Bengaluru citizens highlight lacunae in new real estate bill

A few concerned citizens of Bengaluru who are well aware of the problems faced by laymen while purchasing a house in the city, have made it a point to draft their objections and suggestions to the amended Real Estate Bill 2013.

Though they were not invited for the consultation programme organised by the Parliamentary Select Committee on Real Estate (Regulation and Development) Bill, 2013, in the city on June 10th and 11th, they did not give up. These groups of citizens contacted the chairman of the Select Committee and requested if the Committee will allow them to submit their objections and suggestions for the Bill.

As the Committee responded to them positively and asked them to submit their memorandum at the earliest, the groups voluntarily held discussions on pros and cons of the Bill and have pooled their objections and suggestions. The copy will be submitted to Union Housing Ministry and to Chairman of the Parliamentary Committee on Real Estate Bill, Nagesh Aras who spearheaded initiative told Citizen Matters.

Bengaluru citizens including Nagesh Aras, M S Shankar, Ajit N Naik, Abrar Hazarika, Ramanatha Iyer, Sanjay Vijayaraghavan and Muralidhar Rao have given their inputs towards drafting the objections. Advocate Mithun Garehalli who has fought several consumer rights cases too has contributed towards filing objections, from consumers point of view.

In the objections drafted by them, they have particularly raised concern over allowing change in ownership of common area with consensus from 2/3rd majority, lack of clarity on the definition of ‘promoter,’ the clause that enables customer to get project documents only after completion of project, formation of dispute settlement forums, advantage given to builder by making it not necessary for him to declare amenities for each apartment at the time of registration etc.

About the Real Estate Bill

The Real Estate Bill 2013 which was originally drafted during the tenure of UPA government, was amended by the NDA government. The amended Bill faced opposition from Rajya Sabha members when it was tabled. Therefore the government sent it to Parliamentary Select Committee to collect opinion of stakeholders.

One of the salient features of the Real Estate Bill is the establishment of state level regulatory authorities called Real Estate Regulatory Authorities (RERA). Residential real estate projects, with some exceptions, need to be registered with RERA. On registration, the promoter must upload details of the project on RERA website.

The 21-member Select Committee headed by MP Anil Madhav Dave has sought the individuals, organisations, experts and institutions to submit their opinion on the Bill.

Here are some of the major observations made by citizen groups on the said Bill:

