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Provisions of the RERA Act providing solutions to the problems of allottees

October 21, 2021

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This article is written by Shreya Singh, from Gitarattan International Business School, IPU. In this article, she discusses the approach of provisions of the RERA Act in settling the problems of the allottees in the real estate sector.

Introduction

The Real Estate (Regulation and Development) Act (RERA) came into being in 2016 for the regulation and development of industries or companies necessitating large upfront capital investments, having a basic focus on capital intensive markets, and functioning to keep the system of checks and balances among different councils and tribunals thus providing for adjudication. The Act de jure some obligations and tries to harbor the interest of the promoters, the estate agents, and the allottees. It’s a central law passed by the parliament concerning the problems affecting the real estate sector and to do away with issues of unprofessionalism, non-standardization of law, inadequate consumers protection, no transparency in delivering the property and money collected from purchasers, and no fast-track dispute resolution mechanism, concerning the same. The nucleus of legislation is pivoted on the concept of “justice” and bustling in providing a set of remedies for persons aggrieved under it.

Solutions as per RERA

Registration

The Act put a precept for prior registration of real estate projects with real estate regulatory authority. As per the Act, the ‘Promoter’ shall file the application for the registration of real estate project in a prescribed manner and disclose all necessary documents inter alia to the real estate project, the failure of which shall forbid promoter to advertise, sell or offer for a sale, or invite persons to conduct purchase in any manner. The following group of people is entitled to obtain RERA registration:

Builders;
Developer;
Development Authority/public body;
State cooperative society or primitive cooperative housing society;
The person holding power of attorney.

On the non-compliance of the registration, the aggrieved allottee may file a complaint under Section 4 of the Act. Section 59 of the Act ensures delivery of accurate project details whereby if the builder is found at fault, then, they will have to pay 10% of the project’s expenses or face imprisonment up to three years. Putting the validity of RERA registration in question, we can say that it may be extended under circumstances like force majeure that affect the usual development of a real estate project.

The specified persons are exempted from registering under RERA 2016:

1. The area of land proposed for development is less than 500 square meters or the number of apartments designed does not exceed 8 apartments, including all phases;

2. The promoter has received the completion certificate for the real estate project before the commencement of RERA;

3. The real estate project requested for re-modelling, replacement, or development of projects is those projects which do not require marketing, advertising, selling, or new allotment of apartments.

“Say what you mean, no false facts to be advertised”.

RERA has formulated rules in the realm of advertisement, which advertising and PR agencies need to adhere to in the strict format, the contrary to which the promoter shall be liable to penalties under the provisions of the RERA. “Advertisement” can be any document issued or publicized through any medium, offering for sale of real estate property or inviting persons to purchase. Furthermore, no advertising can be done without RERA registration, and the registration number must be prominent and frequently mentioned during the advertisement of the product. Post the registration, all the advertisements soliciting investment will have to bear the unique project-wise RERA registration number. Both the promoter and estate agent need to follow a strict version with a true spirit of the law.

Association of allottee

Allottee Association is a welfare association and is mentioned under the RERA. The allottee association is formed as soon as the majority of flats or plots in real estate are booked by the developer or promoter of such a real estate project. This has been formed to ensure the welfare of all the allottees of such a project, for example, they can check if there is any delay happening in the project by filing an application before the RERA, or if there is a situation where the deregistration of the project is called for, then the allottee association is given a right to complete the project. Moreover, registration of allottee associations is mandatory.

Promoter’s Duties

The promoter has been obliged under Section 11 to carry off some fidelities, which being:

Lease certificate

Section 11(4)(c) constrains that the promoter shall be responsible to obtain the lease certificate, where the real state project is developed on the leasehold land. Moreover, the promoter shall be responsible for providing and maintaining the essential services on reasonable charges.

Conveyance Deed

It’s been contemplated under Section 11(4)(f) RERA that the promoter shall execute a conveyance deed whereby he hands over the legal right and authority of land in favour of the allottee. It must also elucidate as to the proportionate title in the common areas of the apartment or plot or as the case may be.

The deed must be executed following the local laws of the area. In a situation where local laws are silent, the period of three months from the date of occupancy certificate must be taken for its execution.

Payment

It shall be the promoter’s duty under Section 11(4)(g) to pay for all the outgoings until he transfers the physical possession of the real estate project to the allottee or the association of the allottees, as the case may be, which he has collected from the allottees for the payment of outgoings like land cost, ground rent, etc. If the promoter fails to do so he will continue to be liable even after such transfer and penal charges may apply for the same.

