Redevelopment of properties of existing Co-operative Housing Societies has been a subject of great interest in recent years, both to the societies and to the developers.
Redevelopment has become quite popular in Co-operative Housing Societies since it is a most practical, economical and long term solution in a scenario where old structures are proving uneconomical or obsolete; whereas for the developer it is a cost effective way to construct residential/commercial premises by utilizing the unused potential i.e. the Floor Space Index – Transferable Development Rights with gradual capital investment, in times of heavy land prices and in a situation of unavailability of land in good locations.
With the real estate prices touching a new high, residents in old buildings are now discovering that they have an opportunity to unlock immense value from their property by offering it to a builder/developer for redevelopment.
A Redevelopment arrangement begins with the conception of an idea to redevelop and it ends with the handing over of the agreed constructed area and the corpus fund or other monetary consideration to the Society by the developer. Developers, on their part, are also on the lookout for properties with unused development rights where they can build a new structure of a few storey higher and sell those additional flats for a tidy profit for them.
While it may sound like a typical ‘win-win’ situation, the process of redevelopment isn’t as easy as it sounds. It comes with a set of rules, procedures and implications which you need to understand.
It is needless to mention here that the Redevelopment of housing societies is usually burdened with bitterness and complaints of high-handedness and corruption against the Managing Committee. Hence, with a view to ensure transparency in societies seeking to undertake redevelopment projects, the State Co-Operative Department has, for the first time, issued guidelines for societies to follow under section 79 (A) of the Maharashtra Co-operatives act, 1960.
The recent guidelines are issued by a committee comprising the Co-Operatives Commissioner and CIDCO Chairman pursuant to a deep study of complaints by members of Housing Societies undertaking the redevelopment of their property. According to an important feature in the guidelines, a redevelopment scheme has to be approved by the general body only if three-fourths of the society members are present at the meeting.
The subject of redevelopment has assumed great significance because in Mumbai, majority of the buildings owned by the Co-Operative Housing Societies are quite old and in a dilapidated state. In case of redevelopment of old buildings which have completed 30 years or are beyond repairs as certified by the Govt. approved architect on the basis of his “Structural Audit”.
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.
By-Laws No.77 of the Co-operative Housing Societies specifies that every Society shall cause the “Structural Audit” of the Building/s of the Society as under:
(1) For the Building ageing 15 to 30 years…….Once in every 5 years.
(2) For the Building ageing above 30years…….Once in 3 years.
There are two important things in a Resident/Developer arrangement. One is from the commercial angle and another is from the technical angle. A Developer usually assures a certain amount of cash by way of corpus, an additional area or a mix of both. He may give an alternative accommodation for your temporary stay, foot your rentals or give you a monthly compensation within which you have to find your temporary accommodation.
Before you negotiate with a Developer, you need to establish the market value of the property you will receive on completion of redevelopment. This is a better approach than quoting a random figure to the builder that would make them feel short-changed or the high amount would make the builder shy on the new project.
The technical angle refers to the finished good. Does it match the quality and terms and conditions assured by the builder? In fact, at the agreement stage itself, the society residents should appoint a lawyer to draft and finalize the agreement. It usually takes a year for a builder to convince the society members and take an in-principle approval. The society members should ensure the timely completion of the project which is the most important detail to be mentioned in the agreement.
The main parties involved in the any redevelopment project are Society and Developer. Committee Members dealing on behalf of cooperative housing society are mostly non-technical and are laymen.
Therefore it is very important that the drafting of the Tender / agreement is done meticulously so that there is no chance of dispute and/or difference between both the parties. Excellent skills and vast Legal & Technical knowledge is required to draft such an important document. It is very important to avail the services of a professional, who is legally as well as technically qualified and a person who has the vision to anticipate future problems and requirements.
In any scheme of redevelopment, the primary objective is to ensure guarantee of performance. Performance is principally in the area of timely construction, quality control and adherence to rules, and regulations.
The best way to select the builder is to invite sealed tenders through a public notice and such tenders should have the basic eligibility criteria mentioned. This will bring in more transparency in selecting the developer. Brief details and advantages of the tendering process are given below.
