joint development

How to derive revenues out of land ownership

land-for-sale-signA person owning a piece of land has various alternatives to get revenues out of it (apart from leasing it out or using it as a commercial property). First alternative is to wait for the price of the land to appreciate and retain it for a good amount of time. Second alternative is to get a building constructed. For that an owner will have to not only arrange for the additional finance required for the construction, but he will also have to get approvals and look after the construction activities. He might not have the requisite expertise, time and money to complete the construction. A builder on the other hand if is willing to construct one, might have to block his funds so as to purchase the piece of land in the first place, because purchasing the land constitutes a large part of the total investment. He might fall short of the funds required for the expenditure that needs to be incurred. The third alternative is a solution to the problems faced by these two entities i.e. A Joint Development Agreement. This is an arrangement between an owner of the land and a builder where the land owner contributes the land and the developer undertakes the responsibility of obtaining approvals, property development, launching and marketing the project with the help of his financial resources. As beneficial it is, it’s not devoid of any limitations. The landowner in these cases, has to wait for a long time till the construction is complete. During this period, real estate market might suffer changes. The amendments in Income Tax Act impacts the builder and landowner. Prospective buyers have to take due precaution while purchasing flats which are under such form of agreement.

Joint development models

Developing agreement models are of various types

  • A land owner may come into an agreement with a developer only to develop the land under a fixed consideration which may be in cash or kind. The developed area is divided into plots and sold as plots only. Here again the Land owner may be owning the land as ‘Capital Asset’ or as’ Stock in trade’. Here the developer only gets paid for his services.
  •  One or more land owners may enter into an agreement with a Developer to construct a Building and then to share the Built up area in a definite proportion. Here again the Land owner may be owning the land as ‘Capital Asset’ or as’ Stock in trade’.
  • A land owner may contribute his land to a partnership firm and then the partnership firm acts as the developer and develops the land. On the completion of the project profits are shared.

The variation might be on other grounds too. The nature of the structure may be commercial or residential; the percentage of the benefit of land owner may be different and the time of passing on the benefits or project period may differ. The form of arrangement will decide the statutory obligations arising out of it.

How the joint development mechanism works

#1 Profit sharing and price determination

Depending upon the land price, the joint development ratio is decided among the parties. In most situations, the builder will agree to allot a few flats to the landowner and will pay a token advance. In consideration for this, the landowner will part with a portion of undivided share (UDS) of land in favor of the builder or his nominee and will also allow the builder to construct and sell the agreed number of flats.The developer is given right to seek prospective buyers, fix sale prices for his share of the flats.

A certain percentage of constructed area is set aside for the owner. Usually he gets a 30-40% share in the total outcome.  In the case of sharing revenue from the built-up space, it is the responsibility of the developer to develop the parcel of land jointly with the land owner and sell or lease the built-up space to third-party purchasers/lessees and share the proceeds in an agreed ratio. Owner is entitled to either disposes off the constructed area or may decide to retain the share of his built up area, or sell it at a later stage. The remaining portion i.e. the flats are sold by the builder as per his interest by entering into separate agreement with the prospective owner on his own capacity and not on the basis of GPA holder of the owner.

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#2 Property ownership and license to construct

The developer himself does not buy the land/property from the owner.The developer is not the transferee or buyer of the flats as per the Transfer of Property Act, 1882 under the Joint Development Agreement. The sole ownership lies with the owner of the land, but the landowner grantsthe developer along with development rights, a license to enter the land for the purpose of development but not as a transferee/buyer. The license/authority to enter the land is typically given by way of a power of attorney issued in favor of the developer.The general power of attorney should be registered on appropriate value stamp paper with the concerned authorities (registrar) in order to be legally binding on both parties. The stamp duty payable for this kind of GPA given to the builder under a joint development agreement is Rs 1,000. This may vary from state to state.The license gives way to the developer to gain approvals and raise debt by way of mortgage or appoint third parties for advertisement. This power of attorney granted without permission can be revoked by the person granting it unless it’s issued as a part of discharging contractual obligations. In such case revocation would lead to breach of contract.

Once the plan is approved, the owner should get an allocation agreement done recording the constructed area which comprises his share and the area going to the developer. Once the building is ready and the allocation agreement is done, it is better that a deed of declaration is executed recording the constructed area, which would reflect the area constructed for the site owner under the joint development agreement.

