirm that they are signing this Agreement with full knowledge of all the laws, rules, regulations, notifications, etc., applicable to the Project;
Advantages of such Engagement
- The Developer shall not be required to invest anything in Land/Site initially before the construction.
- Parties can partially avoid the stamp duty.
- The development work shall be fast-paced.
- The Land owner will be the most profitable to get into this Agreement, instead of selling the land.
- Competent consideration for both parties.
By entering into the Joint Development Agreement and a registered General Power-of-Attorney, it will fulfil the needs of both the parties. The Land owner does not have to get into the trouble of constructing the property, nor has he to arrange for funds for construction. At the same time, the Developer gets access to land and does not have to raise money for purchase of land. The Developer need not block his funds and in fact can use his resources for a number of projects simultaneously. A Land owner usually gets 30 to 40 percent share and the balance goes to the builder.
However, the exact share percentage/value depends on the terms and conditions set forth in the Agreement. As a procedural aspect, the Land owner must execute an irrevocable General Power-of-Attorney in favour of the Developer and the same must be registered on appropriate value stamp paper with the concerned Registrar, in order to be legally binding on both the parties.
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