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A primer on the different aspects of Joint Development Agreements

January 23, 2021
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real estate

Image source: https://rb.gy/ow0wez

This article is written by Namita N Wagh, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.

What is a Joint Development Agreement

Under a typical Joint Development Agreement (JDA) landowner contributes his land and enters into an arrangement with the developer to develop and construct new projects at the developer’s cost. Joint Development Agreements are prevalent in India as they are beneficial for both owner and developer. Landowner 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.

A real estate developer often enters into the Joint development agreement with the land owners whereby the real estate developers are allocated with the work of developing the land. The transaction is more or less like a barter system.

A lot of disputes arise when Joint development is made. The JDA turns out to be a win-win situation for both the landowner as well as developer. Both of them get to capitalize on the booming realty sector.

What are the benefits of entering into Joint Development Agreement

Some significant benefits of entering JDA are:

Residential Joint Development Agreement 

According to Notification 06/2019 Central (Rate) RREP shall mean REP in which carpet area of commercial apartments is not more than 15 percent of the total carpet areas of all apartments in REP.

According to the Reports, Realty developer Ambuja Neotia Group has entered into an agreement with Satya homes to jointly develop a 72 acre land parcel in Kolkata’s Rajarata locality in the first ever mega land transaction. Ambuja Group is the Development management Partner while Satya Group will bring in its land parcel into alliance.

Following are the important five important clauses in Joint development Agreement:

1. Joint Development Agreement should be registered

No home loan until registration

The banks do not sanction home loans on the property if JDA is not appropriately registered. In that case, you might have to opt for other sources of finance for buying the property, which is not the correct way out.

Supplementary agreement to JDA

It is another smart trick by the builders. The joint development agreement is executed and registered to comply with rules and regulations. After that a separate supplementary agreement to JDA is signed. It is either change in some of the existing clauses of JDA or additional clauses that will form a part of JDA.

2. Consideration

Taxability of JDA under Income Tax

The income arising to the developer under JDA, in form of the sale consideration of his share in developed property is considered as his business income and is taxed as per the applicable provisions. On the other hand, the amount received by the landowner either as a percentage of sales consideration or as a percentage of build-up area in developed property is considered as Capital Gains in his hands. But this calculation of Capital Gains is the most controversial part where consideration is in the form of build of area.

GST on landowner

The land owner is liable to charge 18% GST on supply of development rights [S.No. 16(iii) of Notification No. 11/2017-CT(R) dt. 28.06.2017].

GST on developer

Liability of tax

The builder is required to charge GST on supply of flats @12% (18% less 1/3 value of land) according to the reports in mint “All Capital Gains in development agreement are not taxed”.

3. Execution of documents and stamp duty

4. Property ownership and license to construct

Inheritance 

5. Cooperation between owner and builder

Conclusion

References


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