Home > Realty Frauds and Scams > Rera and Redevelopment - Housing Societies as Co-Promoters

Redevelopment of existing co-operative housing societies has been a subject of great interest since past many years, both to the Societies and the Developers. With the real estate prices touching a new high, residents in old buildings discovered that they have an opportunity to unlock immense value from their property by offering it to Developers for redevelopment.

However, with a passage of time, the Developers almost failed to give the Societies their homes back in time as also many of the new home buyers found themselves in deep water to get the possession of their homes due to abnormal delay attributing to numerous reasons.

In order to regulate and promote the real estate sector and to provide a systematic and quick redressal system, Real Estate (Regulation and Development) Act, 2016 has now been enacted by the Maharashtra Government popularly known as MahaRERA. The Act has become effective from 1st May, 2017.  

Under MahaRERA Act, for the first time in the history of the redevelopment of housing societies, even though the project is developed by the Developers (in other words known as Promoters), the concerned housing society shall also become a Co-Promoter as the Society being an owner of the land and the liabilities of such Co-Promoters shall be as per the agreement or arrangement with the Promoters (Development Agreement in case of redevelopment).

Co-Promoter means and includes any person(s) or organizations(s) that, under any agreement or arrangement with the promoter of a real estate project is allotted or entitled to a share of total revenue generated either from the sale of apartments or, share of the total area developed in the real estate project. In other words, the Co-Promoters are those people who are related with the project development thorough any agreement or arrangement of the promoter (in case of redevelopment, it shall be the Society as Co-Promoters). 

The agreement so executed with the Promoters will decide the accountabilities of Promoters and Co-Promoters as well. Such individual or organization shall submit a Form-B of MahaRERA rules, 2017 and the Development Agreements with distinct terms and conditions as agreed between the Promoters and Co-Promoters shall be uploaded on the MahaRERA’s portal during the time of project registration.

As defined in the Government Office Order reproduced herein below, the Society shall be the Co-Promoter and if the selected Developer fails to deliver the promised flats to the rehab members and the new purchasers of the flats, it is feared that the Society may have to contribute and then complete the redevelopment project.

In case, the Developers fail to deliver the possession of the rehab flats to members of the Society as also the saleable flats sold to the allottees, the MahaRERA on the basis of the complaints received from the aggrieved parties and after hearing them, may take effective steps against the errant Developer. In such a case, the Societies also may suffer a setback and lose certain benefits of the redevelopment. The benefits arising out of redevelopment like additional carpet area, corpus and rent that may be reduced marginally as the other Developers in place of the previous one will have to invest their own money.

Every Developer may insist for mortgage of Society’s land to raise the funds required to complete the redevelopment task. It is most likely that henceforth the Developers may not offer any Bank Guarantee thereby, resorting to violation of the guidelines issued on 3rd January, 2009 by the Government of Maharashtra for redevelopment.  

There are numerous factors which are responsible for a failure/delay of any redevelopment project. The Developers go bankrupt and they abandon their projects before completing all the units and amenities they promised in their glowing brochures. Diversion of funds from one project to another is one more cause of concern and the redevelopment projects that were supposed to be completed in two to three years, are stretched out to six or seven years followed by non-payment of further rent to the members of the Society.

While selecting a Developer, both financial and quality aspects need to be considered. Most Societies focus on only quantitative financial terms which include the additional carpet area offered to each member, the corpus fund, rent for alternate accommodation and shifting charges etc. What are ignored here are the qualitative aspects of the Developer which include past experience and track record.

Please remember that going in for redevelopment without knowing the precise procedures and processes involved, is like walking on the edge of a cliff blindfolded as you have no idea when a wrong step could send you tumbling downwards. Essential information about any Developer is major concept where half knowledge is infinitely more dangerous than ignorance. Selection of a Developer without carrying due diligence study will translate all your efforts null and void.

Therefore, it is most essential on the part of the co-operative housing societies that a suitable and financially sound Developer should be identified after carrying out the due diligence exercise as stated above.

To evaluate the overall competence of contesting Developers, we have devised seven Due Diligence Formats to be furnished by them to the Society before the final selection. These formats provide accurate and reliable analysis encompassing financial and technical parameters, details of their new projects/new redevelopment projects under construction, completed and under negotiation, details of their banking transactions, loans taken, source of funding to redevelopment project, legal cases pending against them with full details, book debts, creditors, debtors, details of various contractors, material suppliers and details of entire personnel of the Developers in various discipline etc.  

The Society contemplating redevelopment shall be protected under the MahaRERA after executing the Development Agreement which shall be registered with the MahaRERA. The members shall be confirmed as allottees of the rehab flats of the Society. Before the members handover their flats to the Developer for redevelopment, a proper Individual Permanent Alternate Accommodation Agreements must be executed and get the same registered with applicable stamp duty paid.

MAHARASHTRA REAL ESTATE REGULATORY AUTHORITY

No. MahaRERA/LA/32/2017 Date: 11th May 2017

OFFICE ORDER

Government of India has enacted the Real Estate (Regulation and Development) Act 2016 and all the sections of the Act have come into force with effect from May 1, 2017. Government of Maharashtra has also notified the rules under the Act and established Maharashtra Real Estate Regulatory Authority (MahaRERA), vide Notification No.23 dated 8 March 2017 for regulation and promotion of real estate sector in the State of Maharashtra, with its headquarters at Mumbai. MahaRERA, thereafter, has notified Maharashtra Real Estate Regulatory Authority (General) Regulations, 2017 and Maharashtra Real Estate Regulatory Authority (Recruitment and Conditions of Service of Employees) Regulations, 2017.

