Consumer’s cause or over-regulation?
Manoj Kumar | November 14, 2011
The recent DLF order of the competition commission clearly brought into focus the plight of the real estate consumers who have long been grappling with the twin-challenges of one sided contracts favouring the developer/builder on the one hand and endless delays in legal proceedings on the other. The model Real Estate (Regulation of Development) Act (“the Real Estate Bill” for short) is an attempt to address these challenges and to regulate real estate transactions in India. With a total of eight chapters and nine schedules, the Real Estate Bill deals with mandatory registration for construction and development of property, duties and liabilities of a promoter, establishment, powers and functions of regulatory authorities, penalties and offences and miscellaneous provisions, one is left wondering if the government has gone for an overkill in proposing this mammoth legislation.
Some key FAQs on the bill are as follows:
What are the objects the Real Estate Bill?
The Real Estate Bill seeks to establish an authority to regulate, control and promote development, sale, transfer and management of properties, bring transparency to safeguard public interest and to facilitate speeding up the construction and maintenance of properties.
What is the constitution and scope of the Real Estate Regulatory Authority?
The Real Estate Bill proposes to set up a Real Estate Regulatory Authority (hereinafter “the Regulatory Authority”) along with a Real Estate Appellate Tribunal (hereinafter “the Appellate Tribunal” collectively referred to as “the Authorities”).
The regulatory authority is to be composed of a chairperson and two members appointed by the government from amongst persons with special knowledge and professional experience in the field of public administration, urban development, finance, law and management whereas the appellate authority is to consist of a chairperson who is or has been a judge of a high court appointed by the government in consultation with the chief justice and not more than two members who have held the post of principal secretary to a state government or an equivalent post to the government of India and is well versed with urban development, finance and law.
The government shall also provide the authorities, officers and employees who shall discharge their functions under the general superintendence of the chairperson of the respective authorities. The chairperson of the regulatory authority is further vested with administrative powers.
The term of office of the chairperson and the members of the authorities shall not exceed three years or attainment of 65 years in case of regulatory authority and 68 years in case of appellate authority whichever is earlier. Their salary and allowances shall be prescribed and not be varied to their disadvantage. They made relinquish office after giving due notice.
The Real Estate Bill also mentions the circumstances in which the chairperson and the members may be removed from office. They can be removed on the grounds of insolvency, conviction, physical or mental incapability, acquiring interests prejudicial to their official functions and abuse of position.
What are the powers and functions of the authorities set up under the proposed bill?
The Real Estate Regulatory Authority is vested with the following important powers:
(i) to ensure compliance of the obligations cast on the promoters and allottees.
(ii) To maintain the website contemplated in the Real Estate Bill for continuous display of relevant data.
(iii) To make recommendations regarding construction, improvement in procedures for sanction of building plans and protection of interests of the allottees.
(iv) To make investigations, inspection of books of accounts and call for information in relation to affairs of the promoters.
(v) To issue directions in furtherance of the abovementioned powers.
(vi) To direct the promoter to transfer the possession of, and title to, the land to the allottees and if the promoter fails to do so, to transfer the possession and title on receipt of full payment.
(vii) To regulate its own procedure.
(viii) To exercise the same powers as are vested in a civil court in respect of requisitioning, summoning and enforcing the attendance of any person and examining him on oath, requiring discovery and production of documents and receiving evidence on affidavits under the Code of Civil Procedure.
(ix) To impose and recover penalty imposed on a person on his failure to pay for it.
(x) To take all measures for the growth and promotion of a healthy, transparent and efficient real estate market i.eevolving a consensus between central and state governments regarding the structural safety norms, establish procedures for speedy processing and grant of planning permissions, promote rating of projects through a system of self regulation which may be based on the rating parameters developed by the National Real Estate Development Council or the Confederation of Real Estate Developer’s Association of India.
(xi) To take up advocacy of issues like easy access to home loans, reliable land title certification system, transparent registration and upkeep for maintenance of built-up properties.
(xii) To promote standardization of appropriate construction material and have an environment friendly approach.
Who is a ‘promoter’ under the Real Estate Bill?
The Real Estate Bill defines the term ‘promoter’ as a person who constructs residential buildings, converts them into apartments, develops a colony for the purpose of sale and also covers a development authority or a public body.
What are the provisions relating to registration of real estate projects with the authority?
The Real Estate Bill provides for compulsory registration in cases where the area of land proposed to be developed exceeds one thousand square meters and where the number of apartments proposed to be constructed exceeds four. Further, besides submitting prescribed form, the promoter has to furnish a bank guarantee equal to 5% of the estimated cost of the development works to the Authority which may either be the local authority or any authority vested with the powers to give permission for development or construction on that land.
