Joint development agreement
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This article is written by Shalini Shrivastav, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.

Introduction

In a Joint Development Agreement, the land owner provides a developer with his land for the construction of a real estate project wherein they generally share the profits as per terms and conditions of the agreement that is mutually agreed upon by the parties. 

A Joint Development Agreement helps to club resources of both the parties for the development of the project which is economically viable and beneficial for both the involved parties. 

Joint Development Agreement

It is a type of real estate agreement that is entered into by the owner of a land and a builder or a developer for undertaking the construction of a real estate project. In this agreement, the owner of the land provides the developer with his land for construction of a real estate project where they usually share the profit as per the terms and conditions of the agreement mutually agreed upon by the parties.

Usually, the owner of the land for providing the land gets paid in the form of lump sum consideration, the percentage of sale revenue or in the form of certain percentage of real estate projects constructed by the developer on the land provider by the landowner. A joint development agreement helps to club the resources of both the developer and the landowner for the development of the project which is economically viable and beneficial for both the parties. 

Types of Joint Development Agreement

The Joint Development Agreement can be divided into two types. They are:

  • Area Sharing Joint Development Agreement

In area sharing agreement, the landowner and the developer enter into an agreement where the development rights to construct or develop a complex is bestowed on the developer by the landowner. In return to that, the landowner is assigned a portion of the constructed area in the form of flats by the developer as consideration.

In this scenario, the consideration flows from both ends in the following manner:

  • Landowner to Developer – Rights to construct or develop a project.
  • Developer to Landowner – A portion of the constructed area of the project in the form of flats.
  • Revenue Sharing Joint Development Agreement

In a revenue sharing joint development agreement, the developer is providing taxable service to the owner of the land. The value of the service is in proportion to the share of the developer in the market value of the developed building sold in the project. 

Parties involved in a Joint Development Agreement

In an agreement of joint development, there are two parties involved in it. One party is the owner of the land and the other party is the developer. They both enter into a joint development agreement for the development of the real estate where the owner of the land provide his land to the developer for the purpose of construction of the real estate project and on the other hand the developer builds the real estate project on the land of the owner and share the revenue accrued from that real estate project with the owner of the land in the form of profit percentage or in the form of share of the newly constructed real estate project. It is nothing but an agreement of convenience.

Merits of a JDA

A Joint Development Agreement is useful and profitable for both the parties i.e. the landowner and the developer who have entered into this agreement. Through this agreement, the resources of both the parties are clubbed together to maximise the productivity and to speed up the construction process and to yield great post construction results. It is a win-win situation for both the parties of the agreement.

Other than that, some of the major benefits of entering into a Joint Development Agreement are:

  • The parties can partially avoid the stamp duty to be paid for such construction.
  • There is no amount or charges to be paid initially for the procurement of land by the developer from the landowner.
  • The landowner gets compensated for the use of his land by the developer.
  • The development process gets paced up because the capital required for carrying out the construction of the project is with the developer as he does not need to pay for the land. 

Things to keep in mind with regard to a Joint Development Agreement

It is the need of the hour for people to get into a joint development agreement for the constructing of a real estate project as it is hassle free for the landowner because the developer has to obtain all the permits and approvals for the construction of the said project and it is cheaper for the developer because he does not need to purchase the land. However, when parties enter into a Joint Development Agreement, they should keep the following things in mind:

  • Registration of the Joint Development Agreement: The documents need to be registered in the office of sub-registrar in order to prove its validity and authenticity. Registration of the Joint Development Agreement should be done as it is paramount for the potential buyers as well as the parties to the agreement. 
  • Registration of the supplementary deed: The deed supplementary to the Joint Development Agreement needs to be registered with the Joint Development Agreement. It holds no legal validity without its registration. 
  • Joint Development Agreement is not a transfer of title: Getting the Joint Development Agreement does not mean that a landowner has the rights to sell the newly constructed real estate project without a no-objection certificate (NOC) from the developer. Only the land belongs to the landowner but the right to market and sell the project vests with the developer.
  • Transfer of rights by the owner of the land: The owner of the land may transfer the rights and title of such property to his family members. This type of transfer can be done by executing a general power of attorney between the owner of the land and such family members. This is usually done in the case of inheritance. And in such cases, the land is inherited by a number of people and only one of them as the general power of attorney to dispose of the property which makes it complex and tedious for the buyer. 
  • No home loan until registration: The banks do not sanction home loan on a property if Joint Development Agreement is not appropriately registered. 

Working of a Joint Development Agreement

Usually in the case of joint development, the landowner enters into a Joint Development Agreement with the developer in which they set out the terms of understanding including advance to be paid including refundable and non refundable advance, time required and deadline for the completion of the construction of the project, the ratio in which the sharing of built up area in the proposed project is to be done, aftermath for the delay and delay, who will be responsible for obtaining the necessary permits and approval for the said construction and taking up the construction work, mortgage or sale of the developer’s share etc. But, as of now, there are no provisions of the registration of Joint Development Agreement as well as the amendments and the supplementary deeds but it will be valid and enforceable even without registration.

After the statutory authorities approve the building plans of the said project, it provides clarity as to the details of the apartments, car parking area and proportionate undivided share in land. Once the approval part is done, a supplementary agreement like the allocation agreement can be executed, following the Joint Development Agreement, assigning apartments allotted to each party respectively. In case there are some issues with the built up area of the flat as per the terms and condition of the Agreement, then the parties are free to mutually decide the same on monetary consideration. However, no registration of Joint Development Agreement is needed but the developer may still need to execute a General Power of Attorney with the landowner. 

If the landowner wishes to retain his share of built up area then he needs to enter into a construction agreement with the developer and it has to be registered as well. The charges for registration and the stamp duty to be paid would be charged as per the state act and it has to be registered in the office of sub-registrar which has the jurisdiction over the locality in which the property is situated.

And as for the third party purchasers, there has to be the execution of sale deed for the undivided share of land and corresponding construction agreement and it needs to be registered. 

Conclusion

A Joint Development Agreement serves as an agreement of convenience as on one hand it saves the owner from the hassles of building a real estate project but on the other hand it also helps the developer save money for purchasing the land for the construction of the real estate project, which is generally a significant part of the project cost.

References


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