BRIEF DETAIL OF TENDERING
Preparation of Tender Document including Technical, Commercial and Legal conditions, detailed Specifications and offer etc
Advertisement in 3 local News paper
Selling Tender documents
Identification of Developer and evaluation of offers and Recommendation
Guidance in Negotiation
Formation of suitable agreement
ADVANTAGES OF TENDERING
As advertisement is given in 3 prominent newspapers society will get good offers from reputed developers.
As offers are invited in a sealed tender form, there is a severe competition among the bidders.
As all the specifications and terms and conditions are same for all the bidders, it becomes easy for comparison and evaluation.
Earnest Money Deposit in the form of PAY ORDER payable to the society is taken from each and every bidder so that unwanted or non interested parties do not bid for the work
Mode of measurement of carpet area and person who will certify the same is clearly defined.
Entire redevelopment proposal to be done in society’s name making it safer for society in case of any problems faced by developer.
Right to change and or remove developer stays with the society.
As all the details pertaining to commercial terms such as Bank Guarantee, temporary accommodation, cost of additional area etc is clearly defined the chances of ambiguity and disputes are virtually non-existent.
Detailed technical methodology of work is laid out in the tender document under the head of technical specification.
Basic rates are mentioned in the tender document enabling members to change any specification for their individual uses.
Right to check amendments of plans during the progress of work is kept with the society.
Material to be used is spelt out with brand names to avoid any confusion.
As all the items are defined clearly the chances of getting realistic offer are excellent.
Consequences of delay are defined in tender document.
Tender is a legally binding document.
Bye Law No 158 recommends need of tender document for construction of building.
After a proper feasibility report is submitted, the next step in the process of Redevelopment of any society is the most important one, viz: Selection of the PERFECT DEVELOPER, who will meet all the needs of the society, and at the same time be financially stable, and having a lot of experience of Redevelopment because unrealistic offers can often lead to redevelopment projects being stalled and leave residents in a fix.
This is achieved by the process of tendering, wherein the PROJECT MANAGEMENT CONSULTANT will float a tender document containing all the Legal, Technical, and Commercial & Other important Terms & Conditions, whereby maximum safety of the society members is ensured, as they are parting with their life's most valuable possession.... their house, in the hands of a perfect stranger.
Before we agree to re-development plan, please read carefully, the procedural aspects are strictly followed as per the Govt. guidelines at the Meetings of the Society.
The Government of Maharashtra has issued a Circular bearing No. CHS 2007/CR554/14-C, Co-operation, Marketing and Textiles Department Date: 3rd January 2009 which contain a Directive under Section 79(A) of Maharashtra Co-operative Societies Act 1960 to all the Co-operative Housing Societies in the State of Maharashtra Regarding Redevelopment of Buildings of Co-operative Housing Societies to adhere to the provisions strictly while opting for redevelopment.
A well drafted consent of at least ¾ of the Society members must be obtained in writing during the Society meetings when the subject of redevelopment is discussed. The consent has to be tendered by the members in favor of Redevelopment has to be given once only. However, the minority members of co-operative housing society cannot obstruct a redevelopment project unless they show that there is some prejudice caused to them or a fraud has been committed.
A further question, though it did not arise in this case is when can a building be demolished under the provisions of the law? A building cannot be demolished without a commencement certificate (CC). The law is misinterpreted by many Societies that a building can be demolished on the basis of IOD (intimation of disapproval). The literal law and logic is that a building can be demolished only after the receipt of CC only.
The special general body has to approve the bid of the successful bidder in a meeting attended by the registrar. The entire proceedings have to be video-recorded. Once the agreement is accepted in terms of area and corpus fund, it cannot be revised. The successful bidder has to give a bank guarantee equivalent to 20% of the total project cost to show his financial strength, and proof that he will not throw away the project midway.
The Developer values the kind of Societies that either have some open plot of land or are willing to demolish the old structures to reconstruct new buildings.
Where such redevelopment is possible, Developer normally agree to pay some consideration by way of Corpus Fund including more area in their existing flats to the members and seek permission to construct a building on the open plot of land or to construct a new, bigger building using the Transferable Development Right (TDR), Floor space index (FSI) after demolishing the existing structure.
