The Real Estate (Regulation and Development) Act, 2016 (Act) was enacted on 25 March 2016. Out of 92 sections in the Act, 59 sections were notified by the Central Government on 27 April 2016, and came into force with effect from 1 May 2016. These sections are primarily in relation to establishment, functioning and administration of Real Estate Regulatory Authority (Regulatory Authority), Real Estate Appellate Tribunal (Appellate Tribunal), Central Advisory Council and Adjudicating Officer. Section 84 of the Act, which also became effective from 1 May 2016, provides that every State Government shall, within a period of 6 months of the commencement of the Act, make rules for carrying out the provisions of the Act.
In accordance with Section 84 of the Act, the Central Government has formulated rules for 5 Union Territories without legislation (Chandigarh, Andaman and Nicobar Islands, Daman and Diu, Dadra and Nagar Haveli, Lakshadweep). Certain states such as Gujarat, Uttar Pradesh, Madhya Pradesh, Karnataka, West Bengal and Delhi have either formulated their rules or have published draft rules for inviting suggestions and objections.
On 8 December 2016, the Government of Maharashtra has notified draft rules (Draft Rules) pertaining to the Act for the purpose of inviting public comments by 23 December 2016. The salient features of the Draft Rules are listed below:
Time period for registration
- At the time of registration of a project by the promoter with the Regulatory Authority in accordance with the provisions of the Act, the promoter is required to declare the time period within which it intends to complete construction of the project, failing which, the registration will lapse.
- Under the Act, the period of registration may be extended by the Regulatory Authority due to specified force majeure events. It may even be extended in reasonable circumstances but for a period not exceeding 1 year in aggregate.
- The Draft Rules further provide that the registration period may be extended, where actual work could not be carried by the promoter as per sanctioned plan due to specific orders relating to the project from any Court of law or Tribunal, competent authority, statutory authority, high power committee etc., or due to such mitigating circumstances as may be decided by the Regulatory Authority.
Additional information to be furnished at the time of registration
In addition to the information required to be furnished by the promoter in relation to the project under the Act, the promoter is required to furnish the following additional information and documents at the time of registration of the project with the Regulatory Authority:
- Legal title report by a practising advocate;
- Where the promoter is not the owner of the land, consent of land owner along with a copy of the collaboration agreement, development agreement, joint development agreement or any other agreement, as the case may be, entered into between the promoter and such owner;
- Details of proceedings which are sub-judice in respect of the land;
- Sanctioned plan along with proposed floor space index (FSI) / transferable development rights (TDR) to be utilised in accordance with the Development Control Regulation, 1991 (DCR);
- Details of amenities and common facilities (including common areas, parking space) to be provided in accordance with the sanctioned plan;
- Sanctioned number of building(s) or wing(s) plus proposed number of building(s) or wing(s);
- Sanctioned number of floors in respect of each building or wing plus proposed number of floors;
- Proposed plan and proposed layout plan of the whole project;
- Aggregate area in square meters of recreational open space;
- Architecture and design standard, type of construction technology, earthquake resistant measures; and
- Nature of organisation of allottee to be constituted.
Withdrawal of 70% of realisation to be deposited in a separate account
According to the Act, it is mandatory for the promoter to deposit 70% of the amounts realised from the allottees from time to time in a separate bank account maintained with a scheduled bank in order to cover the construction cost and the land cost.
As per the Draft Rules, the land cost would include:
- Acquisition cost, lease charges overhead cost, marketing cost, legal cost and supervision cost;
- Premium paid to obtain development rights, FSI, additional FSI, fungible FSI, and any other incentive under DCR;
- Acquisition of TDR;
- Consideration payable to outgoing developer;
- Amounts payable to State Government or competent authority or any other statutory authority of the State or Central Government, towards stamp duty, transfer charges, registration fees etc.; and
- Premium payable as per annual statement of rates (ASR) for redevelopment of land owned by public authorities.
In case the promoter is not required to incur any cost towards acquisition of the land due to inheritance, gift or otherwise, the cost of land shall be reckoned on basis of the value of the land as ascertained from the ASR prepared under the provisions of the Maharashtra Stamp Act, 1958 relevant on the date of registration of the project.
As per the Draft Rules, construction cost would include:
- On-site and off-site expenditure for development of project;
- Payment of taxes, fees, charges, premiums, interest etc.;
- Principal sum and interest payable to financial institutions, scheduled banks, non-banking financial institution (NBFC) or money lenders; and
- Rehabilitation scheme: expenditure incurred towards clearance of land or encumbrances for temporary transit accommodation, construction of rehab building, overhead cost, ASR linked premium, fees, charges and security deposits to authorities.
The promoter shall be entitled to withdraw such amount from the separate account in accordance with the percentage of completion of the project and after submitting the following certificates to the scheduled bank:
- Architect certificate: Certifying percentage of completion of construction work of each of the building / wing of the project;
- Engineer's certificate: Certifying actual cost incurred on the construction work of each of the building / wing of the project;
- CA certificate: Certifying cost incurred on construction cost and land cost; and
- CA certificate: Certifying the proportion of the cost incurred on construction and land cost to the total estimated cost of the project.
Total estimated cost of the project multiplied by such proportion shall determine the maximum amount which can be withdrawn by the promoter from the separate account. The promoter shall be required to follow the above procedure for each withdrawal till occupation is obtained and upon receipt of occupation certificate (OC), the entire balance amount lying in the account can be withdrawn.
- The Draft Rules clarify that in case of ongoing projects, the promoter shall deposit the amount to be realised from the allottees in a separate account. Even the form of declaration annexed to the Draft Rules, to be provided by the promoter, states that the promoter shall deposit amounts to be realised hereinafter by the promoter from the allottees in a separate account.