  • The Real Estate Bill does not align well with some of the existing acts. Some of the specifications in Indian Contract Act, Registration Act and Companies Act have been overlooked in the proposed Bill.
  • The Bill does not address the issue of non-registered property. It should ensure that if a developed property is non-registered, then the developer has to be penalised/ blacklisted rather than penalising the customer for the misdeed of the developer.
  • The bill must protect the customers against legal default by the developer; often in connivance with various authorities.
  • The bill should mandate sanctioning authorities to declare specific acceptance criteria in the public domain. Information should be available for public on how a property approval was sanctioned/ denied. This creates traceability and establishes accountability.
  • The term “handing over” the project to customer has to be elaborated or should be replaced with “transfer of title.”
  • There should be a specific clause that restricts a developer/ promoter from taking deposit or advance payment from customer without first entering into agreement of sale.
  • A clause has to be added on maintenance fund. Maintenance fund collected from customers/ residents should be kept in a separate account and provide accounts to allottees. Promoter should pay for the maintenance of unsold units rather than imposing the burden on other residents.
  • Unlike Karnataka Apartment Ownership Act (KAOA) which allows the change in ownership of common area in an apartment only if all the owners arrive at consensus, the Bill proposes that with 2/3rd majority can change anyone’s share of property. As this is against the system of natural justice, the clause has to be amended to make it on the lines of KAOA.
  • The Bill does not have provision on the lines of KAOA to protect the interest of customers by way of conferring a title to each apartment when the whole property and all apartments are submitted to it. In the proposed Bill, any part of the property automatically receives a title, devoiding protection to customer.
  • While the Bill asks the developer to declare the size of each apartment, it does not require him to declare the exact details of the “limited common areas” attached to it. This allows the developer to sell parts of the common areas to any customer.
  • The Bill fails to protect the customer as the developer is not required to declare amenities for each apartment at the time of registration. It allows developer to sell off common areas to other clients.
  • Clause 2 (zf) of the amendment lacks clarity. It defines a promoter as the one who has more than two apartments for the purpose of selling. How is it possible to prove if the apartment is for the purpose of selling or not. And what if the number of apartments is less than three, does it mean he ceases to be a promoter?
  • The issue of amenities of residential properties used by commercial clients, employees and their visiting clients (for ex. club houses) remains unaddressed in the Bill. There is no clarity on taxation and water and electricity tariff on residential properties used for commercial purpose.
  • The Bill should make provision for blacklisting a developer for a particular time or permanently, for unethical practices.
  • Since the Bill talks about uploading details about registered realtors and projects in RERA website in a year of establishing the authority, it should give a process outline on how RERA will manage projects in the first year.
  • The Bill should also mention about the criteria based on which the project application could be rejected.
  • The clause comprising Revocation of Registration in case of wilful default by the developer, does not mention about 50 per cent of the deposit amount in the bank. Can it be used by the developer in the course of the project or can it be frozen?
  • The Bill does not specify that the clients can download the plan documents directly from the Registrar’s website. This allows the developers to submit “placeholder” documents for project-approval, but give a different document set to the clients.
  • During the project’s duration, the plans may change due to legitimate reasons. The Authority’s website must maintain all versions of the plan and docs on the website.
  • The Bill does not provide for a facility where any customer is able to access any desired version and compare how they have changed.
  • Amendment 50 has removed some of the critical aspects like specifications and external development works, payment dates and mode and date of possession.
  • Possession of Occupancy Certificate from relevant authority should be made mandatory before handing over the apartment to customer.
  • It should specify that no separate service charges are applicable for their transfer of titles, except the actual fee as applicable.
  • Clause 16 of the Bill allows a builder to delay the project deliberately to shake off his current clients with minimum penalty and then relaunch the project with escalated prices. Clause says: “If the promoter fails to complete or is unable to give possession of an apartment, plot or building – due to discontinuance of his business as a developer on account of suspension or revocation of his registration under this Act for any other reason.” This should be redrafted so that developer has no benefit in resorting to such tactics.
  • The Bill has a dangerous clause. According to a clause, the allottee gets documents and plans only after the possession of the apartment not before! Before this stage, he is only entitled to get “information” about site and layout plans.
  • RERA, the Bill says is “the authority to acquire, hold and dispose of property, both movable and immovable.” But, there is no clarity on when it can utilise this power.
  • The Authority also facilitates amicable conciliation of disputes between promoters and allottees through dispute settlement forums. Why is a forum needed when the Authority will be in force?
  • There is no provision to terminate the contract and settle the money after a predetermined wait period. This allows an unethical client to just pay the booking amount and then keep defaulting till the project reaches an advanced stage. At this stage, the client would sell off the apartment and reap a huge profit with practically no investment.

Some questions that have been unanswered:

  • Is the agent’s registration specific to each project? Or he is locked to a builder+project combination?
  • What happens to the agent when a developer is barred from the project?
  • Does the agent’s registration expire when the project is completed, or is it continued for the same project for secondary selling of the apartments?
  • What if the developer/agent provides a modified copy of plans to the clients, as compared to what is registered?
  • How to ensure that the agent gives only approved documents, features and terms.
  • Who is accountable if the agent promises extra or different features/terms? (Agent or developer?)
  • Clause 7 covers complaints about developer, but what about complaint against agents?
  • While the Societies Registration Act and the Cooperative Societies Act do not comprise in forming owners’ associations, the proposed Bill does not speak about it. Registering a Residents Welfare Association is utterly tedious process.

Objections by Alternative Law Forum

City-based Alternative Law Forum too has drafted some observations on the Bill which it will be submitting to the Parliamentary Committee.

