JOINT DEVELOPMENT UNDER RERA

JOINT DEVELOPMENT UNDER RERA

by Rera Consultant LLP.

With the coming into effect The Real Estate (Regulation and Development) Act 2016, the whole aspect with regard to the method in which a joint development of a project can be accomplished has changed substantially. The Karnataka Real Estate Regulatory Authority has issued circular giving RERA Bank Account Directions, 2020 [1] regarding the method of management of funds for projects registered under RERA and a Circular regarding status of Land Owners in case of Revenue/Area share joint development [2] . The gist of the circulars would be that the Promoter as well as Land Owner are considered as the Promoters of a project who are responsible for all compliances including the collection of money, withdrawal of money, spending the money towards development work in the project and also various compliances under The RERA Bank Account Directions, stipulates that there shall be only one bank account for a Project irrespective of the mechanism of Joint Development, viz., in case of an area sharing mechanism of joint development, irrespective of the sale accomplished either by the Promoter or the Land Owner, all the money that is collected from Allottees out of the sales before reporting completion of the project with RERA, has to be brought into a single Bank account which is the designated bank account, details of which are given to RERA, which in effect, means that the entire money that is collected out of the sale either by the Land Owner or the Promoter has to be necessarily deposited into the 70% the designated Bank account. With this requirement in mind the understanding between the Promoter and the Land Owner has to be much more robust, since the circular also stipulates that all compliances in respect of the entire project including the land owner’s share as well as the promoter’s share is the responsibility of the Promoter who has registered with the project with the authority. With this the Promoter effectively becomes responsible for all compliances including reporting compliances on behalf of land owner in the project.

The next important aspect is that if in case of a revenue sharing joint development, the responsibility again vests with the promoter for complying with all the compliances under RERA.

Keeping these aspects in mind, we have to now look at what steps are required to be taken in case of entering into a joint development by a promoter at present, which of course, in case of the joint development agreements entered into prior to coming into effect, would not have factored. The following would have to be taken into account while entering into a joint development:

1) The land owner has to be educated about the mechanism for development of a project as per the requirements of The Real Estate (Regulation and Development) Act 2016 under which the land owner is also deemed to be a promoter and is responsible for all the obligations that are cast on a promoter under Section 11 and also is subject to penalty that can be levied under Chapter VIII of the Act.

2) The land owner has to understand the method of development and the promoter has to take additional steps to explain to the land owner about the importance of following the stipulations under The Real Estate (Regulation and Development) Act 2016 and at all time fulfils his/her obligations in respect of the project.

3) The joint development Agreement that is to be entered into with the land owner cannot be entered into, in the method that was entered into, prior to coming into effect of the Act. The joint development Agreement has to take into account the fact that the obligations of the land owner vis-a-vis promoter and vice versa and the mutual obligations of the promoter and land owner have to be clearly stipulated and set out in the joint development agreement.

4) The rights, obligations and liabilities of the land owner and the promoter have to be clearly stipulated in order to avoid any disputes at a later date. The liabilities under GST, the cost relating to registering the project with RERA, the matters relating to deposits to be made to statutory authorities and all such things are to be clearly stipulated, in order to make sure that there are no any disputes at a later date.

5) The responsibility of giving a good title now vests with the land owner in view of the fact that Section 18 (2) of The Real Estate (Regulation and Development) Act 2016 now stipulates that in case of any defect in title, the promoter is responsible for making good the losses that an allottee may incur on account of a vitiated title and there being no limitation period for an allottee to go against the promoter in case of a defect found in the title. In a joint development agreement, the responsibility of assuring title should be that of the land owner and it has to be clearly stipulated that the land owner shall be responsible for the title of the property.

6) The promoter shall be responsible for carrying out the development works in the project as per the specifications set out in the joint development agreement as well as the specifications that may be set out in any advertisement or agreements that the promoter entered into with the allottees in the project or with the land owner in the project. The promoter shall be responsible for any defects in the construction shall be responsible for completing the development work within the stipulated time as per the joint development agreement as well as the time stipulated at the time of registration of the project. In effect, any claim made by an allottee in respect of delay compensation, interest on delay or any other reliefs in respect of the development of the project shall be the responsibility of the promoter, which obligations have to be accordingly stipulations in the Joint Development Agreement.

7) The other most important thing is the mode of termination of the Joint Development Agreement, since this becomes important keeping in mind the possibility of revocation of registration under Section 8 of the Act. It should be set out as to what shall be the obligation of the promoter and the land owner in case of revocation of registration due to inordinate delay in completion of development of the Project, should be clearly stipulated and set out in order to avoid any complications at a future date in the event that the project cannot be completed within the time stipulated or due to any default on the part of either of parties, the project is stalled. Hence the termination mechanism should also to be clearly set out keeping in mind the kind of project in respect of which Joint development Agreement is entered into.

In conclusion, it can be said that a real estate project now has to be conceived scientifically and all estimates are to be arrived at in a scientific manner so as to determine as to what is the revenue sharing or the area sharing ratio that could actually be worked out between the land owner and the promoter. Mere calculation on the basis of assumptions would not work and it is likely that the project would run into rough weather if all these factors are not taken into account by the promoter while settling the terms of joint development by offering a percentage of revenue or a percentage of share in the project. Hence it becomes necessary that all factors have to be taken into consideration including the cost of land & construction- onsite and offsite, the cost of compliances under RERA, cost of the interest etc., including the cost of the penalties that may have to be borne in the event of any delay in completion of the project. Only after considering all these aspects, can a project be taken up under joint development. If these things are not taken into consideration and properly taken into account, it is likely that the promoter would sustain losses and the project will not be a fruitful venture.

[1] https://rera.karnataka.gov.in/reraDocument?DOC=RmAYAMErSaQOgYENilI2Ew%3D%3D

[2] https://rera.karnataka.gov.in/resources/circulars/circular1.pdf

DISCLAIMERS

  • This article is to be published in the September Volume of NAREDCO.
  • This post underlines the information as per the applicable provisions of the Real Estate (Regulation and Development) Act, 2016; and
  • We recommend the Promoters to seek the assistance of the Professionals involved in the real estate practice in case of any queries, clarifications with respect to advertisement of the real estate project

CONTACT

For any other details, clarifications, assistance, advise and other services, please visit www.reraconsultants.in; or can get in touch with us at 080 – 2223 3003 or email to consult@reraconsultants.in

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