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Construction : Legal Zone | October 2015 | Source : CW-India

Act Informed

KAILASH LAD and DIVYA MALCOLM elaborate upon specific sections of The Maharashtra Housing (Regulation and Development) Act, 2012.

The Maharashtra Housing (Regulation and Development) Act (´Act´) received the assent of the President of India on February 24, 2014. This set the tone for vibrant and enthusiastic discussions about its potential impact, pros and cons. However, the Act was not enforced immediately. On July 8, 2014, when certain key provisions were notified, the initial enthusiasm had already been dampened. Nevertheless, the sections notified brought into force several important provisions such as formation of an organisation of flat purchasers, conveyance and the constitution of the Housing Regulatory Authority (HRA) and the Housing Appellate Tribunal (HAT).

Thus, sections 1, 18, 19, 21, 22, 23, 36, 51 and 52 of the Act, which were notified on July 8, 2014, are now in operation. Of these sections, Sections 18 and 19 lay down substantive provisions pertaining to the formation of an organisation of flat purchasers and the subsequent conveyance of the property from the promoters to the organisation of flat purchasers. It is noteworthy that the legislature has gone beyond the traditional cooperative society, condominium or limited company structure, thus adding novelty. It has now given promoters and flat purchasers in a building an option to form other types of legal entities including a partnership firm, public trust and non-trading corporation. Hopefully, the burden of the already overburdened Registrar of Cooperative Societies will be alleviated, should these options become popular going ahead.

Section 18 casts a burden on the promoter to form a cooperative society or company or legal entity of flat purchasers. The section now also makes it clear that each building shall be entitled to have a separate or independent legal entity or organisation formed. The time for formation of such a legal entity has been prescribed as the earliest of (i) expiry of four months from the date of the Occupation Certificate or (ii) taking of possession by a minimum of 60 per cent of the flat purchasers in the building or the receipt of the full consideration or other amounts for the same by the promoter. The promoter is also bound to form and register an Apex Body or Federation of different such legal entities formed with respect to every building in a single layout.

Section 19 deals with the aspect of conveyance of the property by the promoter to the organisation of flat purchasers. It states that if no period for conveying the title of the promoter to the organisation of the flat purchaser has been agreed upon, the promoter is bound to convey the land and the building to the organisation, within four months from the formation thereof. With regard to conveyance of a layout development, ie development of more than one building or land admeasuring 2,000 sq m, more specific provisions have been brought into force. In such cases, till such time as the development of the entire layout is completed, the building or structure, along with the Floor Space Index (FSI) consumed, must be conveyed to the organisation of flat purchasers in which a minimum of 60 per cent of the flats are sold.

Notwithstanding such conveyance, the promoter is vested with full rights to develop the remaining layout by consuming the balance FSI or Transferable Development Rights (TDR) or future increase in FSI or TDR or additional FSI, therein owing to change in law or government policies. However, in the event of an increase in FSI of a plot in a layout subsequent to the conveyance of the structure/s to the organisation/s of flat purchasers as mentioned above, the increase in FSI, which is proportionate to the FSI utilised or consumed by the conveyed structure/s to the total FSI of the layout, shall belong to the organisation/s. With regard to the remaining increase in FSI, the promoter is free to utilise the same within the layout, without any consent of or permission from the organisation.

There appears to be an attempt by the legislature to keep the promoters under check, demarcating entitlements towards FSI on a project. Whether this end will actually be achieved remains to be seen. The provisions regarding deemed and unilateral conveyance continue to be retained and form a part of section 19. In order to enforce these provisions, the organisation of flat purchasers or the Apex Body or Federation can move the Competent Authority and have the land and building conveyed. As stated earlier, these provisions become applicable if the agreement to sell contains no period for conveying the title of the promoter to the organisation of flat purchasers and no such period has been agreed upon.

Given the fact that such agreements are usually drafted on behalf of and heavily loaded in favour of the developer or promoter with little or no scope of negotiation to a flat purchaser, it is unlikely that a developer or promoter will provide a definite timeline for conveying the land and building.

The remaining notified sections pertain to the formation of the HRA and the HAT. The HRA and HAT will now relieve the consumer forums and civil courts that have hitherto been doing a splendid job of setting judicial precedents, upholding the true spirit of the existing housing laws. HRA or HAT will now constitute a specialised forum, taking matters ahead in the same vein. HRA shall consist of experts and professionals in the field of public administration, urban development, housing finance, law and management. However, absence of a member from the judiciary is onspicuous. Appeals from the orders of HRA shall lie with HAT, the chairperson whereof, is required to be a serving or retired High Court Judge.

The intention of not having a judicial expert as part of HRA is not clear and a question lurks whether, by themselves, such a panel of experts will be in a position to dispense justice at the primary level decisively. This may eventually lead to HAT being burdened with appeals against orders passed by HRA by the aggrieved flat purchasers. This may or may not augur well for flat purchasers. The possibility of competing interests dominating HRA is also rife, as even developers or promoters can bring their grievances before it, for non-compliance by a flat purchaser of the agreement for sale. Nevertheless, an errant û whether a builder or flat purchaser û needs to be brought to book.

It is most likely that the remaining sections of the Act shall come into play once the HRA and HAT are constituted. Hence the wait for HRA and HAT to be constituted continues with utmost eagerness.

About the Author:
Kailash Lad,
Partner- Corporate Practice, Kochhar & Co, Mumbai office, is an expert in FEMA or FDI-related real estate contracts and transactions involving prime construction and real estate projects.

Divya Malcolm, Senior Associate, Kochhar & Co, Mumbai office, specialises in real estate and has handled townships, residential development, IT parks and industrial estates promoted by various state government corporations.

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