Advance amount

In the real estate sector, home buyers used to pay a substantial amount of money on an allotment letter or just an application form without a general agreement being shown to the client or the buyers or being entered into. The Act to curb that misrepresentation or undue/unfair trade practices has brought in Section 13 which says that no promoter can collect more than 10% of the amount money without agreeing to sell and that agreement to sell will be a very exhaustive agreement which is going to contain all the specifications of the project, the price of the unit and also the date of delivery.

Structural change

Section 14 puts a mandatory obligation on promoters to adhere to the sanctioned plans and project specifications as approved by the competent authority which may be developing authority, municipal corporation, town and country planning department, etc., depending upon the land on which the building is to be constructed. Furthermore, it says that no alteration, construction, additions will be allowed in the building except if they fulfil certain criteria. This Section does not define what are minor alterations but it does define what are not minor alterations. So, increase in super area or the carpet area, addition of columns or floors, addition of the covered area of the building, etc. are not minor alterations. So any addition in building or any part cannot be made without prior intimation to the allottee. This all has been done to protect the interest of actual allottees of the land or otherwise it will lead to encroachment of someone else’s property right if consent has not been taken. It moreover provides for rights of the buyer or allottee and post-possession obligation upon the builder.

It provides 3 rights to buyers:

1. No deviation from approved plans;

2. No additional construction of 2/3rd owners;

3. Promoter to repair defects in workmanship for 5 years post possession.

In case of a structural defect or any other defect in workmanship, it shall be the duty of the promoter to rectify the same within thirty days and in the event of failure to do so, the aggrieved allottees shall be entitled to compensation.

Completion certificate and occupancy certificate

As per National Building Code (NBC), a builder is required to submit a building completion certificate to the sanctioning authorities. When any builder plans to construct a building, whether commercial, residential, institutional or any other type of buildings of property complex, it must follow the building bylaws, master plan, development code of the city and any other regulations related to fire and safety rules, environmental regulation, etc. which are in force in the state of the jurisdiction. The builder has to follow all these regulations only then he can get the completion certificate without which the property will be considered as an unauthorised construction. On the other hand, the occupancy certificate is given to the owner by the sanctioning authority in which the permission for habitation in the building is granted. These have to be handed over to the allottee at the time of transfer of possession for the failure of which one can file a complaint under Section 14 of the Act.

Obtaining insurance and other documents

Under the RERA, a promoter has been obligated to use Section 16 to get insurance for the project. Two insurances need to be bought by the promoter, the first being against the land title and the second being against the construction. The insurance of land title means that in any unforeseen circumstances the burden for damages shall lie with the insurance company so that no further burden arises or falls upon the allottees. Withal, the promoter shall, at the time of the construction is made, acquire insurance in respect of the real estate project so that the construction can be done from an insurance claim in a locus of unforeseen circumstances, such being of a disaster (natural or man-made) due to which there is damage to the construction or demolition of the construction. Forbye the insurance has to be carried at all times during the construction stage as well after that. Every allottee has the right under Section 19(1) of the Act to inquire about this and seek the insurance premium or insurance documents from the promoter.

Defective title of the land

Section 18(2) of the Act explicitly discusses the defective title of the land. The Section obliges the promoter to compensate the allottee for any loss caused, by a reason of defective title in the land. For example, a builder constructed some property and you paid for that land as well as for construction, however before it could reach even a substantial height, it was found that the land was allotted to the builder fraudulently and the actual owner has come into the picture and has got right overland through court orders. So in that scenario, this Section comes to rescue the allottee and every payment done by you will be paid back by the builder.

For any violation

It is Section 18 of the Act which gives an unqualified and mandatory right to an allottee if in case the builder has defaulted on terms and conditions of the sale agreement. Moreover, if there is any contravention under the given Act or there is any violation of the given agreement or the terms and conditions of that sale agreement, then one can seek compensation for all other violations under the substantive provision of the Act or under any rules and regulations made under the main Act, i.e., RERA.

Maintenance

Promoters are responsible for providing and maintaining essential services on reasonable charges till the taking over of the maintenance of the project by the association of allottees.

Solutions as per the agreement for sale

There were so many anomalies before RERA came in, it established the model form of agreement i.e., an agreement for sale usually between a developer and a purchaser. It came up with very specific covenants wherein various disputed areas between buyer and seller were addressed.

