Legal Zone

Bill of Rights?

June 2015
Here´s a deeper look at the legislative framework of the Indian real estate sector with reference to the proposed Real-Estate Bill by Akanksha Joshi and Ashlesha Galgale.
To protect the interest of buyers of real estate by promoting ethical real estate transactions and timely execution of projects, a real estate bill was drafted in 2009. Aimed at regulating the sector and increasing the transparency between the stakeholders involved, the Real Estate (Regulation and Development) Bill, 2013 was first introduced in the Rajya Sabha in August 2013.
The recently amended Bill is pending in the Rajya Sabha and has stirred quite a debate.

Salient features

  • Some of the salient features of the Bill are as follows:
  • Regulatory framework: The Bill seeks to establish Real Estate Regulatory Authorities (RERA) in each State or Union Territory as well as Appellate Tribunals to hear appeals for the decisions of RERAs. The powers of the RERA include registration of projects and agents, investigation into offences and adjudicating certain issues.
  • Registration: The Bill mandates registration of real estate projects and real estate agents.
  • Disclosures: Promoters and real estate agents are required to disclose material information including details of the promoters, project, layout plan, development plan, land status, carpet area, number of apartments booked, status of the statutory approvals and disclosure of proforma agreements, names and addresses of the real estate agents, contractors, architects, structural engineer, etc.
  • Advertisements: Misrepresentation in advertisements issued by a promoter would entitle the buyer to compensation or refund of all amounts paid along with prescribed interest.
  • Advance: Promoters are prohibited from taking more than 10 per cent as advance from the buyers without a written and registered agreement.
  • Refunds: If the promoter fails to complete or is unable to give possession in accordance with the terms of the sale agreement, the buyer is entitled to a full refund with interest.

Recent amendments
Recently, the Union Cabinet approved numerous amendments to the Bill on the recommendations of the Standing Committee of Parliament on Urban Development and suggestions of various stakeholders. The one positive change is the amendment to the definition of the terms ´apartment´ and ´building´ such that the Bill would be applicable not only to residential but commercial real estate. This would ensure protection to a wider spectrum of buyers.

However, many amendments have received flak as they appear to give the promoter a lot of leeway and dilute some of the previous protections afforded. Some such amendments are:

  • The requirement for promoters to deposit amounts collected from buyers for a project into a separate bank account has been reduced from 70 per cent to 50 per cent. Further, state governments can prescribe an even lower percentage.
  • The definition of ´carpet area´ as ´net usable area´ in an apartment minus the walls has been amended to ´rentable area´ as defined by the National Building Code, which would include the walls.
  • Earlier there were restrictions on the ability of a promoter to make alterations and additions to a project. Recent changes seek to permit changes to the approved and finalised plans, structural designs and specifications in some circumstances.

State legislations and the Bill
A simultaneous development with the drafting and introduction of the Bill is legislation by various state governments on the same or allied subjects, bringing the two in conflict.

Legislative power and conflict: Under Entry 18 of the State List of Seventh Schedule of the Constitution, states are entitled to make laws related to land, or rights in or over land. However, contracts between buyers and promoters and transfer of property fall within the concurrent list. There is, therefore, a possibility of overlap. In this context, the Bill clearly provides that in case of any inconsistencies between the Bill and any State law, the Bill will prevail. Further, both the Bill and State laws require registration of projects, promoters and agents. Such multiple registrations would lead to administrative difficulties.

The overriding provision of the Bill ensures that there remains no ambiguity in the event of conflict of laws, and provisions of the Bill protecting the interest of the buyers would prevail. Accordingly, upon notification of the Bill, the provisions of existing State laws or bills may be impacted. The following are a few such provisions:

Maharashtra Housing Regulation and Development Act, 2012 (MHA): The MHA differs from the Bill in the following key issues:

  • The MHA allows promoters to collect 20 per cent advance from buyers without a written agreement, while the Bill permits only a 10 per cent advance. Under the MHA, the authority can revoke the registration of a real estate project only in the event it is declared by the court of law that the document under which the promoter derives title or the right to develop is invalid. However, under the Bill, the grounds for deregistration include contravention of approvals granted by the competent authority, unfair trade practices, and contravention of the rules and regulations made by the Bill.
  • The MHA provides that all the amounts collected from buyers must be kept in a separate account monitored by the state government and should only be used for the purpose for which it is collected. The Bill in its current form requires a deposit of only 50 per cent. West Bengal Building (Regulation of Promotion of Construction and Transfer by Promoters) Act, 1993 (WBA):
  • A promoter is permitted to collect up to 40 per cent of the cost as an advance without a written agreement compared to 10 per cent under the Bill. Haryana Real Estate (Regulation and Development) Bill, 2013 (Haryana Bill):
  • The definition of ´carpet area´ under the Haryana Bill expressly excludes the walls. The Bill however includes walls within the definition of ´carpet area´.
  • The Haryana Bill requires a promoter to deposit not less than 70 per cent of amounts collected from buyers in a separate bank account as against the 50 per cent set out in the amended Bill.

In conclusion
The Bill leaves the regulation of smaller projects unattended. It also fails to provide for a streamlined approval system.
However, taking into consideration the imperative need for regulation and standardisation in the real estate sector in India, the Bill comes across as a positive initiative. If implemented and interpreted harmoniously with state laws, the Bill will provide respite to tormented buyers and increase the credibility of the entire real estate sector.

About the Authors:
Aakanksha Joshi,
Associate Partner-Infrastructure, Hospitality and Corporate practices, Economic Laws Practice (ELP) graduated from Government Law College, Mumbai and obtained her Solicitor´s qualification from the Bombay Incorporated Law Society.

Ashlesha Galgale, Associate-Infrastructure, and Corporate practices, ELP, graduated from the Institute of Law Nirma University, Ahmedabad.

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