During the online registration process, it has been observed that several Promoters enter into arrangement with individuals/organizations by which the said individuals/organizations are entitled to a share of the total revenue generated from sale of apartments or share of the total area developed for sale.

For example, a landowner may handover his land to a promoter and in return be entitled to 20% of the apartments developed or 20% of the revenue generated from sale of apartments or an investor gives money to the promoter at an initial stage of project launch and through an arrangement with the promoter, gets entitled to a 20% share of the total area developed, which is constructed by the promoter but marketed and sold by the investor. However, in such scenarios, the sale proceeds to these individuals/organizations should not be considered as cost of the Project and withdrawn from designated Bank Account merely by the virtue of this arrangement. For the purpose of withdrawal from the designated Bank Account, these individuals/organizations should be considered as Promoters and hence shall be termed as Co-Promoters.

Since the term Co-promoter is not defined in the Act, Rules or Regulations, it is felt to clearly define the term Co-promoter.

Therefore, in exercise of the powers vested in MahaRERA under Regulation No. 38 of Maharashtra Real Estate Regulatory Authority (General) Regulations 2017, the following definition of Co-Promoter is being notified:-

Co-Promoter means and includes any person(s) or organization(s) that under any agreement or arrangement with the promoter of a Real Estate Project is allotted or entitled to a share of total revenue generated from sale of apartments or share of the total area developed in the real estate project. The liabilities of such Co-Promoters shall be as per the agreement or arrangement with the Promoters, however for withdrawal from designated Bank Account, they shall be at par with the Promoter of the Real Estate Project.

Further, the arrangement or agreement of Co-Promoter(s) with Promoter should clearly detail the share of Co-Promoter(s) and a copy of the said arrangement or agreement should be uploaded on the MahaRERA portal, at the time of registration along with other details of the Co-Promoter(s). Such Co-Promoters/Individuals/Organisation should submit a declaration in Form-B of MahaRERA (Regulation and Development) (Registration of Real Estate Project, Registration of Real Estate Agents, Rates of Interest and Disclosures on Website) Rules, 2017 (Specimen reproduced below). Further, each of the Co-Promoters/Individuals/Organisation, entitled to share of the total area developed, should open separate bank account for deposit of 70% of the sale proceeds realized from the allottees.

This Order will come into force with immediate effect.                                                                                                                                         

                                                                                Sd/-

(Vasant Prabhu)

Secretary, MahaRERA

FORM ‘B’

[See rule 3(4)]

 

DECLARATION, SUPPORTED BY AN AFFIDAVIT, WHICH SHALL BE SIGNED BY THE PROMOTER OR ANY PERSON AUTHORIZED BY THE PROMOTER

Affidavit cum Declaration

 

Affidavit cum Declaration of Mr/Ms _________ promoter of the proposed project/duly authorized by the promoter of the proposed project, vide its/his/their authorization dated______;

 

I, _________/promoter of the proposed project/duly authorized by the promoter of the proposed project do hereby solemnly declare, undertake and state as under:

 

1.            That I/promoter have/has a legal title to the land on which the development of the project is proposed

 

OR

 

__________________ have/has a legal title to the land on which the development of the proposed project is to be carried out

 

AND

 

a legally valid authentication of title of such land along with an authenticated copy of the agreement between such owner and promoter for development of the real estate project is enclosed herewith.

 

2.            That the said land is free from all encumbrances.

 

OR

 

That details of encumbrances ________________ including details of any rights, title, interest or name of any party in or over such land, along with details.

 

3.            That the time period within which the project shall be completed by me/promoter is _________.

 

4.            That seventy per cent of the amounts realized by me/promoter for the real estate project from the allottees, from time to time, shall be deposited in a separate account to be maintained in a scheduled bank to cover the cost of construction and the land cost and shall be used only for that purpose.

 

5.            That the amounts from the separate account, to cover the cost of the project, shall be withdrawn in proportion to the percentage of completion of the project.

 

6.            That the amounts from the separate account shall be withdrawn after it is certified by an engineer, an architect and a chartered accountant in practice that the withdrawal is in proportion to the percentage of completion of the project.

 

7.            That I/promoter shall get the accounts audited within six months after the end of every financial year by a chartered accountant in practice, and shall produce a statement of accounts duly certified and signed by such chartered accountant and it shall be verified during the audit that the amounts collected for a particular project have been utilized for the project and the withdrawal has been in compliance with the proportion to the percentage of completion of the project.

 

8.            That I/promoter shall take all the pending approvals on time, from the competent authorities.

 

9.            That I/promoter have/has furnished such other documents as have been prescribed by the rules and regulations made under the Act.

 

10.          That I/promoter shall not discriminate against any allottee at the time of allotment of any apartment, plot or building, as the case may be, on any grounds.

Deponent

Verification

The contents of my above Affidavit cum Declaration are true and correct and nothing material has been concealed by me therefrom.

Verified by me at ________ on this ____ day of _______

Deponent

  

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