#3 Continuous cooperation between the owner and the builder

For the purposes of transfer of the constructed space by the builder, the co-operation of the owner is highly essential. Once the construction of the flat is constructed and occupancy right is granted by the competent authority to the owner, the owner will himself execute the sale deed in favour of the flat buyers. The developer will have the right for specific performance which shall be specifically enforceable in a court of law if the land owner fails to cooperate with the developer in selling/leasing the built-up space on the land.However, in case of breach of the terms of the development agreement, the land owner would have the right to revoke the power of attorney.

 

Follow the links below to know more on the related topics:

Intellectual Property Issues In Joint Ventures

An Overview On The Working of Dispute Resolutions Provisions In Joint Ventures

 

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23 COMMENTS

  1. I make joint development agreement with a builder for construction of building on my land.we mutually decided 2 floors of building to builder as consideration.initially construction work done by builder in full swing and builder earn our faith.builder asked us to sign gpa in favour of him before completion of building but we refused to sign,later he asked us again n again to sign as builder said i dont have funds to complete the building then presurize us to sign only photocopy of gpa.so that he can raised funds from buyer and complete the building but he misused that gpa and sold all his flats and given possesion to buyer of all his flats.now 18months has gone he is avoiding our calls and whenever we met him builder making promise after promise.please suggest me a way out
    Mob.no 8920873365

  2. Who will be the owner of the land after the completion of project if our shares are 50%

  3. I am a flat buyer from builder share. In our apartment 30 flats belongs to builder (which are already sold by builder) and 30 belongs to land owner. My question will land owner have rights on entire land or just half of the land as 30 flats are built and sold by the builder and now we are the owners of the flat.

  4. Is it safe to buy under construction flats? Even Home loan does not ensure that the documentation is clear and does not guarantee you are safe!
    Before you purchase a flat, you have to have a title and document search conducted by a competent advocate. You cannot do it yourself. You have to use the services of a competent advocate. It is a professional job to be done with professional assistance.
    Many a times people suggest that if you are planning to buy a flat, the best course of action is to buy it through a bank loan. They do all the checks, including that of the credentials of the builder, to ensure that the market value of the collateral does not diminish. So, even if you have adequate money, take a small loan from a bank so that it too is involved in the whole process. Later, if you want, you can prepay the loan as this does not attract any penalty.
    It’s the biggest investment of your life and usually requires immense sacrifices. But staking your savings and signing on for a bank loan do not guarantee that your dream home will materialize.
    What if after spending time and money on document search by competent advocate and getting a home loan also does not guarantee you your home? Yes its true, even after proper searches and steps to ensure no mistakes, builders may exploit every small loop hole in various agreements to their advantage and to delay your possession or even harass you.
    Most real estate projects are done on a joint venture basis. A joint development agreement is an agreement between a land owner or owners and the builder/promoter regarding any real estate joint venture project. A joint venture is one where a land owner with a vacant land or land with building enters an agreement with the builder to construct new projects. This way, the capital, construction and legal work will be carried out by the builder whereas the land will be provided by the builder. Usually the land owner and the builder shares the profit in some ratio, say 60:40 or 50:50 based on location, construction cost, development cost etc.
    Case Study:
    A redevelopment project in Kurla (W), in Mumbai was jointly developed by a renowned builder and a land owner, where in the share of builder and owner was 50-50 of the free saleable area. However, the construction cost for flats of the original tenants was to be borne by the Owner as per the bills provided by Developer. The Owner was allowed to sell 75% of his 50% share so as to enable him to pay the Developer with the cost for constructing the tenant’s portion of flats. Balance 25% of Owners share was to be sold only after Owner pays all dues to Developer. Flats were allocated to the landowner under JDA with specific flat numbers. The agreements between Owner and Developer clearly stated which flats Owner was not to sell unless he pays all the dues to Developer and which flats Owner was allowed to sell to enable him to pay the Developer. Owner and Developer sold their individual share of flats on principle to principle basis as per the Joint Development Agreement between them, however owner sold some flats from 25% share which he was not to sell unless he repaid all the dues to the Developer. Owner had paid the developer from the money he received from sale of his share of flats, however there is still some amount which developer has claimed from the Owner. The Owner disputed the amount to be paid as he feels he has paid quite a lot to the developer and developer’s additional claim is unrealistic. The Construction was delayed for more than 5 years already, however even after the construction was complete, the buyers who purchased the flats from Owners were not given possession as there was a dispute between the Owner and Developer on the amount to be paid by owner for the construction cost of the tenants portion of the building.
    The Joint Development agreement was clear to say that Owner can sell 75% of his share but when the dispute arose between the owner and developer, the Developer claimed his lien on all the Owners share of flats unless his dues are paid.
    The Owner is very old and suffering from renal disease, now the buyers who have registered agreements with the owner and also got home loans approved, are in a limbo as they have paid almost 95% of the property value, are paying monthly EMI on their home loans, staying in rental accommodation paying huge monthly rent and now have an additional burden of legal charges as they have applied in High Court at Mumbai for relief.
    Such case studies put a big question on safety while buying under construction property. Even after getting home loans you are not sure that you will get your dream home on time.

