As a first-time apartment buyer in Bengaluru, in 2016, I heard of many instances of builders/developers simply walking away without creating/forming an “Owners’ Association” and handing over the apartment’s assets in a systematic way for various reasons, including
- The lack of bandwidth with the builder to create/form an ad hoc-committee of the Owners’ Association and take them through the association formation and registration
- The extent of deviation from “sanctioned plan” to “as constructed” exceeding 5% (allowed deviation)
- The builder’s desire to retain control of the property and sometimes even plans to add additional built-up area.
- Improper calculation of undivided share (UDS) proportion.
Based on my experience in the formation of our apartment owners’ association, I am sharing the steps to be followed by new apartment complex owners.
Step 1: Form an ad hoc committee of owners
Builders generally start the one-year maintenance of the complex from the day of receipt of the Occupancy Certificate (OC) issued by BBMP. As a first step in our community, a group of initial occupants started meeting on weekends and surveyed the building for all amenities and services as promised by the builder.
We started listing the deficiencies as per our understanding and interacted with the builder’s team to get them attended to. Three months before the last date of the one-year maintenance period by the builder, we formalised an ad-hoc committee during a meeting of owners. The group authorised the ad-hoc committee to interact with builders for a smooth transition and also register the Owners’ Association under the Karnataka Apartment Ownership Act (KAOA), 1972. A detailed presentation was made for buy-in from all owners.
Step 2: Register the association: KSRA or KAOA?
Next came the challenge of registering the association, the options available were the Karnataka Societies Registration Act (KSRA),1960 or Karnataka Apartment Ownership Act (KAOA),1972.
Builders typically insist on registration of the Resident Welfare Association (RWA) under KSRA 1960 as this is very simple:
- Any seven owners can come together to form and register the society.
- Even the documentation required is minimal.
However, to register under KAOA 1972, the builder/developer needs to:
- Prepare a Deed of Declaration (DoD) i.e., Form A as per KAOA 1972
- Register the same at the Sub-Registrar’s office. Since this is a registered document the builder needs to be very transparent and declare the project details in totality. Any discrepancy in the DoD and the actual constructed project will lead to a legal tangle.
- Over and above this DoD, builders need to execute the Deed of Apartment including Form B (as per KAOA 1972) whereby the buyer/owner assigns their flat to become members of the Owners Association by default, whenever it is formed and registered.
A society registered under KSRA 1960 mentions it as a welfare society and not a housing society, therefore it has no legal binding. As owners, we insisted on KAOA 1972, as it was devised specifically for apartments.
KAOA says that each apartment owner is liable to pay local taxes for his or her apartment and proportional undivided share which includes the common area. So that resolves the question of who pays property tax on the common areas. However, now as per RERA, the builder needs to provide separate UDS for common areas and transfer the same to the Owners’ Association. Thereby the Owners’ Association pays the property tax for this part of the property.
With both parties standing firm, finally, after three months of delay, the builder accepted to register the association under KAOA 1972, under one condition that he will not do anything himself, other than provide necessary documents.
The Ad-hoc Committee engaged a lawyer to do the needful on our terms and conditions. However, we prevailed upon the builder to pay the lawyers’ fees. The lawyer shared a list of documents required to prepare DoD (since the builder had not executed a DoD) and Bye-laws.
- Construction Agreement
- Sale Agreement
- Sale Deed
- Sanction Plan
- Khata of the entire property
- Supplementary proportionate Undivided Share (UDS) agreement
- First General Body Meeting (GBM) details: notice, complete details of attendees and minutes of the meeting
- Details required from the builder: Building/Approved/as-built plan, copy of construction agreement, List of amenities provided, agreement to sell, Joint Development Agreement etc.
Based on these documents, a Deed of Declaration (DoD) was prepared. (Note: this is a builder document, nothing to do with the association.)
The Deed of Declaration (DoD) is a document that describes the property, i.e., the building, all of its apartments, the common facilities such as lifts, generators, fire fighting equipment, club house, multipurpose hall, pool, gym etc., along with the ownership scheme giving the percentage share (UDS- Undivided share) of each apartment. Along with the DoD, copies of the sanctioned plan (if registered before completion of the project) or as-built approved plan (if registered post OC) by local authorities and bye-laws of the association of owners is to be registered.
Read more: The apartment law you must know
Step 3: Get the byelaw in place
A subcommittee from our ad-hoc committee prepared the byelaws. We referred to KAOA 1972 and byelaws of at least four other already registered and in operation owners’ associations! The team interacted with some of them to understand various pitfalls faced during the operation stage. A very comprehensive byelaw was prepared and vetted by the legal team. This took us three months. This byelaw was presented at the first General Body meeting and all the owners present approved the document.
The builder’s lawyer reviewed and approved the DoD. The first Annual General Body meeting was called and the ad-hoc committee was formalised as the first Management Committee (MC) of the Owners Association. This committee was authorised to get the association registered under KAOA 1972. An agreement to this effect was prepared and registered.
Finally, after a six-month delay, the DoD and Byelaws of the association were registered at the Sub-Registrar’s office with the DoD signed by all the Grantors (land owner, builder) and Byelaws signed by the newly formed association office bearers. Meanwhile, the builder continued to carry out the maintenance at the existing rates charged by him.
Read more: Six mistakes to avoid while devising apartment association Byelaws
Step 4: Close financial formalities
Post DoD registration, the association opened a bank account and applied for PAN, TAN and GST. This took a further 45 days to close out these formalities. Meanwhile, the team was working in tandem with the builder’s operation team to understand day-to-day operational issues.
After nine months of sustained effort, we were ready to collect the maintenance fee directly to the bank account of the Owners Association.
The mandatory documentation required for registration at the Sub-Registrar’s office as per KAOA 1972 are:
- DoD (Form A)
- Sanctioned plan / As-built plan
- First General Body Meeting Minutes authorising MC to register the association under 1972
- Form B – signed by all owners who have registered their sale deed
With this, the Owners’ Association was ready to take over the operations of the apartment complex.
Note: KAOA 1972 Registration Certificate is still a black box as the Government of Karnataka Gazette is unclear on which is the responsible office, and the application for registration under KAOA 1972 is not accepted by the Registrar of Society. However, apartments that have registered the DoD and Byelaws at the Sub-Registrar’s office are legally considered as registered entities. Of course, these apartments do not come under the Registrar of Society for conflict resolution, rather they come under normal civil courts.
Suggestions: Improving the process of forming a new owners’ association
Here’s an ideal way of registering the Owner’s Association under KAOA 1972 (New projects); RERA should make this mandatory for builders.
- Builder must register the DoD on obtaining the Plan Sanction and Letter of Commencement Certificate. This DoD registration number should be reflected in each and every agreement to sell/construct with clearly mentioning the apartment complex – Owners’ Association will be under KAOA 1972.
- At the Occupancy Certificate stage, the builder should register the byelaws as a supplementary document along with all the Absolute Sale deeds (Deed of Apartment) and Form B from each buyer (Absolute sale deeds to capture the DoD Number)
- Builder has to ensure that all sales post the association registration should capture the DoD number. Form B needs to be listed as an annexure to the Sale Deed. Copy of each and every registered Sale Deed should be handed over to the association, which in turn can submit the same to the concerned authority.
- It is the builder’s obligation to create an ad-hoc committee well in advance and take them through the day-to-day operation so that the committee is ready to take over at the appropriate time.