The Real Estate (Regulation and Development) Act, 2016

The real estate sector is widely unorganized, unregulated and was prone to deception. Since a long time, there has been a dire need to regulate the real estate sector and to establish a law to promote an environment of trust and confidence amongst the purchasers in the real estate sector. For any deficiency of services provided by the promoters, till date, all complaints pertaining to real estate sector are being entertained by the Consumer Protection Act, 1986. The rising number of allegations and cases forced government to introduce a full-fledged legislation for the benefit of consumers under Schedule VII – Concurrent List of the Constitution of India.

Introduction

In 2009, a brain storming session towards passing of a legislation for protecting the interests of consumers and promoting the growth of real estate sector was initiated. After a lot of discussion, The Real Estate (Regulation And Development) Bill, 2013 (“2013 Bill”) was introduced. However, the 2013 Bill was amended and later the Real Estate (Regulation And Development) Bill, 2015 (“Bill”) was passed by the parliament and it received the assent of the President on 25^th March, 2016. Finally, the Real Estate (Regulation and Development) Act, 2016 (“Act”) was published in the Official Gazette on 26^th March, 2016 and it came into force on 1^st May, 2016.

The main objective of the Act is to bring transparency and accountability in the real estate sector i.e. residential and commercial complex via introducing a legislation and establishing judicial organs which in turn increases consumer confidence in terms of real estate sector. The Act proposes to hold the promoters accountable for not registering their projects with the Real Estate Regulatory Authority (“Regulatory Authority”) and also for not providing sufficient information regarding their project. In addition to the promoter and the allottees, the Act also seeks to book real estate brokers who facilitate the sale and purchase of units in a project which is not registered with the Regulatory Authority.

Mandatory Registration

Eligibility and Authority

Section 9 of the Act clearly specifies that no promoter shall advertise, market, book, sell or offer for sale or invite persons to purchase any plot, apartment or building which are not registered with the Regulatory Authority. If the property is under construction and completion certificate has not been granted to the promoter, then the promoter is obligated to make an application for registration to the Regulatory Authority within 3 (three) months from the date of commencement of the Act.

Further, all residential and commercial real estate properties that are over a minimum area of 500 sq. mtrs. (five hundred square meters) or have more than 8 (eight) flats shall be mandated by Section 3 of the Act and registration for these properties will be required to be obtained. The abovementioned threshold can be amended by the appropriate government from time to time. Therefore, all the necessary clearances are required to be obtained before any project is started.

Moreover, the registration granted under Section 5 of the Act may only be extended on reasonable grounds like force majeure circumstances and the period for the same shall differ from case to case basis but the same may not be extending for more than period of 1 (one) year.

Documentation

Section 4(2) of the Act, provides the list of documents that are necessary at the time of registration of the real estate project. As per the Rules (as defined below), copy of PAN Card, annual report detailing the audited profit and loss account, balance sheet, cash flow statement, auditors report of 3 (three) immediately preceding years, etc.

E- registration

Further, to relax the registration process, Section 4(3) of the Act specifies that the Regulatory Authority shall within 1 (one) year from the commencement of the Act operationalize the registration process online.

Timelines

Section 5 of the Act specifies that the Regulatory Authority shall grant or reject the application with reason, made for registration of a particular real estate project, within 30 (thirty) days from the date of receipt of the registration form as specified in Section 4 (1) of the Act.

Revocation of license

The Regulatory Authority, upon the receipt of a complaint or on suo moto findings shall revoke the license of the promoter if he is in violations of any of the below mentioned conditions:

1. default in doing anything required by or under the rules, regulation and the Act; or
2. violation of any of the terms or conditions of the approval given by the competent authority; or
3. being involved in any kind of unfair practice[1] or irregularities;
4. indulging in any fraudulent practices.

Establishment of the Regulatory Authority and Real Estate Appellate Tribunal (“Appellate Tribunal”) 

An aggrieved consumer can approach the Regulatory Authority as well as the consumer courts at the district level. Regulatory Authority shall act as the nodal agency to co-ordinate efforts regarding development of the real estate sector and render necessary advice to the appropriate government to ensure the growth and promotion of a transparent, efficient and competitive real estate sector.