  5. Dear Sir, We are about to get our numbers of flats from Joint Development Agreement with Promoter/developer. We, three brother and sisters are joint owners of said land and are mutually agreed to share our share of flats in a pattern agreed and decided by us, where we intend to sale some flats and retain some for us (either for dwelling or rent purpose). Now we want to know by which documents from promoter, we can have proof of ownership right of our respective flats for our future reference in case of mutation,sale rent etc.
    DEED OF DECLARATION-May we have right to demand separate ‘Allocation Agreement’ for each of our share of flats in the manner we recommended (mutually agreed among us). As landowners,we are not supposed to register flats retained as our own use. But should it be necessary to register ‘Deed of Declaration’ incorporating detail measurement/description etc. of each of our retained flats.

  6. On the 11th February 2011 we the four land owners made an agreement with the developers to build flats for us but instead of building all the land got into their own name from the Kolkata Municipal Corporation.After two years we got the separate assessee Nos.Power of attorney was cancelled.The said developers had amalgamated the four land into one land.Now the question is whether the amalgamation deed and notorised agreement will be any affective now or not? What is the validity period of the development agreement?The amalgamation deed should be cancelled or not since the separate Assessee No has been created.Please reply

  7. SIR, I AM A LAND OWNER HAVING SOME EXTENT OF LAND. I ENTERED INTO A JDA WITH A BUILDER AND ELIGIBLE TO GET 40% SHARE ON BUILT UP AREA. LIKE ME OTHER ADJACENT LAND OWNERS WERE ALSO INVESTED THEIR LANDS IN THE SAME PROJECT. I WANT TO RETAIN MY SHARE OF BUILT UP SPACE. HOW CAN I GET CLEAR TITLE OVER MY SHARE ? IS IT NECESSARY TO EXECUTE CONVEYANCE DEED BY PAYING HEAVY STAMP DUTY BY OTHER LANDOWNERS FOR THE PROPRTIONATE/UNDIVIDED SHARE OF LAND OVER WHICH THE ENTIRE PROJECT STANDS IN FAVOUR OF ME FOR MY SHARE? PL.SUGGEST ALTERNATIVE WAY TO GET MYSELF CLEAR/ABSOLUTE TITLE.

  8. CANCELLATION AGAINST AGREEMENT 04/07/2015 WITH
    DEMANDING 100% REFUND ON MY PAID ADVANCE AMOUNT WITHOUT ANY DEDUCTION AS
    I AM CANCELLING CONSTRUCTION AGREEMENT AGAINST DEAL BEFORE ANY CONSTRUCTION JOB BEING STARTED AS ON 25/12/2016 , THIS DEAL WAS DONE ON 27-07-2015 :-

    FIRST PARTY- PURCHESOR : CHHATISHGARH.

    AND
    SECOND PARTY-DEVELOPER: AS PER AGREEMENT ADDRESS DETAILS – CHHATISHGARH.

    NO OBJECTION CERTIFICATE BEING RECEIVED FROM —–X——- ON 29/11/2016 FOR CONSTRUCTION BY SELF SO NOW ——Y——- CONSTRUCTION HAVING NEITHER ANY OBJECTION ON CANCELLATION OF THIS CONSTRUCTION AGREEMENT NOR HAVING ANY RIGHTS TO FORCE purchaser THAT THE HOUSE WILL BE CONSTRUCTED ONLY BY DEVELOPER Y AS NO SUCH CONDITIONAL AGREEMENT WAS DONE IN BETWEEN Y & OF purchaser.