Depending upon the offer from the Developer and subsequent negotiations him, he either provides alternate residential flats to the members of the Society or pay rent in advance by way of post dated cheques, one/two months’ rent as brokerage and transportation charge etc. to secure an alternate accommodation till the new building is constructed and the members are rehabilitated in their new flats.
All the demands and negotiations have to be carefully recorded in the 'Development Agreement' for successful execution of redevelopment in a housing society and the office bearers and the managing committee members have a strong role to play.
In any process of redevelopment, one must be aware of various documentations that are required and also one must understand the tax implications on redevelopment of immovable property. The principal documents are 'Development Agreement' and ‘Power of Attorney’ which are to be registered by paying appropriate stamp duty.
By executing the Development Agreement' with the Society, the Developer gets the required permission to develop the land and submits the papers to concerned civic authorities. Upon various sanctions available to him, the Developer constructs the buildings at his cost, retains some flats for him to be sold in the open market and earn profit.
It is important for a Society to have a valid conveyance of land and building in its favor for it to be redeveloped at a later date and that includes acquiring marketable title, permission for reconstruction and construction of additional floors by use of TDR and FSI, or else, Society may not get any approval of plan from Municipal Corporation. But due to our ignorance, majority of Builders fail to convey the title to a Co-Operative Society after the flats initially constructed on a plot of land.
In fact, the greater majority of the Co-Operative Housing Societies, formed in Mumbai in the last twenty years, do not have the land conveyed in their favor which results in the Developer or the earlier owner continues to remain the owner of the property. This results in a situation where these Societies have only possessor rights and not the ownership rights over the land, depriving them of the additional TDR FSI that is the main driving force for entering into such redevelopment agreements when required at a later date.
What is the difference between Carpet Area, Built-Up Area and Super Built-Up Area?
Carpet Area: This is the area of the apartment/building that does not include the area of the walls.
Built-Up Area: This is the area of the apartment/building including the area of the walls.
Super Built-Up Area: This includes the Built-Up Area along with the area under common spaces such as the lobby, lifts, stairs etc. This term is therefore only applicable for multi-dwelling units.
The Developer has to complete the redevelopment project in two years or a maximum of three years. The Development Agreement must be signed on carpet-area basis. Most importantly, if, for some reason, the successful Developer is unable to complete the project, he cannot sell his agreement to another Developer.
The fact that most societies do not appoint professionals like architects, structural engineers and competent advocates, is the reason that proper negotiations do not take place. The appointment of a competent advocate is equally crucial as he has to act as an ombudsman and prevent unnecessary litigations. It is also a fact that ignorance of members is taken advantage of by committee members with vested interests, who takes hasty decisions ignoring genuine objections of a small section.
It has been often noticed that during the process of redevelopment, the terms of Development Agreements as agreed upon, are later twisted and grossly violated by the Developers and the ground rules of MRTP and DCR by unlawful planning are flouted by constructing additional/unauthorized areas that are beyond the 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.
At times, upon the completion of the Project, there are major inconsistencies and discriminatory features noticed in the approved plans v/s actual layouts, measurements and other aspects in respect of the constructions of residential area and the commercial area which may not be in conformity with the Development Agreement originally executed between the Society and the Developer.
Under Right to Information Act, the Housing Society can procure all the Plans and the related documentary evidences from MCGM duly attested by two Senior Engineers of the Building Proposals Dept. to study the anomalies which exist in execution of the entire redevelopment project even after the occupancy certificate is issued.
It has also been observed that the deviation of vital Rules and Guidelines of MRTP/MCGM/DCR are conveniently overlooked by few corrupt and dishonest but “Sympathetic Officials” of MCGM and the final plans with numerous anomalies so submitted by the said Developer are approved by them without verifying the justifiability or its conformity with the Development Agreement executed with the Society.
Housing Society Members must ensure they elect members with 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, members with dubious records, corrupt backgrounds or even members from the committee which has year after year not carried out Audit Rectification as required by law (there are Managing Committees who hide this particular information from their members for fear of getting exposed).