Additionally, a mechanism of fast track dispute resolution has been provided in the Act. The adjudicating officers i.e. the District Judge shall hear and dispose of the matters expeditiously. Moreover, Section 43 and Section 44 of the Act deals with jurisdiction of the court and establishment of the Appellate Tribunal by the government. Appellate Tribunal shall deal with all the proceedings of the matter filed in appeals from order of the adjudicating officers. The adjudicating officers and Appellate Tribunal will have all powers of a civil court.

Rights of Allottees, i.e., Protection of Consumer

Section 13 of the Act, restricts the promoter from taking more than 10% (ten percent) advance without entering into a written agreement for sale with that particular person and such agreement is required to be mandatorily registered.

Promoters are additionally bound to compulsorily deposit at least 70% (seventy percent) of the sale proceeds, including land cost, in an escrow account to meet construction cost and pay interest to consumers for any default or delays at the same rate that Promoters shall charge to the consumers.

Moreover, Section 14 (3) of the Act creates liability on the promoters to rectify any defect within 30 (thirty) days from the date on which it was informed by the consumer to the promoter about the defect in workmanship, quality or any obligation in the agreement for sale which was breached or not performed by the promoter. The liability of the promoter extends for a period of 5 (five) years from the date of allocation of the said flat or property to the consumer.

Promoter, under Section 16 of the Act, is bound to obtain insurance as may be required by the appropriate government, including but not limited to with respect to the title of the land and building as part of the real estate project and with regards to the construction of the real estate project.

Further, Section 18 of the Act curtails the promoter to extend the timelines for construction of the premises and eliminates the delay from the promoter in giving possession of the flat to the consumer.

As per Section 19 (10) of the Act, the consumer shall have the right to take physical possession of the property within 2 (two) months from the issuance of the occupation certificate issued with respect to that particular property.

Moreover, Section 14 (2) of the Act highlights that the promoters at their free will, shall not be entitled to make changes in the original plans or structural designs of the projects once it has been registered, except for what is stated to the contrary in any contract or agreement entered into by the parties or any law in force. Changes shall be made only upon receiving the consent of that particular customer for minor modifications that may need to be incorporated in the plan. For any other alterations or additions (which are not minor in nature) incorporation is permitted after receiving the signed approval of at least two-thirds of those who have invested into the project.

Rules

Section 84 (1) of the Act empowers the appropriate government to notify rules within a period of 6 (six) months from the date of commencement of the Act. Further, Section 84 (2) of the Act covers the guidelines which shall be incorporated in the rules enacted by the appropriate government for carrying out the provisions of the Act.

On the basis of the guidelines formulated under Section 84 (2), on 31^st October, 2016, the Central Government has notified the Real Estate (Regulation and Development) (General) Rules, 2016 (“Rules”) applicable to the 5 (five) union territories i.e. Andaman & Nicobar Islands, Dadra & Nagar Haveli, Daman & Diu, Lakshadweep and Chandigarh. Further, the Rules specified that the promoters shall furnish additional information regarding the ongoing projects besides depositing 70% (seventy per cent) of unused funds in a separate bank account, within 3 (three) months to ensure their timely completion. Upon conclusion of the due date, the promoters shall be required to refund or pay compensation to the consumers, at the interest rate applicable to State Bank of India’s highest marginal cost of lending plus 2% (two per cent) within 45 (forty-five) days of the payments becoming due.

The Promoters shall have to publicly declare the original sanctioned plans with specifications and changes made in due course, total amount collected from the allottees, money used for the project, original timeline of completion, measurement of the flat in relation to the carpet area amongst other information, if the completion certificate is not received by the Promoters for an ongoing project.

Additionally, promoters are under an obligation to publish all kinds of vital information in respect of the said project including status of the project with photographs floor-wise, status of the construction of internal infrastructure and common areas with photos, etc. Upon registration of the project, the promoters shall be liable to upload on their webpage the information pertaining to number and type of apartments or plots, garages booked and all the information mentioned above before the expiry of each quarter.

Moreover, the Regulatory Authority and Appellate Tribunals shall have to dispose off the complaints within 60 (sixty) days and have to publish on their websites the information pertaining to profile and track record of promoters, details of litigations, advertisement and prospectus issued about the project, details of apartments, plots and garages, registered agents and consultants, development plan, financial details of the promoters, status of approvals and projects etc.

The highlight of the Rule is that the promoters’ liability of disclosing income tax returns have been withdrawn as it is considered to be against the principle of confidentiality.