An agreement for sale is always a document where a buyer and seller are having some obligation remaining to be fulfilled on some future date. For any agreement to be entered under RERA, it must be following the Annexure whereby any application letter or any other document must not affect the agreement for sale. Anything mentioned which is by the statute and mandatory according to the provision of the Act shall be retained in every agreement executed between the promoter and the allottee. Any clause in this agreement found contrary to or inconsistent with any provision of the Act’s rules and regulations thereof shall be void ab initio and will not suffice. Furthermore, breach of agreement may occur under the following circumstances as per the Act:

Wrongful cancellation

Section 11(5) canvasses an idea for cancellation of the agreement to sell unilaterally by the promoter. Provided that in case, if the allottee is aggrieved by such cancellation because of it, not being by terms of the agreement to sell, unilateral and without any virtuous cause, the allottee may approach the specific authorities for relief by filing a complaint under this Section.

Pending obligations before transfer

It often happens that the promoters create a third party interest or sell off a certain portion of the project to a third builder, meaning thereby, a new builder is being brought into the picture to complete the project, so that the project may be delivered.

So as per Section 15 of the RERA, a promoter cannot create any third party interest for any portion in that project, without first obtaining express and free consent from the 2/3 allottees, which will not include the unsold flats or the purchased flats of the promoter itself. So steps to create third party interest in the project needs to:

1. Seek consent from 2/3 allottees;

2. Apply to the competent authority for approval.

The consent of allottees will be required not only under Section 15 but also under Section 14(2) of the RERA. Whenever a requirement of consent arises, that has to be free consent under the prevailing facts and circumstances, not in previous facts and circumstances. In a situation where promoters are relying on the previous consent given by the buyers in the agreement to sell, in that scenario also the allottee can file their objections. The next promoter who will take the project will also overtake all the duties and responsibilities of the existing promoter.

Delivery of possession

The most important right is the right to claim a refund and exit from the project, in case where the project has not been delivered as per the terms and conditions of the agreement to sale and the unit is not delivered by the date as mentioned in the sale agreement.

In such circumstances, the allottee is invested with the right to claim the refund along with the interest rate tied upon the state in which you are residing. The violation of which the allottee may file a complaint under Section 19(5) of the Act.

Information for plans and schedules

Section 19(1) provides for the right to obtain information concerning the real estate project one will be investing in. This right has been conferred upon every allottee irrespective of whether he is going to invest or not, to ensure transparency to land title, approval of sanctioned maps, etc.

Moreover, the allottee under Section 19(2) & (3) is entitled to know schedule-wise completion of the project and claim the possession of plots or any other kind of real estate property, as the case may be.

Any other violation

If there is any contravention under the given Act or there is any violation of the given agreement or its terms and conditions, then an allottee can seek compensation under Section 18(3) for all other violations under the substantive provision of the act or any other rules and regulations made under the act the main act.

With respect to authority

Compliance of order of an authority

Any order passed by the competent authority under Section 63 of the Act whereby if the promoter or the developer of the real estate project fails to comply with the orders and direction of the authority concerned, then the penalty can be levied upon the promoter following each day of default.

Generally in circumstances like these, the penalty for non-compliance of order goes up to 5% of the total cost of the projects. In case the developer fails to pay such an amount, the recovery letter is issued against them through the respective District Magistrate.

Compliance of order of the appellate tribunal

In a situation where disregard has been made of the orders of the appellate tribunal by the promoter (Section 64), they shall be liable for penalty along with imprisonment for a term which may extend up to three years and fine on a daily basis of default.

Here, the penalty for non-compliance of order cumulatively extends up to 10% of the estimated cost of a real estate project.

Execution

Most stakeholders fail to notice that RERA also provides for execution proceedings. It’s an Act that provides exhaustive remedies. The act deals with the execution proceedings under Section 40 according to which if a promoter and an allottee or a real estate agent, as the case may be, fails to pay interest, compensation or penalty that has been imposed upon him, then the same shall be recoverable from such defaulter.

The amount that has to be recovered can be recovered as areas of land revenue according to the concerned state land revenue laws. In the proceedings, the concerned state RERA verifies the order first and the evidence that has been brought before it and thereafter issues a Recovery Certificate (RC) which is then sent to the jurisdictional district collector, revenue collector or the magistrate and is thereafter forwarded to the Jurisdictional Tehsildar or the related officer as the case may be.