    CONSEQUENTLY ON RECEIVING NOTICE FOR CANCELLATION OF CONSTRUCTION AGREEMENT NOTICE FROM purchaser AS HE IS NOT READY TO ACCEPT “Y”AS DEVELOPER OF HIS HOUSE & THE ADVANCE AMOUNT PAID FOR CONSTRUCTION AGAINST PAYMENT SCHEDULE HAVE TO BE RETURNED POSITIVELY WITHOUT ANY OBJECTION AND WITHOUT ANY DEDUCTION ON PAID AMOUNT AS THE ADVANCE PAYMENT AMOUNT WAS PAID ON BEHALF OF CONSTRUCTION TO “Y” THROUGH S.B.I. CHEQUES & FOLLOWED THE AGREEMENT PAYMENT SCHEDULE & GOT PAYMENT RECEIPT FROM Y, BEFORE DONE ANY CONSTRUCTION JOB BEING HELD OR STARTED AS ON 25/12/2016

    DETAILS OF AMOUNT PAYMENT DONE FROM SBI BANK BY PURCHASER WITH TRANSACTION DETAILS FOR WHICH DEMANDING REFUND BACK TOTAL ADVANCE PAID AMOUNT FROM “Y”:

    1) ON 06/05/2015 PAID TO Y AMT RS 50,000/- FOR BOOKING AMOUNT THROUGH SBI MULTI CITY CHEQUE NUMBER AND FROM ACCOUNT NUMBER
    2) ON 04/06/2015 PAID TO Y AMT RS 3,50,000/- FOR NEXT INSTALLMENT AMOUNT THROUGH SBI CHEQUE NUMBER —- AND FROM ACCOUNT NUMBER —–
    3) ON 04/08/2015PAID TO Y AMT RS 3,00,000/- FOR NEXT INSTALLMENT AMOUNT THROUGH SBI CHEQUE NUMBER —— AND FROM ACCOUNT NUMBER ——
    4) ON 04/08/2015 PAID TO Y. AMT RS 3,00,000/- FOR NEXT INSTALLMENT AMOUNT THROUGH SBI CHEQUE NUMBER ——- AND FROM ACCOUNT NUMBER ——-
    5) ON 02/11/2015 PAID TO Y AMT RS 3,25,000/- FOR NEXT PAYMENT AMOUNT THROUGH SBI CHEQUE NUMBER ——- AND FROM ACCOUNT NUMBER ——–
    HOPING ON RECEIVING OF THIS CANCELLATION NOTICE FROM PURCHASER TOTAL AMOUNT TO BE REFUNDED ON SBI S/B ACCOUNT OF “PURCHASER” AS IT WAS RECEIVED BY Y AS PER CONSTRUCTION AGREEMENT PAYMENT SCHEDULE: –

    ALSO IT IS VERY CRYSTAL CLEAR THAT NO ANY BREACH BEING ARISES IN BETWEEN LAND SELLER AND PURCHASER WITH NEVER EVER ANY DISPUTE BEING HELD FOR WHICH LAND SELLER WILL DEMAND BACK & INTENDS TO PURCHASE THE SAME PLOT THEREON INSTEAD OF THE PURCHASER’S WILL, WITHOUT ANY OBJECTION FOR WHICH SALE DEED DONE COMPLETELY ON 28-08-2015 FOR 2307 SQ FEET LAND BY PURCHASER FOR WHICH DONE REGISTRY ON DATE: 28-08-2015 ON STAMP VALUE RS ——, STAMP PAPER’S NO. DETAILS – ….. xyz…..
    SO EXPECTING NO ANY INJUSTICE THING’S TO BE RAISED OR MAKE ANY NONSENSE ISSUE/STEP’S BY ANY OTHER MEANS FROM EITHER FROM “y” OR BY “LAND SELLAR” ON RAISING ON THIS CANCELLATION AGAINST CONSTRUCTION AGREEMENT DONE WITH“ANURADHA CONSTRUCTION” FOR CREATING ANY HARASSMENT TO BE DONE TO RABINDRA KUMAR CHOUDHARY

  9. I am a Land owner (title holder) made an registered agreement with the developer for a flat, shop and car space wth the developer againsr my land. Possession for all these also given by the developer. Now whether further registration for flat, shop and car space is required or not ? What documents are required for mutation under CMC Kolkata, West Bengal ? Please reply at the earliest. Thanks,

  10. Hello Sir/Madam,

    I entered into a JDA with a builder in Vijayawada, AP, about 4 yrs ago and we agreed upon the terms that the builder would complete the construction of the apartment in my land in about 1.5 yrs. The builder has constructed 3 floors out of 4 and now says that he doesn’t have funds to complete the remaining floor.