On or before the execution of the agreement, the Society should hand over to the Developer, the copy of the Conveyance Deed in respect of the Society’s property along with certified copies of the property register card, index II, latest electricity bill, water bill, municipal tax bill, N.A. tax bill in respect of the Society’s property and also, the copy of the registration certificate of Society under the Maharashtra Cooperative Societies Act, 1960.
There are complications which the Society at times in case of redevelopment if the following things are not considered. They fail to assemble all members of the Society at a single point of time during the meetings. Sometimes the title documents are not clear.
There is always an anxiety in the minds of the members about possible delay in completion of the project after they have vacated their old flats. The old documents of the members are not traceable. Some members don’t wish to come back to the new building and ask for very high prices for sale of old flats or are more interested in purchasing a new flats at a discounted rate in new building.
When drafting a Development Agreement, to ensure that all of the important points and clauses of a Development Agreement are to be taken care of. The cooperative Society, the Developer and preferably all the members should be parties to this agreement.
The Confederation of Real Estate Developers’ Associations of India (CREDAI) and Maharashtra Chamber of Housing Industry (MCHI) has introduced Code of Conduct for Developers, Promoters and Builders with an aim to maintain the honor and dignity by them in promotion of highest standard of development and building activities, to establish transparency and fair dealing with their customers and ensure that they discharge their responsibilities to the community in general.
Completion of any Redevelopment project as per the given schedule is by and large governed by the market fluctuations of supply and demand of all the material which are used in construction and the changing policy decisions of concerned Authorities and hence, this factor is beyond the control of the Society.
It has also been noticed that certain Builders, 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 Builders stop the further payment of rent for the alternate accommodation hired by the members or offer any monitory compensation for the delayed period.
The members, at later date face the financial vulnerability due to such breach of trust and unfair trade practices by the Builders. Under the circumstances, the criminal case against the Builders is required to be instituted in Criminal Court/Civil Court for breaches of terms of Development Agreement as also in Consumer Court for Deficiency in Services under Section 2 (1) (g) which reads as under:
“Deficiency” means any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service.
Following are the charges against such felonious Builders under Indian Penal Code:
Initiate action u/s 406 of Indian Penal Code read with Sections 415 and 420 of the Indian Penal Code, 1860
The above sections are reproduced herewith for ready reference.
Section 406 of the Indian Penal Code, 1860 states;
“406 Punishment for criminal breach of trust – Whoever commits criminal breach of trust shall be punished with imprisonment of either description for a term which may extend to three years, or with fine, or with both.”
Section 415 of the Indian Penal Code, 1860 states;
“415. Cheating – Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to “cheat”.
Section 420 of the Indian Penal Code, 1860 states;
“420. Cheating and dishonestly inducing delivery of property – Whoever cheats and thereby dishonestly induces the person deceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a value security, shall be punished with imprisonment of ether description or a term which may extend to seven years, and shall also be liable to fine.”
Abovementioned are some of the important points relating to redevelopment of old buildings by cooperative Societies. Since the laws on the subject of redevelopment are yet to be fully developed, any decision in this matter should be taken with great care or else it could lead to a possible dispute or litigation. It is very important to understand the procedure properly before signing any papers.
The drafts of all the relevant documents pertaining to the redevelopment process must be circulated to all members well in advance and the objections, suggestions and modifications if any, must be discussed in the Special General Body Meetings including recording proper minutes of each meeting to maintain the transparency. It's advisable to discuss the documents 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. If possible, 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.
It is to reiterate here that considering 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. It is reasonable to hire the services of a technical supervisor who can keep a check on the work done by the Developer.
There are several instances of incomplete or misleading information prevailing among the Housing Societies and flat owners as well that are planning for redevelopment. Controversial court judgments add to the confusion and such Housing Societies get stuck at some point due to lack of information, knowledge, contact with right kind of counselors, analysts, advisors etc. Many societies do not have conveyance and hence, the entire process can break down in an instant.
Please educate yourself and caution your friendly neighbors to be vigilant from Irregularities and illegalities in Redevelopment by the Builders, Illegal gratifications showered by Builders on corrupt members of Managing Committees, Rampant Corruption in BMC, Flagrant violation of Rules and Regulations by the Builders, how to beware of Cheat and Fraud Builders and their criminal and felonious acts.
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.
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