The last couple of months have been stressful for the real estate market and it comes as no surprise that the introduction of a new law which imposes additional checks on developers has elicited negative reactions from the industry. The Maharashtra Housing (Regulation and Development) Bill, 2012, which is expected to replace the four-decade-old Maharashtra Ownership of Flats (Regulations of the Promotion of Construction, Sale, Management and Transfer) Act, 1963 (MOF Act) has been passed by both the legislative houses of the state and is currently awaiting the President’s assent.
The intention of the legislature to introduce the Bill can be traced to the malpractices perpetuated by a section of real estate developers, which triggered a steep rise in the number of suits instituted by flat purchasers in consumer forums and civil courts of Maharashtra. The MOF Act, which currently governs the construction, sale and ownership of flats in Maharashtra has proved to be ineffective in safeguarding the interests of flat buyers. Introduced against this backdrop, the Bill emphasizes transparency, disclosures and greater accountability of developers.
Defined to bring clarity
The Bill purports to check misinterpretation of widely-used terms in the sector such as ‘carpet area’, ‘parking space’, ‘compulsory open space’, ‘common areas and amenities and facilities’, ‘independent areas’, ‘advertising’, ‘marketing’, ‘conveyance’, ‘utility area’, by setting out clear definitions of these terms.
The Bill seeks to enhance transparency in flat purchase transactions by requiring developers to make disclosures regarding title over the land, carpet area, layout plan, consumption of floor space index, transferable development rights, additional floor space index, details of the promoter enterprise, etc. Developers are also required to disclose the schedule for procurement of municipal services such as sewerage, water supply, electricity, drainage and disclose the brand and other particulars of sanitary fittings, flooring, furniture and lifts. Once the building plan is approved by the concerned local authority and furnished to the flat buyer, if the developer proposes to carry out any structural alterations that vary from the approved plan or construct any additional floors or wings, it may do so only with the prior consent of the flat buyer.
The Bill provides for a phase-wise registration of projects with the Housing Regulatory Authority (Regulatory Authority) prior to the sale or marketing of a project if it is proposed to be developed on a parcel of land exceeding 250 square meters. The registration and other details of the project have to be uploaded by the developer on the website of the Regulatory Authority and may be viewed by the public. Incorporation of such regulatory overview on disclosures will ensure greater transparency and deter the developers from misrepresenting or making exaggerated claims. If found guilty of invalid title over the land on which a project is proposed to be developed, the Regulatory Authority can debar the errant developer from offering flats for sale or advertising the project further.
New judicial entities
The Bill designates the Regulatory Authority to act as a supervisory body to monitor the construction and sale of flats in the State. Together with the Regulatory Authority, the Bill also proposes to create the Housing Appellate Tribunal (Appellate Tribunal), both bestowed with vital adjudicatory powers. Unlike the MOF Act, under which flat buyers could only approach consumer forums or civil courts, the Bill grants the Regulatory Authority and the Appellate Tribunal the power to take cognizance of disputes arising under the Bill, paving the way for speedy disposal of such disputes. The Bill proposes to oust the jurisdiction of civil courts over matters that are to be decided by the Regulatory Authority and the Appellate Tribunal by giving them the powers of a civil court. The proceedings before the new bodies are deemed to be judicial proceedings.
Segregation of funds
To prevent the misuse of funds collected from flat buyers, developers are required to maintain separate building-wise accounts in the manner specified in the Bill. If a developer fails to hand over the possession of a flat within the scheduled date to the buyer or if a buyer withdraws booking on account of willful false statements made by the developer, the developer is bound to refund the full amount paid by the buyer with interest at the rate of 15 per cent under the Bill as against 9 per cent under the MOF Act.
The Bill recognises the emerging practice of formation of an apex body or federation of associations of flat buyers in case of a layout development. When undertaking a layout development, the developer is required to form an association of flat buyers in respect of each building or wing and to convey the undivided land in favour of the federation of such associations of flat buyers or the apex body.
The Bill not only proposes imposition of stringent cash and other penalties on developers for non-compliance, but also contains provisions to penalise flat buyers who default on the payment to be made by them under an agreement for sale.
Good news for the sector
It is likely that once notified, the Bill will act as a positive catalyst for growth of the real estate industry at least in the short term. The higher transparency and accountability envisaged in the Bill is likely to boost the confidence of buyers while evaluating potential investments.
The effectiveness of the Bill in the long run will depend on the scale of its implementation. Meaningful orders from the Regulatory Authority on issues lacking clarity in the Bill will benefit both buyers and developers.
The author is a Partner at Phoenix Legal, a law firm