With the real estate prices beyond the reach of common man in Mumbai, residents in old buildings are now realizing that they have an opportunity to fetch considerable value from their existing property by offering it to a Builder/Developer for redevelopment.
Redevelopment is most practical, economical and long term solution in circumstances where old structures are proving uneconomical for repairs.
The people enjoy improved lifestyle in modern structures with landmark elevations and latest amenities in every room, extra carpet area, increase in flat’s value with financial benefits like Corpus Fund, Rent Compensation for Transit Accommodation, Brokerage and Transportation Charges during the period while the building is under construction. However, there are many factors/questions that arise during the ongoing process of redevelopment and they are to be taken care of diligently while opting for Redevelopment.
1. PREVENTATION IS BETTER THAN CURE
The main parties involved in any Redevelopment Project are the Landlord of Tenanted Buildings, Cooperative Housing Societies and Developers. The landlords of tenanted buildings in South Mumbai negotiate directly with the Developers for redeveloping their property whereas the old Housing Societies with thousands in numbers in suburban areas, predominantly the Managing Committee Members are handling the entire process. The distressing fact is that they are mostly non-technical and laymen without any legal knowledge or expertise over the subject of redevelopment.
It is advised to get educated of the various Acts, Laws and Rules governing the societies and the redevelopment to facilitate them to be vigilant from irregularities and illegalities in redevelopment as also how to beware of cheat and fraud builders with their criminal and felonious acts.
Because of such rampant irregularities and corrupt practices found during the process of redevelopment in many Housing Societies and to ensure transparency in process of redevelopment, Dr. Sudhirkumar Goyal, Principal Secretary, Co-operation Department, has come out with a Do’s and Don’ts to be STRICTLY followed by Societies going for redevelopment vide Govt. of Maharashtra notification no. CHS 2007/CR554/14-C dated 3rd January, 2009.
Following are not exhaustive but certain important areas of precaution which provide cover to the Societies against getting cheated by the Developers.
- Selection of a Genuine Developer: Never ever select a Builder simply on the basis of his financial offers and exorbitant increase in carpet area and promises to provide amazing and astonishing amenities etc. His selection should be exclusively based on his merit, reputation, technical capability, experience, financial status, quality of construction and successful completion of his earlier projects etc.
- Hiring an experienced Counsellor or professional and competent Advocate: The Counsellor/Advocate helps in drafting the Redevelopment Agreement and shall not leave the same to the Developer. The terms and conditions of the agreement should legally and practically take care of the corporate interest of the Society and each of its members. While drafting, it is emphasized to visualize every possible setback and remedies against likely eventualities so that the Developer’s interest in completing the project continues till the end.
- Appoint Civil/Structural Engineer: It is advised to appoint Civil/Structural Engineer to monitor the progress, supervise the onsite quality of construction with standard material used, constructed area to be in conformity with the approved plans, to be vigilant against unauthorized and illegal construction or violation of rules, verify the amenities provided as promised by Developer etc.
- Transparency in Managing Committee: It must be ensured that the interests of the members are protected as the Managing Committee handles the entire process. Often there is a suspicion of their being hand in gloves with the Developer and at times, it is assumed to have been true as the Managing Committee members also look forward for their personal gains rather than ensuring a fair deal for members and the corporate interest of the Society.
- Arrest the violation of Laws and Rules by Developers: During the process of redevelopment, the terms of Redevelopment Agreement as agreed upon, unhealthy attempts with ulterior motives are made by the Developers to twist and grossly violate the rules of MRTP and DCR by unlawful planning and constructing additional/unauthorized areas that are beyond their entitlement (i.e. beyond the plot FSI and the TDR/FSI loaded) for their hidden financial gains. The buyers of such unlawful flats/properties land themselves in deals that lead to litigation at a later date
- Delayed Possession of flats: It is a long ending tussle between the Developers and societies that never seems to end delivering projects on time as documented in the Redevelopment Agreement. There are umpteen cases where Developers abandoned or delayed the redevelopment projects due to paucity of inflow or diversion of funds from the assigned projects in order to acquire more and more ventures beyond their financial means or are simply not capable to execute the projects due to lack of competency leaving the buyers suffer mentally and financially.
- Liquidity crunch: It has also been noticed that certain Developers, due to sudden liquidity crunch or improper planning, drop the project half way or the project is badly staggered and the paucity is worst affected to the members of the Society for long, may be years. Such Developers stop the further payment of rent for the alternate accommodation hired by the members or offer any monitory compensation for the delayed period.
- Protection under Law: Cheated Societies can initiate action under Sections 415 and 420 of The Indian Penal Code, 1860 for Breach of Trust and Cheating, for Deficiency in Service, Unfair Trade Practice and violation of contracted terms under Indian Contract Act, 1872.
2. WHAT TO NEGOTIATE WITH DEVELOPER:
- The main focal area is payment of rent by the Developer for transit accommodation. No buildings is completed within 24 months and hence, make sure that an advance rent of 24 months is received in advance and a suitable penalty clause in the Development Agreement is inserted on default in handing over the possession within the stipulated time.
