How RE(RD)A Fails Everyone

Article 3 RE(RD)A Series

Deeper the RE(RD)A is analysed, clearer become the gaps. The chapter on “Functions and Duties of the Promoter” has maximum grey areas highlighting several shortcomings.

The Act surely increases the scrutiny and pressure on the Developers however many issues that were faced by the Buyers will unfortunately remain.

In my previous articles I have already mentioned that Joint-Development Agreements will be difficult to execute, responsibilities/ liabilities of Financial Institutions which “cause the project to be constructed” are not clear, documentation and costs would increase, Buyers remain at risk if a Government or Judicial order impacts the Promoter/ Industry/ Project. Given below are some more points that should have been better covered in the Act.

Gaps and Grey Areas

1.   One-sided documents to continue: Promoter can’t accept more than 10% of cost as advance payment before entering into a written Agreement of Sale (ATS). Say, a lump-sum amount of 5%-9% of total cost is paid as application fee, however if the ATS is one-sided, what is the recourse for the buyer? This is a fundamental problem plaguing buyers and it remains unresolved

2.   Vague advice: The Act mentions that ATS should be:

a.   “in such form as may be prescribed”: Who will prescribe it? There is no suggestion if RERA would do it or the Promoter. Also “Particulars of development of project” have to be given along with “…specifications of IDW and EDW”. What are these particulars? Which specifications and in how much detail?

b.   All the above data requirement could have been elaborated in a template format which could have been proposed as Annexures to the ATS. Unfortunately consumers’ troubles may continue as this required data can even be given in 1 page! Opaque nature of ATS may continue. 

3.   Minor additions or alternatives may be made by the Promoter due to architectural and structural reasons as recommended and verified by an authorised Architect/ Engineer after proper declaration and intimation to Allottee. There is no definition of “minor”. Exclusions are explained in the Act but not inclusions. This leaves plenty of room for confusion/ confrontation.

4.   Consent of two-third Allottees: in case of any alternations/ additions in sanctioned plan/ layouts/ specifications/ common areas; previous written consent of at least 2/3rd Allottees, other than Promoter, is required. What if the Allottees don’t respond? There is no timing mentioned in the Act for this process. And it’s not even covered in the Chapter of Rights and Duties of Allottees.

5.   Defect in workmanship/ quality or provision of services can be pointed out by Allottee within a period of 5 years! This is completely qualitative! What if something gets damaged due to poor maintenance of the Association? Not all Allottees act in good-faith. This one clause is a recipe for multiple legal cases in the future.

6.   Transfer of Project to a 3rd Party: Promoter wont transfer majority rights and liabilities to a 3rd Party without obtaining prior written consent from 2/3rd Allottees and the Authority. This transfer shall not result in extension of time to complete the project. This particular clause is most applicable to brownfield projects that are currently suffering due to the slowdown. While the provision was drafted with good intent; in the immediate market environment it will act as a bane.

7.   Failure to deliver either due to terms of ATS or suspension/ revocation of registration. In such a case the Promoter has to: 

a.   If the Allottee wishes to withdraw, return the amount with interest. Assuming all or most of the money received by the Promoter in the Escrow account has gone into construction, how is it possible for him to pay it back? This provision is fundamentally flawed. I would review this in more detail in the analysis of the 70% norm.

b.   In case of defective title the Promoter is expected to compensate. So what happens if cases similar to the land acquisition issue witnessed in Noida, Greater Noida and Noida Extension come up elsewhere in India? Will the Promoter be at fault or the Government bodies? And in such a case, how is the clause requiring Promoters to get title insurance relevant?

Key Responsibilities of the Promoter

Once the Promoter has created his webpage on the website of RERA and entered all details as required by Act, he has to continuously update them. I should again point out we are at least a year away from this getting streamlined across India. I fear it could take even longer in less progressive states.

 The Promoter has to tread with caution regarding other provisions of the Act:

1.   On a quarterly basis Promoter has to share:

a.   Number and types of apartments/ plots and Garages booked. List of approvals taken and those which are pending after receiving a commencement certificate

b.   “Status of project and other such information as required by RERA”. This is vague. Does this mean photographic evidence of construction status has to be given?

2.   Creation of Society/ Association: The Promoter has to enable formation of an association/ society of the Allottees within 3 months of 50% of bookings done. What if the Allottees don’t agree on members, terms and conditions of the Society/ Association and this get delayed? When does Promoters responsibility of “enabling” end?

3.   Outgoings till possession: The Promoter has to pay all outgoings until he hands over physical possession to Association. In case of delay, even after handover, Promoter still remains responsible. There are several instances where Buyers object to payments to be made regarding maintenance/ related services. Envision a scenario where Allottees use this provision against the Promoter and not making those payments which are fair and due.   

4.   Cancellation: The Promoter can cancel allotment of Allottee but the Allottee may approach Authority for relief if he is aggrieved by such cancellation as it’s not as per terms of ATS. There are two broad scenarios here:

a.   ATS is one sided and while the cancellation is as per ATS but unfair.

b.   The Allottee has defaulted however will still be able to dispute the cancellation as reasons for cancellations are still not clear.

5.   Refund: If any person has made an advance/ deposit but states he has sustained loss/ damage by reason of any incorrect/ false statement in any act of the Promoter, he shall be compensated by the Promoter. If he wants to withdraw, Promoter has to return his entire investment along with interest. Again let’s review two broad scenarios:

a.   If misrepresentation was done deliberately, several people could potentially ask for refund. But what if the project is already underway and money received from them has already been invested in construction?

b.   If a genuine error is made by the sales/ marketing team in one of the marketing sms/ whatsapp/ email/ write-up/ or by any of its Agents? Can and how such an error be amended? This puts complete responsibility on the Promoter to ensure copywriting of the all marketing material is fool-proof.

6.   Hand-over of the project and registration of conveyance deed in favour of Allottee/ Association has to be done within 3 months of receiving OC. In case there is a delay from the Allottee/ Association, due to various reasons, then how is this process expected to be completed?

In conclusion, besides the above, several other critical points are missing in the Act. Timely and complete payment of fee/ commission to Contractors/ Agents doesn’t find a mention in the Act. There are several instances of default by the Allottee which could be due to the action of the Promoter which are not captured in the Act.

 We can only hope that byelaws being enacted at State level provide greater clarity. Regrettably, news of diluted enforcement reaching us on a regular basis is not encouraging.