India: Transfer Of Title Of Promoter Under RERA

Last Updated: 7 August 2017
Article by Manisha Paranjape

The Maharashtra Real Estate Regulatory Authority ("the Authority") has on 27th June, 2017 issued an order ("Order") stipulating that a promoter has to execute conveyance to transfer his title, in relation to all agreements executed post 1st May, 2017, within three months from the date of issue of the occupancy certificate.

Before dealing with the Order, let us analyse the provisions in the applicable laws in Maharashtra that today relate to execution of a conveyance to transfer promoters' title to flat purchasers.

Section 17 of RERA

Section 17 of the Real Estate (Regulation and Development) Act, 2016 ("RERA") provides that the promoter of a project shall -  (i) execute a registered conveyance deed in favour of the allottee along with the undivided proportionate title in the common areas to the association and (ii) hand over possession of same to the allottees and the common areas to the association of the allottees, in a real estate project, and the other title documents pertaining thereto - within specified period as per sanctioned plans as provided under the local laws.

The proviso to Section 17 then states that in the absence of any local law, conveyance deed in favour of the allottee/ association /competent authority, as the case may be, shall be carried out by the promoter within three months from date of issue of occupancy certificate ("OC").

In terms of Section 17 of RERA, title is to be transferred within specified period under local laws. It is only in the absence of local laws, that a time limit of three months from date of issue of occupancy certificate is prescribed.

Thus from a reading of Section 17 of RERA with its proviso, it is clear that promoters are bound to execute and register the conveyance deed in favour of the allottee/association within the period provided under local laws. In the event there are no local laws prescribing such period, an outer timeframe of three months from the date of issue of OC has been stipulated.

What are 'local laws'?

The term 'local law/s', despite being used several times in RERA has not been defined.

It is pertinent to note that prior to RERA being brought into force, several state legislations were already in effect on the same subject. Apart from the Maharashtra (Regulation and Development) Act, 2012, none of these state laws have been repealed by RERA and thus they continue to remain in force. Even in Maharashtra for example, although the aforesaid Act (which was never entirely brought into force) has been repealed, the Maharashtra Ownership Flats (Regulation of the promotion of construction, sale, management and transfer) Act, 1963. ("MOFA") and the Maharashtra Apartment Ownership Act, 1972 ("MAOA") have not been repealed and continue to be in force.

MOFA and MAOA are still in force and continue to be in effect

On the other hand, appropriate Governments (which includes the governments of states/union territories), under Section 84 of RERA, are empowered to make rules for carrying out provisions of RERA. In accordance therewith, several states have already notified rules. Maharashtra has inter alia notified the Maharashtra Real Estate (Regulation and Development)(Registration of real estate projects, Registration of real estate agents, rates of interest and disclosures on website) Rules, 2017 ("Maharashtra Rules")

Thus arises the question, does the reference to 'local laws' in Section 17 refer to the extant local statutes already in force pre-RERA or does it refer to the rules made by the respective state governments under RERA?

Let us examine the provisions relating to conveyance by the promoter in the three statutes referred to above- MOFA, MAOA and the Maharashtra Rules

MOFA

In terms of Section 11 of MOFA, a promoter has to convey his right, title and interest in the land and building to the organisation of flat purchasers in accordance with the agreements entered into with the flat purchasers.

Only if no period for the execution of the conveyance has been agreed upon between the promoter and the flat purchasers, then Rule 9 of the Maharashtra Ownership Flats (Regulation of the promotion of construction, sale, management and transfer) Rules, 1964 ("MOFA Rules") provides that the promoter is bound to execute the conveyance in favour of the organisation of flat purchasers within four months from the constitution of the organisation of the flat purchasers.

Thus MOFA permits a promoter and flat purchasers to mutually decide the timeframe for execution of the conveyance and prescribes a period for the same only in the absence of such mutual agreement.

MAOA

Under the MAOA, each apartment owner is entitled to the exclusive ownership and possession of his apartment together with its undivided interest in the common areas and facilities appurtenant to the apartment. Rule 5 of the Maharashtra Apartment Ownership Rules, 1972 ("MAOA Rules") provides that all transfers by the owners of the property to an apartment owner shall be by a Deed of Apartment. While Section 4 of MAOA provides that each apartment owner shall execute a Deed of Apartment, neither MAOA nor the MAOA Rules prescribe a period for the same. Rule 9 of the MOFA Rules however stipulates that where a property has been submitted to the provisions of MAOA and no period for conveying the title of the apartment to the apartment taker has been agreed upon, then the promoter shall execute the deed of apartment in favour of the apartment-taker within 4 months from the date the apartment-taker has taken possession of the apartment.

Thus even under MAOA, a promoter and a purchaser of an apartment are free to mutually agree on the period in which the promoter is to convey title of the apartment to the apartment-taker.

Maharashtra Rules notified under RERA

Rule 9(2) of the Maharashtra Rules notified under RERA deal with transfer of title under Section 17 of RERA.

In case of a single building project, in terms of Rule 9(2)(ii), only if no period for conveying the title to the legal entity of the allottees is agreed upon, the promoter is bound execute conveyance within three months of (i) date of issue of the OC or (ii) payment of full consideration by 51% of total allottees, whichever is earlier.