Moreover, the amount of fees has been prescribed for registration depending upon the type of project and separate rates have been prescribed for renewal of registration. Additionally, fees have been prescribed for the complaint to be filed with regulating authorities, adjudicating officers and the Appellate Tribunal.

If the promoters, agents or allottees fail to comply with the order of the Appellate Tribunal, then they shall be punished with imprisonment. Further, the punishment of imprisonment towards the promoters will be compounded with 10% (ten percent) of estimated cost of the project and the punishment of imprisonment towards agents and the allottees will be compounded with 10% (ten percent) of the cost of property purchased by the respective defaulter.

In the event the promoters exceed the timeline for construction of the project due to unforeseen circumstances, then the authority in charge shall grant additional time to the promoter for completion of the project. Such extension shall only be granted after giving the consumer an opportunity of being heard. The promoters are not permitted to advertise or sell any flats that are not registered with the Regulatory Authority. Additionally, the promoter cannot distinguish between the consumers on the basis of religion, race, caste, sex, etc. Further, the promoters shall have the right to sell the covered parking spaces.

Furthermore, the promoter is under an obligation to form a cooperative housing society or apex body of allottees and convey the plots title to them within 3 (three) months of receiving the occupation certificate or full payment of full consideration amount.

Penalties

If the promoters are in violation of any of the provisions of the Act or they are in violation of any obligations i.e. functions and duties of the promoters as specified in Chapter III (Section 11 to Section 18) of the Act or they don’t comply to the orders of the Regulatory Authority and of the Appellate Tribunal (as defined below), then stringent punishments like fine, imprisonment or both, are provided in Chapter VIII (Section 59 to 72) of the Act. Such a rigorous punishment is a respite to the consumers as promoters are time bound to provide occupation of the said premises and the promoters cannot evade their responsibility. Additionally, the promoters are liable for any structural defect detected in the premises at the time of sale. Further, Section 67 and 68 of the Act specifies that in the event the allottee fails to comply with or contravenes any of the order or decision or directions of Authority, then the allottee shall be liable to pay penalty for the period till the default continues, which may exceed upto 5% (five percent) of the cost of plot, apartment or the building, as determined by the Authority or imprisonment for the term of 1 (one) year  or fine for each day till the default continues, which may exceed upto 10% (ten percent) of the cost of plot, apartment or the building, as determined by the Authority.

CONCLUSION

The Act shall play a vital role in the development of real estate sector in India. The Act simplifies the process of dispute redressal as special courts have been established to deal with the disputes in the real estate sector. The Act further aims to eliminate asymmetry in information and ensures that full and fair information is revealed by the promoters.

Earlier, consumers aggrieved in matters pertaining to real estate had a right to approach the civil court or the consumer court for resolving their dispute. The Act has done away with requirement of approaching the civil court but it remains silent on the aspect of approaching the consumer court. Therefore, in our view, the Act permits customers with grievances to move to the consumer courts and does not position itself as their only legal recourse.

The main objective of the Act is to eradicate rampant corruption involved in this sector and to bring in more confidence in the customers who are willing to invest in real estate. Earlier, there were no timelines for submission of the flat or deposit or registration requirement. However, the Act has created an obligation on promoters to timely comply with all the requirements mentioned under the Act. Hence, the Act has made the process crystal clear and to some extent ensures that the consumer gets timely possession of the flat.

 

Further, on 20^th April, 2017, State Government of Maharashtra has vide notification dated 20^th April, 2017 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 and the Maharashtra Real Estate (Regulation and Development) (Recovery of Interest, Penalty, Compensation, Fine payable, Forms of Complaints and Appeal, etc.) Rules, 2017 (“Maharashtra Rules”). The Maharashtra Rules have come into effect from 1^st May, 2017. All the ongoing real estate projects in Maharashtra are now covered under the ambit of the Maharashtra Rules and our next post shall provide a detailed review on the subject matter.

 

[1] “unfair practice” means a practice which, for the purpose of promoting the sale or development of any real estate

project adopts any unfair method or unfair or deceptive practice including any of the following

practices, namely :—

(A) the practice of making any statement, whether in writing or by visible representation which,—

(i) falsely represents that the services are of a particular standard or grade;

(ii) represents that the promoter has approval or affiliation which such promoter does not have;

(iii) makes a false or misleading representation concerning the services;

(B) the promoter permits the publication of any advertisement or prospectus whether in any newspaper or otherwise of services that are not intended to be offered.