- The Managing Committee to demand that all financial benefits like Corpus Fund, Rent, Transportation and Brokerage as agreed must be paid by the Developer to the members before they leave their flats and Society hands over the property to the Developer for redevelopment.
- Insist on providing the Bank Guarantee from Nationalized Bank equivalent to the estimated construction cost of all the flats in case the Developer fails to deliver the redeveloped flats to the members.
- The other areas where the Managing Committee should emphasis are to provide adequate numbers of Car Parking, Additional Carpet Area and Purchase of TDR in Society’s name, execution of individual agreement etc.
3. ALERT AREAS TO BE TAKEN CARE OF:
- The first and the foremost step before going in for redevelopment would be a structural audit of the building. The structural audit report will determine whether the building should go in for redevelopment or for major repairs. In the absence of the technical report it would not be legally permissible to pass a resolution in the general body meeting. However, it is a fact that many co-operative Societies suddenly call for General Body meeting and decide to go in for redevelopment in the absence of a structural audit report.
- It must be ensured that before initiate the process of redevelopment, the land is conveyed in the name of Society and it has been suitably recorded in the Property Card issued by MCGM. The non-availability of conveyance from the old owners/Builders renders the societies subjects the entire process of redevelopment break down instantly.
- Many redevelopment projects have often collapsed due to the growing demands of the members in majority as there is a high level of expectations amongst the members when the idea of Redevelopment is proposed. This should be restricted or avoided.
- Selection of Developer should not be scaled on the basis of various exorbitant offers but should be according to his standing/reliability/integrity and market credibility.
- Avoid the internal rifts between the Managing Committee and resident members during the progression of the process of redevelopment.
- Managing Committee should desist from negotiating directly with the Developer keeping the other resident members uninformed of.
- The successful execution of any redevelopment project primarily depends on the management by the members of the Managing Committees with transparent efforts to protect the corporate interest of the Society and 100% co-operation of each and every member. This, in turn is again depends on the capacity of the members of the Managing Committees who are entrusted with the management of entire process of the redevelopment with their honesty and integrity.
- Avoid litigation with the Developer since it is basically the Society and its members who may be at a loss due to time consuming process of Law.
- Housing Society Members must ensure that they elect the Managing Committee Members strictly as per the Election Rules specified as per Bye Laws governing the Housing Societies and are known for their integrity, clean, honest records. Care should be taken not to elect office bearers who have consistently flouted provisions of Co-operative Act, Rules and Byelaws to further their own self interest, committed serious financial irregularities with the society funds and members with dubious records who have corrupt background.
- The task of satisfactory completion of redevelopment of any Housing Society and to get back their members in their dream houses is not difficult provided the Office Bearers and the Committee Members are sincere and honest and justify their respective posts in the welfare and well being of the members of the Society.
4. THE THINGS TO BE AWARE OF WHILE SIGNING A REDEVELOPMENT DEAL:
- Redevelopment Agreement (Also known as Development Agreement) which should be well worded and un-ambiguously drafted to ensure that the overall interest of the residents is protected with all the precautions to avert litigation at a later date.
- Thorough study and factual verification of details of Financial and Technical Data furnished by the Developers in the Tender Document is must.
- To specify the period within which the Developer shall procure the IOD and CC in the Agreement and in case of failure, the Society shall have the exclusive option to cancel the Agreement.
- Stipulate the exact time schedule for completion of project.
- Ensure to include inflexible compensation clause for delay in completion of project/possession of flats is included as penalty clause in the Redevelopment Agreement.
- Every detail pertaining to the construction specifications, material to be used, branded amenities should be specified in the Redevelopment Agreement. Anything that is vague will go against the interest of Society members.
- TDR should be loaded in the name of Society before vacating of the premises but after execution of the Development Agreement.
- The care taken that the necessary permissions are obtained and legal formalities are fulfilled to secure the project by the Developer before he ask the members to vacate the premises so that the project doesn't stuck up after demolition of the building.
- In case of defective material used in redevelopment, the Defect Liability Clause must be included in the Agreement.
- The Bank Guarantee should be drafted simultaneously along with the Redevelopment Agreement. The Bank Guarantee document should be simple and not tied up with unwarranted conditions.
- Major laws required to be kept in mind include the Transfer of Property Act, 1882, Registration Act, 1908, Indian Contract Act, 1872, CRZ laws, State laws like Maharashtra Ownership Flats (Regulation of Promotion of Construction, Sale, Management and Transfer) Act, 1963, Maharashtra Co-operative Housing Societies Act, 1960, stamp duty laws, Development Control Rules, Environmental Law, Tree Cutting Laws, Municipal Laws, Slum Redevelopment Scheme etc. If there are serious legal irregularities in the process of redevelopment and when they are noticed halfway, they can jeopardise the redevelopment and the consequences can be severe as what the law does not permit cannot be done either by the Redeveloper or by the Society.
5. WHO HAVE BEEN CHEATED?
There are numerous criminal cases registered against the erring Developers where the flat buyers/housing societies have been deceived and cheated in maintenance of terms of Development Agreement like not providing the agreed amenities, using defective materials, delayed possession, financial irregularities, frauds in area measurement of flats, violation of laws acts and rules, unauthorized and illegal construction etc.