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A Redevelopment Agreement, as the name suggests, is an agreement for the restoration of an old building, between the residents and the Developer. But it's not as simple as it sounds; the Housing Society needs to exercise necessary caution to ensure that the residents' corporate interest is safeguarded.

Even seemingly simple things such as getting the Redevelopment Agreement registered with the sub-registrar or then, paying proper stamp duty by the Developer is very important.

In most cases, the Developer negotiates the deal of redevelopment with the Managing Committee of the Society. In which case, the entire onus is on the Managing Committee to ensure that the interests of the residents are protected and they need to take all the precautions to avert ant litigation at a later date.

It's advisable to discuss the Development Agreement in detail at the General Body Meeting so as to arrive at a consensus, about the terms and conditions, in order to avoid later hassles. As with any property dealing, when it comes to a redevelopment contract, it's of utmost importance to ensure that the Developer has a sound reputation. The members of the Managing Committee must visit the site of some of his previous projects, so that they get first-hand information about the Developer.

Considering that the property of so many residents is at stake, it makes sense to seek the help of professionals in getting a clear picture about the dealing that the Society is entering into. Sound advice from professionals such as Lawyers, Architects, Engineers, before signing on the dotted line is sure to help the Society make a responsible decision.

In order to ensure the smooth implementation of such a contract, the respective obligations of the Developer and the CHS members and the consequences of the breach, if any, need to be put down in writing clearly in the Development Agreement. For instance, the time of completion of the project and the consequences of non-completion in the stipulated time must be specified in the contract so that the Developer doesn't drag on the work.

Under the Development Agreement, the Society retains the ownership and gives permission to Developer to enter upon his land, construct the building; and sell the flats so constructed. In consideration for granting the development rights, the Society may agree for a lump sum consideration or share in property constructed. In substance, where the builder acquires possession of the property for construction under a Development Agreement, he is constructing the real estate on his own. In such case, the monetary and/or non-monetary consideration for acquisition of development rights will be included as project cost of the Developer. The Developer will up-front recognize liability for the non-monetary consideration payable to the Society which will get discharge as the property is developed/sold. The fact that the land ownership is not changed in the municipal records does not change the nature of the transaction.

When drafting a Development Agreement, some of the important points and clauses of a Development Agreement are to be taken care of. The Co-operative Society, the Developer and preferably all the members should be parties to this Development Agreement. There should be a brief history of how the conveyance deed executed with the Society. The registration number of the Co-operative Society under the Maharashtra Co-Operative Societies Act, 1960, should be mentioned in the Development Agreement.

There should be particulars of the existing flats with carpet area of the flats occupied by each of the member of the buildings. The area of the plot as per the 'Property Register Card' should be mentioned. The total estimated FSI area that can be constructed by utilizing TDR on the plot should be mentioned.

Transparency in floor area, (Carpet, Built-up, Super built-up, Hyper Built-up), status of project (cause of delay, approximate completion time etc), quality of products used, design philosophy adopted, quality standards adopted in construction etc are very important to be taken care of while drafting the Development Agreement.  

The Development Agreement should clearly mention the carpet area, including the additional carpet area which will be made available to the members in the new building. The schedule of payment of the total consideration should be specified in the Development Agreement. There should be a mention of the tentative date of procuring the IOD followed by vacating the flats by the members which shall also be linked with the plans being approved by the concerned authority.  

The number of open car parking space, stilt car parking and closed parking which will be given to the members in the new building should be mentioned in the Development Agreement. Usually the Developer obtains at their own costs the rights under the Development Right Certificate (DRC) in accordance with the provisions of the Development Control Regulations for Greater Bombay, 1991.

Further, the Developer gets the building plans approved, obtain the commencement certificate and sanction of building plans from the MCGM and pay all the requisite deposits, fees and premiums to various authorities including the MCGM.

It should be clarified in the Development Agreement that neither the Society nor the Members shall be expected to pay such types of expenses. It must be clarified in the Development Agreement that each purchaser of a flat in the new building who intends to be a member of the Society will be required to pay to the Society the entrance fee and share allotment money as well as a sum as approved by the Society towards the Capital and Sinking Fund of the Society.

The time period for completion of the new building on the plot owned by the Society shall be defined in the Development Agreement. In the event the Developer fails to complete the entire work within the stipulated period, a penalty clause must be mentioned in the Development Agreement.

It should be specified in the Development Agreement that from the date of taking complete vacant possession of the existing structure till the date of receipt of Occupation Certificate in respect of the new building and till such time that the Developer intimates the members to take possession of their respective flats, the Developer shall bear and pay all municipal rates, taxes and other payments required to be paid to the concerned authorities.  

The Development Agreement should list out the broad specifications and amenities to be provided for the flats in the new building on the plot owned by the Society. The Development Agreement should have a proper schedule of the property at the end of the agreement which should specify the location of the property along with the name of the suburb, final plot number, CTS number, area of the plot and municipal ward number.

 

Another distinguishing feature of Development Agreement is the fact that the property viz. the land/ building continue to remain the property of the Society in the property card. What is given to the Developer is the right of development to exploit the percentage of development potential of the area to be kept by him as free sale area which he is entitled to dispose of and make profit there from. This was clearly stated by the Bombay High Court in Chaturbhuj Dwarkanath Kapadia V/s. CIT 260 ITR 491 when it observed that “the object of entering into a Development Agreement is to enable a professional builder/contractor to make profits by completing the building and selling the flats at a profit. The aim of these professional contractors is only to make profits by completing the building and, therefore, no interest in the land stands created in their favour under such agreements”. Such agreements are only a mode of remunerating the builder for his services of constructing the building as stated in Gurinder Developers Vs. Kurla Konkan Niwas Co-operative Housing Society (2000) 3 Mah Lj 131

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