  • As per the definition clause, Carpet area was defined as “‘net usable area’ in an apartment excluding the walls’ which was transparent for a buyer whereas in the amended Bill, the word is replaced by ‘net usable area.’
  • In the Bill, promoter includes a person, development authority or public body, apex state level co-operative housing finance society, a primary co-operative housing society, individual, HUF, company, firm, competent authority, associations of person incorporate or not, cooperative society. But, government housing authorities as well public-private partnerships are kept outside the purview of the Bill.
  • Exclusion of projects smaller than 1,000 square meters or 12 apartments from the purview of the Real Estate Regulatory Authority (RERA) could lead to the exclusion of a large number of small housing projects. This is based on the implied notion that there is interface between the buyer and the promoter on a daily basis in projects below the threshold which is not true. Even if its true, all should be entitled to the benefit of the protectionist regulation being implemented devoid of any discrimination among them.
  • The Bill mandates the promoter to open a separate bank account for each project and deposit 50 per cent (earlier 70%) of the amount received by him towards the project in this account. This provides a leeway for the promoter as now he would be able to siphon off the rest 50 per cent of the money for other projects which would result in lack of completion of the projects at the agreed time and thus be detrimental to the homebuyers.
  • According to the amended Section 6 builders cannot be held liable for any delay if authorising agencies fail to give statutory clearances on time, such as completion certificate and other approvals or due to force majeure. In such cases, the Bill says builders can seek extension. This results in further delay and it can often be abused by the influential builders.
  • A key change in section 14 of the proposed law could lead to a buyer not getting what was promised to him. In the earlier Bill, the builder was not allowed to change the sanctioned plan once approved but under the amendment, a builder can ‘undertake minor alterations ’just by intimating the buyer.’ One major drawback of this provision is that the extent or type of minor alteration is not defined anywhere in the bill which can be misused by the builders.
  • The Bill makes the approval of RERA mandatory for ‘Agreement to sell,’ whereas other agreements such as fitting and fixtures, maintenance are ignored.
  • The amended Bill also allows members of Real Estate Regulatory Authority to take employment with private builders, after demitting office. This is repulsive amendment and this will encourage unholy nexus between builders and the Authority while they are in office.
  • Penalties are determined on the basis of potential cost of the project and not on the basis of the type of the defaulter-big or small company. For big companies investing in projects worth crores, max 10 per cent penalty is too meagre an amount and therefore will not have much of a deterrence effect.

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Akshatha M
About Akshatha M 213 Articles
Akshatha M is a Staff Journalist at Citizen Matters. She tweets at @akshata1.

2 Comments

  1. Rider: For anyone to understand the input with appropriate spirit and in proper light, suggest to prudently keep as a useful backdrop, the ongoing sport, – tug of war – in the matter of Land Bill, between the centre and the states on one hand, and between the states selves, inter se,, seemingly with no prospects of a united resolution in the foreseeable future.

  2. Some of the major observations said to have been made by citizen groups on the said Bill, as listed herein above, are not clearly understood; rather are confusing. The citizen groups , it is earnestly wished, should consider desirably having a relook at, and review in detail; provided, of course, it is not already late to doing so.

    For instance:

    Q

    The Bill does not have provision on the lines of KAOA to protect the interest of customers by way of conferring a title to each apartment when the whole property and all apartments are submitted to it. In the proposed Bill, any part of the property automatically receives a title, devoiding protection to customer.

    UQ

    To one’s independent understanding, based on a sound reasoning of own, the Bill, – as the nomenclature itself is noted to sufficiently bear out/ imply,- is, if and when enacted, expected and intended to be followed by the states having it as a broad frame work, so to say; so as to suitably fit into the special enactments of each state as applicable to and governing the two types of property- Flats and Apartments. To put in more explicitly, in one’s firm conviction, that is a not a uniform national code, expected to be universally followed and applied uniformly by all states,- much less enforced rigidly by the central government, – ignoring for the purpose what each of its own enactments provide.

    While the input as above, is with a view to mainly clarifying one‘s own understanding, it is being shared for the benefit of those citizen groups to make use of it as a well-meaning and –intended feedback. And do so, keeping in mind that the very objective is to bring about improvements in the current scenario, so as to benefit the larger public, being the investors, having vested interests; and that too, speedily, with no more muddling even remotely.

    There is no gain saying that, having regard to the inherent intricacies of the whole matter, consultation with and active assistance by eminent law expert(s), known for legal acumen and personal integrity, seem to be unavoidable, rather imperative in any case.

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