- However, in the event where the estimated receivables of the ongoing project are less than the estimated cost of completion of the project, then the promoter shall deposit 100% of the amount to be realised from the allottees in the separate account.
- Prior written consent of two-thirds of the allottees may not be necessary for implementation of the proposed plans/ specifications which have been disclosed by the promoter in the agreement executed with the allottee prior to registration of the ongoing project.
- Prior written consent of two-thirds of the allottees may also not be necessary for any alterations or additions or modifications in the sanctioned plans, layout plans and specifications of the buildings or common areas in the real estate project which are required to be made by promoter in compliance of any direction or order, etc. issued by the competent authority or statutory under any law.
Information and certificates to be submitted by the promoter in case of ongoing projects
The promoter is required to submit the following information and certificates with the Regulatory Authority for ongoing projects:
- Extent of the construction work completed in respect of buildings as per the last approved sanctioned plan of the project and the extent of development of common areas, amenities etc. along with expected period of completion of on-going real estate project;
- Architect certificate: Certifying the percentage of completion of construction work of each of the building / wing of the project;
- Engineer's certificate: Certifying the estimated balance cost to complete the construction work of each of the building / wing of the project;
- CA certificate: Certifying the estimated balance cost to complete the project; and
- CA certificate: Certifying the balance amount of receivables from the apartments / flats / premises sold or allotted and in respect of which agreement have been executed and estimated amount of receivables in respect of unsold apartments / flats / premises calculated at the prevailing ASR on the date of certificate.
Revocation of registration
In addition to the consequences of revocation of registration of a promoter in relation to a project as prescribed under the Act, the Draft Rules prescribe the following additional consequences in respect of revocation of such registration:
- Prior to revocation, the Regulatory Authority will give notice to the competent authority and association of allottees.
- While facilitating the remaining development work, the Regulatory Authority shall take such measures as may be required to protect the interest of mortgagees and investors which have been disclosed by the promoter to the Regulatory Authority and also displayed on the website of the Regulatory Authority.
- The Regulatory Authority shall also give adequate opportunity to be heard to debt and equity investors in the project including but not restricted to scheduled banks, housing finance companies, insurance companies, NBFC operating as asset finance companies, investment companies, loan companies, investment finance companies, infrastructure debt funds, micro finance Institutions, foreign direct investors, private equity funds and REIT's etc.
The following registration fees are prescribed in the Draft Rules to be paid by the promoter to the Regulatory Authority for registration of its projects:
- INR 1 per square meter in case the land area does not exceed 1000 square meters; and
- INR 2 per square meter in case the land area exceeds 1000 square meters;
subject to maximum of INR 1,00,000.
Rate of interest
The rate of interest payable by the promoter to the allottee or by the allottee to the promoter, as the case may be, shall be 2% above the prevalent Prime Lending Rate of State Bank of India prevailing on the date on which the amount becomes due.
Application for registration of association of allottees by promoter
The promoter is required to observe the following timelines for filing an application for registration of association of allottees (being a society, company or any other legal entity) or the apex body:
- In case of single association: within 2 months of OC or minimum 60% of total allottees have taken possession of their apartment and promoter has received full consideration from such allottees, whichever is earlier; and
- In case of apex body: within 2 months from the date of receipt of OC of the last building.
If the promoter fails to comply with the aforesaid time lines, then the Regulatory Authority shall by an order direct the promoter to apply for registration or may authorise the allottees to apply for registration.
Conveyance of Title
The promoter is required to observe the following time lines for conveyance of land and building in favour of association of allottees (being a society, company or any other legal entity) or the apex body:
- In case of single building: If no time period is agreed, within 1 month from the date of registration of association or within 3 months from OC, whichever is earlier, subject to promoter's rights to dispose of remaining apartment;
- In case of a building/ wing in a layout: If no time period is agreed, within 1 month from the date of registration of association or within 3 months from OC, whichever is earlier (except basement and podiums) subject to promoter's rights to dispose of remaining apartment;
- In case of a layout: If no time period is agreed for conveying entire undivided or inseparable land underneath all buildings along with structure of basement and podiums, within 1 month of registration of apex body or within 3 months from receipt of OC of last building in the layout, whichever is earlier, subject to promoter's right to utilize balance development potential;
- Failure by promoter to comply with the aforesaid time lines: Regulatory Authority shall by an order direct the promoter to convey the title; and
- Deemed Conveyance: The association shall also be entitled to have a unilateral deemed conveyance in its favour under the provisions of Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963.
Compounding of offence
The Draft Rules also prescribe for compounding of offences committed by promoter, real estate agent or allottee as follows:
- If the promoter fails to comply with order of Regulatory Authority in relation to registration of project: instead of imprisonment extending up to 3 years, 2% of the estimated cost of real estate project which may extend up to 10%;
- If the promoter fails to comply with the order of Appellate Tribunal: instead of imprisonment extending up to 3 years, 5% of the estimated cost of real estate project which may extend up to 10%;
- If the real estate agent fails to comply with order of Appellate Tribunal: instead of imprisonment extending up to 1 year, 5% of the estimated cost of the plot, apartment or building, as the case may be, of the real estate project, for which the sale or purchase has been facilitated, which may extend up to 10%; and
- In case the allottee fails to comply with order of Appellate Tribunal: instead of imprisonment extending up to 1 year, 5% of the estimated cost of the plot, apartment or building, as the case may be, which may extend up to 10%.
It would be interesting to see how the final rules pan out after taking into consideration the comments from public and other stakeholders.
The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at firstname.lastname@example.org