February 13, 2018

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- Shweta Bharti, Senior Partner [ Hammurabi & Solomon Partners ]
- Pathik Arora, Senior Partner [ Hammurabi & Solomon Partners ]


One of the major concerns raised by developers is that RERA, while covering ongoing projects, is trying to regulate in a retrospective manner, prompting some developers to challenge the constitutional validity of RERA itself

The Real Estate (Regulation and Development) Act, 2016 (“RERA”) which came into effect on May 1, 2017 had at its heart the interest of home buyers while balancing the interests of all stakeholders in the real estate space. The onus has thereafter been on enforcement agencies to ensure that RERA is strictly enforced in the same spirit in which it was drafted, which depends on the timely delivery of homes to buyers and not on the amount of penalties and levies imposed or collected from promoters/developers or the amount of interest provided to buyers or how many registrations got canceled.

As per the records shared by the Ministry of Housing and Urban Affairs, about 20,000 projects have been registered under RERA in the past 6 months. While a section of real estate developers has started using the registration under RERA even as a marketing strategy, others appear to be still shying away in view of the penal provisions of RERA.

One of the major concerns raised by developers is that RERA, while covering ongoing projects, is trying to regulate in a retrospective manner, which has also prompted some developers to challenge the constitutional validity of RERA itself.

Upholding the validity of RERA as a beneficial legislation, the High Court of Maharashtra in a recent judgment of D. B. Realty & Another has observed that the act of providing the proposed date for the completion of ongoing projects is a voluntary act by a developer, and as such, the provision gives a fair chance to developers to provide a date of completion of the project which could be different from the date as provided in existing contracts. It also gives teeth and discretion to the Regulator to review the time proposed by a developer (from a perspective of buyer’s benefit) to either grant or reject the proposal of the developer.

The Hon’ble Court has also observed that the consequences of breach of RERA apply only once a project is registered under RERA, and in that sense, the application of RERA is not retrospective but is only prospective in nature. Further, the Hon’ble Court has clarified that by harmonious construction of the provisions of RERA, the interest of the bonafide, non- defaulting promoters have been taken care of, and if there existed exceptional and compelling circumstances behind developers’ inability in the completion of a project within the stipulated time and manner, the Regulator has the power to grant further extension, without penalizing them, though this condition shall apply only on a case-to-case basis.

The Hon’ble Court has clarified that the provisions relating to penalty are compensatory in nature and a balance has been struck under RERA by ensuring that not only developers but also buyers are penalized for delays attributable to them in making payments on time and getting the documents registered once a developer has issued the handover notice.

A view is that the judgment and actual implementation of RERA may put a lot of pressure on projects which are already at the implementation/construction phase and which require registration under RERA for being completed within the time declared by them, so much so that the entire project borders on viability. Thus, from the perspective of developers, it is pertinent that enforcement agencies ensure that developers are not subjected to excessive regulation or rigid conformity to formal rules in a manner that the provisions of RERA or bureaucratic actions hinder and prevent actions and decision-making, ultimately hampering the intention behind the enactment of RERA, i.e., timely completion of projects.

The focus thus needs to be on enabling timely completion in a manner which is beneficial to buyers as well as developers rather than on penalizing developers for non-compliance. Inferring the apprehension amongst developers, the government has reiterated that RERA is for promotion and not for the strangulation of the development of the country and intends to come up with a single-window clearance to remove exploitation, corruption, middlemen, and unwanted delay in approvals.

Sustainability will need to drive the way forward for RERA in 2018, with the State Governments & the Regulator aligning to strike the right balance between interests of home buyers as well as developers

A spate of litigations has been triggered in this initial phase as clarity sets in on these aspects. In a recent order of the Bombay High Court where, on an appeal filed by home buyers against the Regulator for denying them compensation for delay by Epitome Residency in handing over flats, the same Court referred the matter back to the Regulator for reconsideration with an observation that the principles of natural justice were not followed. The developer in this case had contended that the delay was caused due to the loss of files in the Mantralaya fire and incorrect classification of land under CRZ for years before it was rectified by the order of the High Court in 2016, and therefore, the delay was clearly beyond the control of the developer.

Provisions of RERA required developers, projects, and agents to mandatorily register their projects (including ongoing projects for which completion certificate was not issued) with the Real Estate Regulatory Authority (“Regulator”) established under RERA by July 31, 2017. Although a project not registered until such date would have been deemed to be unauthorized by the Regulator, several states provided exemption from the ambit of RERA to certain categories of ongoing projects.

The role of the states therefore has been very critical for the smooth implementation of RERA. Keeping most of the ongoing or incomplete projects out of the ambit of RERA by some states needs to be rectified as once the ambit of RERA is effectively widened, more projects will come under the regulation and these can be tracked for the benefit of buyers. Also, the states need to fasten the process of constituting regular Real Estate Regulatory Authority.

A recent half-yearly report, India Real Estate, released by Knight Frank India on 10th January 2018 has credited the government of Maharashtra for proactively implementing RERA in letter and spirit. As per the report, effective implementation of RERA coupled with falling real estate prices has led to lifting the real estate market in Mumbai, resulting in 19 percent increase in residential sales in the Mumbai Metropolitan Region (MMR) between July and December 2017 as compared to the same period in 2016, which witnessed demonetization. However, at the same time, it is interesting to note that as per the recent order, the Maharashtra Regulator refused to entertain an application filed by Shanti Niketan Cooperative Housing Society, Vikhroli (East), against Matrix Construction, a builder, for failing to handover new flats even after 11 long years, citing that disputes with regard to the redevelopment of housing societies fell outside the ambit of RERA. Therefore, it would be interesting to see how in the long run RERA would benefit the residents of Mumbai, where it is estimated that almost 85% of the entire construction is in the form of redevelopment of housing societies.

We surely are gearing up for interesting times, especially since the thrust of the government is on the growth of the real estate sector for overall economic growth of the country, for which customer confidence is the key, and a lot will hinge upon how effectively the government and the Regulator collectively work with other stakeholders towards bringing back the same.

Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.


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