October 18, 2016

RERA - Builders' Perspective

The Real Estate Regulatory Authority (RERA) is enacted and shall be effective from 1st May 2016. RERA is applicable to Builders agents and customers are also involved, here we will look at the RERA from builder's perspective. The RERA is going to be a big head ache for those who have avoided keeping systems in their business. Budgeting, cash flow analysis and CRM teams with knowledge of RERA is going to give an edge in the industry.


REGISTRATION OF PROJECT 

Mandatory Registration of real estate projects if:



             -   the total area of land proposed to be developed exceeds 500 square meters (5381 Sq.Ft.) OR

               - where more than eight apartments are proposed to be developed inclusive of all phases




Registration of Phases

Every phase of a project is to be registered separately as a standalone project.(if the project is developed phase –wise)

Marketing and Sales
Projects cannot be advertised, booked or sold in any form prior to registration and obtaining the necessary construction approvals.



Registration timeline
The RERA is required to either grant or reject registration applications within 30 days. 



BUILDERS: ONLINE DISCLOSURES

On successful registration a Login id and password shall be provided. Promotor shall create his web page on such website after login.

Publicly accessible disclosures of following are compulsory:
  - project and
  - promoter details,
  - self-declared timeline within which the promoter is required to complete the project,   are compulsory.

Quarterly project related disclosures are also required.

The disclosures are to be made available online.


COLLECTION & UTILIZATION OF CUSTOMER MONEY 

Parking of funds:

Promoters must park 70% of all project receivables in a separate bank account.



Withdrawal of funds:

Drawdown from such account is permitted for land and construction costs only, in line with the percentage of project completion (as certified by an architect, an engineer and a chartered accountant).



Accepting advances

Further, a promoter can accept only up to 10% of the apartment cost prior to entering into a written agreement for sale with the consumer.

WARANTIES & BAR ON ENCUMBRANCES

Ownership: The promoter is required to declare that it has legal title to the project land or authenticate validity of title, if such land is owned by another person.



Insurance: The promoter is also required to obtain insurance for:

  - title and buildings &

  - construction insurance.



Construction Guarantee: The promoter is responsible for structural defects or other deficiencies for a period of 5 years from possession.



Bar on Encumbrances: The promoter is prohibited from creating any charge or encumbrance on any apartment after executing an agreement for the same.



Indemnity to customer: In the event such charge or encumbrance is created, it will not affect the right and interest of the concerned consumer.

 
PROJECT & AGREEMENT SANCTITY

Plan Alterations with 2/3rd majority:

The promoter is not permitted to alter plans, structural designs and specifications of the land, apartment or building without prior consent of two-third of the allottees.



Rights / liabilities in project

The promoter is also not permitted to transfer or assign majority of its rights and liabilities in a project without such consent, along with the RERA's prior written approval



Model agreement:

The Act provides that a specified form of agreement for sale between promoters and consumers may be prescribed, which will prevent inclusion of biased provisions in it.


Consumers have also been granted the right to seek relief for unilateral termination of such agreements by promoters without cause.

 EXISTING PROJECTS

Existing projects which have not received completion certificate before 1st May 2016, will be required to obtain registration with the RERA by 1st August 2016.


PENALTIES

Disclosure related Defaults:

The Act imposes monetary penalties on the promoter of up to 5% of the 'estimated cost of the project' (as determined by the RERA) for disclosure related defaults,



Other Defaults:

Up to 10% for other defaults, along with a maximum imprisonment of 3 years.



Penalties for customers

Consumers are liable to a fine of up to 10% of the apartment cost or imprisonment up to 1 year for non-compliance with orders of the real estate appellate tribunal.

COMPENSATION TO ALLOTTEES

If the promoter fails to complete the project or is unable to give the possession of apartment, plot or building then



  - in case the allottee wishes to withdraw from project then he should receive interest          and compensation as given in the Act or

  - in case the allottee does not wish to withdraw from project then he should be paid          interest for every month of delay at specified rate, till the handling of the possession



Compensation for failure to rectify defects within 30 days:

In case of a structural defect, defect in workmanship, quality or provision of services or other obligations of the promoter as per the sale agreement when brought to the notice of the promoter by the allottee within 5 years of handling of the possession should be rectified by the promoter within 30 days without any cost. Failure to do the same by the promoter entitles the allottee to compensation.


CONCERN POINTS

Will the builders be liable if the delay in possession is due to delay in Government approvals?


Understanding ownership pattern will be critical to ascertain the rights and duties.



Making data and information online can be a herculean task.