    Now, I’ve waited for more than 2.5 years and each time I approach the builder, all I hear from him is that he’s into some financial crisis and will need more time to construct the remaining floor. Recently I started to feel that he’s purposefully avoiding the construction of the fourth floor as he is gets only 60% share from a flat as his share, in the fourth floor that has 2 flats per floor (one belongs to mine). Now he’s completely avoiding my phone calls and giving all kinds of nonsense excuses. I’m really fed up with him and want to get rid of him.

    My question is that since the builder has breached the contract, can I go ahead and revoke the power of attorney given to him and handle the pending work to someone (another builder who is interested to carryout the pending work) else? If so do I need to approach a local court and get any order from them? Also, in such case do I need to get a no-objection certificate from the first builder?

    Please help.

    Thanks in advance

  11. Sir,

    I am buying a flat from the land owner. The joint development agreement between the builder and land owners is registered but the sharing agreement between the parties is not registered. It is just done on a Rs. 200 stamp paper before notary. Because of this, my lawyere insists that the directors of builder company or a registered GPA be brought in as consulting witness for both agreement and sale deed. The land owner says the directors have authorized an official from their side to be part of all sale deeds as one of the parties, in a board resolution and the directors need not sign any agreement as this is a private limited company. My lawyer suggests me to drop the deal in that case. What do I do now? Your advice will be of great help. Thanks in advance.

    Regards,
    Bharathiraja R

  12. Is is necessary to get Joint Development Agreement Registered. If it is to be registered, the stamp duty and registartion cost is payable on the price of all flats which are constructed which is huge.

    Any other way of securing the interest of Land owner so that Builder (after getting a Power of Attorney signed from us land owners) will definitely give our share of constructed flats.

    Pl advise. Thanks

  13. I have a specific doubt. Consider a situation like in Maharashtra where there is no concept of “proportionate share” and the land owner is executing an agreement to transfer development rights solely.

    The building is constructed and the share distribution takes place and the developer sells the constructed flat of his share to the buyers.

    There is an earthquake and the building is demolished. What happens to that buyer? Will he get proportionate share in the land or will he be given some compensation?

  14. I want to enter into a JDA with a Owner owning Vacant ancestral land.
    Facts: My role will be obtaining Land and appoint developer(third party) who will develop the land by THEIR team of contractors etc in consideration of Rs 700 extra upon Actual cost of construction and then i’l be responsible for selling the flats constructed in these lands of my Share.And then ultimately will give 40% share of property will be given to land owner in consideration of land obtained.So my questions are:

    1.First of all in what form i should operate i.e. Partnership firm, LLP or as a Pvt ltd Company.

    2.GPA would be entered between me and owner OR directly third party and owner. Since for developing and constructing the property is to be done by third party appointed by me, all formalities like obtaining sanctions, approval,etc is to be applied by whom(me or third party) in whose name( me or owner)..?
    3.What is the timing of entering Allocation agreement(between me and owner).Whether it is done after GPA is approved or once the property is fully constructed.
    4.What are other legal formalities that suits in my transaction

  15. Hi,

    I am planning to buy a flat in Bangalore, This is Joint Development One Builder / developer & 7 landowner, I am buying property from one of land owner.

    Their is a registered joint development agreement (JDA), between land owners & developer with 40/60 ratio. but it doesn’t talk about sharing division among land owners.

    Further to that their is a notarized (not registered) sharing agreement, which mention which flat belong to builder & which flat belong to which land owner.

    I want to understand is above sharing agreement need to be registered or not. and what can be problem with unregistered sharing agreement.

    Thanks
    Aseem

  16. Sir,I am the builder in the joint development agreement.i wish to retain the built up area of commercial shop in ground floor which comes to my share and give it on rent. How should I get a title of this property in my name.

  17. What should buyer has to see in JDA if owner owns an ancestral property? Should JDA be singed b/w all the legal heirs of current owner and developer?

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