Others

Once the order is obtained from either the authorities or the educating officer, the aggrieved can also knock on the doors of the National Company Law Tribunal (NCLT). There are generally threshold criteria of 10% for the allottees to move to the NCLT, however, persons are not hit by this threshold criteria and can pursue the matter individually.

Moreover, one can approach the High Court through the writ of mandamus in which the district magistrate or any related officer can be made a party. Now as far as consumer forums are concerned, they are strictly limited to consumers and the builder or investors cannot approach them. Moreover, the execution proceedings in such forums are much lengthier and messier.

Pre-EMI scheme

It’s the monthly interest that the buyer needs to pay on the amount received from the bank. It’s a kind of subvention scheme for the payment of home loans whereby all the Pre-EMI and interest are borne by the builder till the possession or for a definite period, as the case may be. It is formed based on the Tripartite Agreement that is the legal document among three stakeholders, i.e., the buyer, builder and the housing bank which is further attached to your sale deed. Few observations hereby can be noted under the Pre-EMI scheme:

1. It’s not concerned with the principal portion and rather include the interest accordingly;

2. Pre- EMI keeps increasing since the interest payable on the principal drawn, increases accordingly;

3. It’s possible only in the cases of under construction purchases.

Are there any extra charges for the subvention scheme?

As there are no freebies and builders work for profit only, so if they are paying Pre-EMI on your behalf then definitely they have to be reimbursed with an extra premium charge which is usually based upon a percentage of the flat cost.

Buy Back Scheme

It’s a scheme whereby the developer or the builder assures the allottee that they will buy back the property within a stipulated time frame at a higher amount price if the allottee would not take possession after that guaranteed time. This puts faith in the investor that his investment is safe and value will likely increase in future. Under this, the allottee is invested with the right to determine whether he will retain the property or sell it to the builder at the predetermined price.

Assured Return Scheme

It’s a de rigueur topic in the market when it comes to commercial real estate projects to attract prospective buyers. The builder further demands an upfront payment by way of consideration and promises for return for the said payment made by the investor until the delivery of possession.

However “Assured returns schemes seem risky” as there may be a risk of losing both your principal and interest. However, buyers who are stuck in such schemes can either approach NCLT or go to the Civil Courts and file a recovery suit.

Miscellaneous Provision

Section 79 canvasses the bar of jurisdiction, which says that no civil court shall have jurisdiction to entertain any suit or proceeding under this Act.

For the trial of cognizance, there has to be a complaint either by the authority or any officer of authority duly authorised for it. Punishment of imprisonment under this act is to be awarded by the magistrate and for that purpose, any court inferior to that of metropolitan magistrate or judicial magistrate of the first class shall try any offence punishable under this Act.

Alternatives for appeal?

In a situation of homebuyers where they have grievances, there are 3 options available for them to appeal, i.e Insolvency & Bankruptcy Code 2016, Consumer Protection Act 2019 and the Real Estate (Regulation and Development) Act, 2016. It’s said that for each cause of action one can pursue it only under one code as bestowed under the ‘doctrine of election’, where the litigant elects one option from multiple options and can’t indulge in any kind of mischief.

However, the RERA in Section 88 articulates that added laws can be applied to RERA like Contract Act, Transfer of Property Act, etc., but not the one which is inconsistent and in derogation. The RERA also says in Section 79 about courts. Just like other laws which are not allowed in RERA, other courts are also barred to entertain any matter which the authority or tribunal under RERA is authorised to perpetrate. Only the RERA court or the RERA authority can summon as under the provisions of the Act, other courts are not allowed to interfere in RERA related matters, famously called Ouster of the jurisdiction of civil courts.

Conclusion

As an overall conclusion, I would say that RERA undoubtedly has turned out to be successful in achieving milestone changes in the real estate sector in India such as increasing joint ventures or timely delivery of projects, etc. Its introduction is expected to bring greater accountability towards consumers and transparency to the sector and protect the parties from any kind of mischief. The act has been designed majorly for protecting the interest of the allottees and gliding by the promoter’s rights, which in turn may jeopardize the real estate sector. Moreover, the provisions of the act will Ex facie be intra vires and will have a retroactive effect rather than retrospective operation.

References

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Provisions of the RERA Act providing solutions to the problems of allottees

Introduction

Solutions as per RERA

Registration

Advertisement

Association of allottee