The authority may either grant or refuse registration after enquiring into the authenticity of approval by the Competent Authority, promoter’s title to the land and other matters. On refusal, reasonable opportunity of being heard is to be provided to the promoter.
The registration is valid for three years from date of registration. However, two renewals of one year each can be granted if delay is due to reasons beyond the control of the promoter.
If the promoter violates any provision of the Real Estate Bill, then the registration can be cancelled after giving the parties a reasonable hearing. Such cancellation will result in enforcement of bank guarantee and would automatically debar the promoter from accessing the website.
What happens if the authority fails to act on a application for registration of a project?
If the authority fails to act on a registration application within 30 days of the date of receipt of application, the project shall be deemed to have been registered.
What are the liabilities of promoters under the Real Estate Bill?
The Real Estate Bill requires a promoter to do the following:
(i) to make available the documents and information necessary for inspection to persons taking or intending to take a property. These documents include the ones necessary for registration but are not limited to them. Further, the title should be certified by the Revenue Authority. Details regarding encumbrances, layout plan, estimated cost should be given.
(ii) to issue or publish an advertisement or prospectus for inviting persons to make advances only after acquiring registration and filing a copy of the advertisement in the office of the Regulating Authority.
(iii) to enter all records and details on the website maintained by the Authority after verifying the facts.
(iv) to compensate any person who suffers a loss by reason of any untrue statement in the advertisement or prospectus.
(v) To receive any advance or deposit from a real estate consumer only under a written agreement of sale
(vi) give due notice to other parties and refund the amount with the specified interest before cancelling any agreement.
(vii) to take measures for the protection and safety of the property. Promoter is also supposed to maintain accounts of sums taken from and on behalf of the allottees, register and record for audit purposes in a prescribed manner.
(viii) To make certain documents available to the allottees during the project period. These documents are in addition to the ones contemplated in Section 6 of the Real Estate Bill which were for the purpose of inspection and include site plans with structural designs and specifications, nature of fittings, time schedule of completion of project and for connecting the project with municipal services, agreements entered into regarding the construction of the building and statutory compliance related to revenue, planning, building and structural safety laws. A completion certificate of the project is to be obtained b the promoter from the local authority and given to the allottee. This list is however, not exhaustive as other documents may be required to be given by the promoter.
(ix) Not to make any alterations can be made to the approved layout plan after it is given to the allottee without the previous consent of the allottee, architect and engineer and without permission of the Regulatory Authority.
(x) to rectify any defect brought to his notice within 2 years of possession of property by allottee and should compensate for the same. Any dispute in this regard is to be referred to the Regulatory Authority.
(xi) To complete his title and convey exclusive ownership of the concerned property and interests therein to the allottee. The promoter shall deliver the documents of title to the allottee within three months of giving possession of the concerned property by way of a conveyance deed.
(xii) not mortgage the plot or apartment without the consent of the person who has taken or agreed to take such plot or apartment after execution of agreement of sale and if such a mortgage is made it shall not affect the right of such a person.
(xiii) beresponsible for supplying essential services such as water, electricity, sanitary services and these services can be withheld only with just and sufficient notice.
What are the rights and obligations of an allottee under the Real Estate Bill?
The allottee is liable to make necessary payments as stipulated under the agreement and shall also pay his share of municipal taxes, electricity charges, rent and other charges.
On failure of the promoter to obtain a completion certificate, such a responsibility lies with the allottee.
However the cost of the same can be recovered from the promoter.
The allottee shall not mortgage without the consent of the promoter, the building or apartment till he has paid the amount under the agreement.
Being wide-ranging and composite, the Real Estate Bill is sure to be viewed differently by different stakeholders. As my learned intern colleague Risha Mittal from Christ College, Bangalore pointed out, it has watered down the purpose of the National Urban Housing and Habitat Policy, 2005 by not encompassing within its ambit social development, cost effective housing for the vulnerable sections of the society. Is the Bill therefore a boon or a bane.
While the government goes on the over-kill on one hand, is it really enough to create Authorities comprising of members lacking technical expertise in the real estate sector.
The provision of compulsory registration of real estate projects would no doubt protect the interests of real estate consumers.
However, the following challenges still pose as serious threat:
(i) improper titles and off-the record transfers from the past through power of attorney sales;
(ii) standardization of technical specification and measurement units for bringing uniformity to super and carpet areas of units i.e to ensure that for the same carpet area and layout of 2 apartments located in different states in India, the size of the flats delivered should not end up being different;
(iii) are the penalty provisions really deterrent enough to compel promoters to comply with the provisions of the real Estate Bill i.e for contraventions- promoters may be asked to pay up to 5 per cent of the total project cost and later, upon the Tribunal's order not being followed, the penalty could go up to 10 per cent of the project cost. Are these penalties realistic, considering the indicatively whopping penalty imposed by the competition commission on DLF recently.
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