In case of a larger layout consisting of more than one buildings, in relation to conveyance of title of a building or wing, only if no period for conveying such title to the legal entity of the allottees is agreed upon, the Promoter is to execute the conveyance of the structure of that building or wing within either (i) one month from the date on which the Co-operative society or the company is registered or association of the allottees is duly constituted or (ii) within three months from the date of issue of OC, whichever is earlier.

Similarly only in cases where there is no agreement on the period for conveying the title of the Promoter in respect of the entire undivided or inseparable land underneath all buildings/ wings along with structures of basements and podiums constructed in a Layout, the Promoter is bound to execute the conveyance of the entire undivided or inseparable land underneath all buildings jointly or otherwise within (i) three months from the date on which the Apex Body/ the association of the allottees is duly constituted or (ii) within three months from the date of issue of OC to the last of the building or wing in the layout, whichever is earlier.

Thus under the Maharashtra Rules too, a promoter can agree on the time limit within which he is to convey title to the association allottees of the building/s and the underlying land.

It is therefore clear that all the state laws in force in Maharashtra specifically deal with transfer of title and permit the promoter and the allottee to mutually decide a time period for such transfer and it is only failing such agreement that a timeframe is statutorily prescribed.

MOFA, MAOA as well as the Rules notified by Maharashtra under RERA all permit a promoter to agree upon a time period for conveyance of land/building with flat purchasers. Timelines are stipulated only for cases where such a time period has not been earlier agreed upon.

It thus seemed rather evident that the time frame of three months from the date of OC as  provided in RERA, which in terms of RERA itself is to be resorted to only in cases of absence of local laws on the subject, would not be applicable in Maharashtra as the local laws (whether they be interpreted as the rules formed under RERA or the existing state laws) provide for such transfer of title and prescribe that the time periods for the same may be agreed upon by the parties in question.

Confusion caused by the Order

The Order briefly summarises the contents of Section 17 and correctly records that in terms thereof, in the absence of local law, the conveyance deed shall be executed by the promoter within three months from the date of issue of OC.

It then goes on to reproduce the provisions of Rule 9 (2)(iii) of the Maharashtra Rules (interestingly, only of the portion that deals with a building in a layout and not those relating to single building projects or conveyance of the land in a layout!).

The Order then goes on to highlight, what the Authority possibly perceives as an inconsistency - that the Model Form of Agreement under the Maharashtra Rules states that the conveyance of title has to be effected within three months of registration of the legal entity of allottees.

In relation to this, it must be noted that the model form is only a format and the Maharashtra Rules make it clear that the promoter is free to modify the same as long as the same is compliant with RERA. Secondly the Model Form seems to be in line with the Rules as well as the MOFA, both of which contemplate that the period for the conveyance can be mutually agreed.

The Order then states that RERA has overriding effect in terms of Section 89 which states that RERA will override all inconsistent provisions of other Acts in force. The Order then states that thus RERA is applicable to all agreements for sale executed post the 1st of May, 2017 including those of projects that do not require registration. While it is certainly true that RERA would apply to agreements of all projects which are to be registered with the Authority, it is highly debatable whether RERA applies to agreements of projects which have already received occupancy and completion certificates. For example, "Real Estate Project" has been defined as 'development' of a building for the purpose of selling all or some of the apartments therein. Once a building has been given an OC, it is quite clear that the development of the same is over and it would therefore not fall within the definition of real estate project.

Authority states that agreements to sell flats post May 1st 2017 in all projects (including those which have received OC) are subject to RERA

The Order then states that the Maharashtra Rules are subsidiary to the main legislation of RERA which of course is not in doubt. However this leads the Authority to conclude that all agreements executed post 1st May, 2017 are governed by Section 17 of RERA and the conveyance in respect thereof should be executed within three months of the date of issue of OC as set out in Section 17.

This clearly is an erroneous reading of Section 17 of RERA as the Section itself states that the transfer of title is to take place within the period prescribed by local laws. It is only in the absence of local laws that the time period of three months from the date of the OC has been prescribed.

When Section 17 of RERA itself makes local laws applicable to compute time period for transfer of title, it is unclear how the Order can make the provisions of MOFA/Maharashtra Rules inapplicable.

It must be noted that RERA has not repealed MOFA. RERA has overriding effect only in cases of inconsistency. There is nothing inconsistent in Section 17 of RERA and MOFA, as RERA itself requires the promoter to act in accordance with local laws.

It is unclear why the Authority has completely disregarded local laws very much in force in Maharashtra and which still govern all projects in Maharashtra, to the extent such laws are not contradictory to RERA.

Even if 'local laws' are interpreted by the Authority to mean the Maharashtra Rules, it is not clear as to why the provisions therein are completely ignored when the substantive section in RERA itself permits promoters to adhere to such state statutes. 

Such an order which appears to unfortunately ignore explicit provisions made in RERA itself, although in the nature of a clarification, is in fact leading to unnecessary uncertainty in a sector where everyone involved – be it promoters, consumers or lenders - are already grappling with transitioning to a new regime.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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