24 June, 2019
Since the enactment of Real Estate (Regulation and Development) Act, 2016 (Act), Government of Maharashtra (GoM) was one of the few States to immediately frame the rules thereunder being Maharashtra Real Estate (Regulation and Development) (Registration of Real Estate Projects, Registration of Real Estate Agents, Rates of Interest and Disclosures on Website) Rules, 2017 (Rules). The Maharashtra Real Estate Regulatory Authority (MAHA RERA) has been taking the lead to enforce and/or provide clarifications from time to time on the Act and the Rules by issuing various circulars and orders. Recently, the GoM has issued a notification on June 6, 2019 amending certain provisions of the Rules (Amendment Rules).
The following details the material amendments amongst other amendments set out in the Amendment Rules:
1. Land Cost
a) In the Rules, the term ‘Land Cost’ was defined /explained in Explanation I and II of Rule 5 sub-rule (ii) as follows:
“Explanation I
“In ascertaining the cost of completion of percentage of the project, the land cost shall include-
(i) The costs incurred by the Promoter for acquisition of ownership and title of the land parcels proposed for the real estate project, including its lease charges, which shall also include overhead cost, marketing cost, legal cost and supervision cost;
(ii)Premium payable to obtain development or redevelopment rights;
(iii)Amount paid for acquisition of TDR;
(iv) Premium for grant of FSI, including additional FSI (if any), fungible FSI; and any other instruments permissible under the Development Control Regulations;
(v)Consideration payable to the outgoing developer to relinquish the ownership and title rights over such land parcels;
(vi) Amounts payable to State Government or Competent Authority or any other Statutory Authority of the State or Central Government, towards Stamp Duty, transfer charges, registration fees etc.; and
(vii)ASR linked premiums payable by any Promoter as per requirement of any Law, rules or regulations for obtaining right for redevelopment of lands owned by Public Authorities.”
“Explanation II
Where the promoter, due to inheritance, gift or otherwise, is not required to incur any cost towards acquisition of ownership and title of the land parcels proposed for the real estate project, the cost of land shall be reckoned on basis of the value of the land as ascertained from the ASR prepared under the provisions of the Maharashtra Stamp Act, relevant on the date of registration of the real estate project.”
b) Under the Amendment Rules, the above Explanation I and II have been completely deleted and both have been substituted with a new Explanation I, which is reproduced as follows:
“In ascertaining the cost of completion of percentage of the project, the land cost shall be reckoned on basis of the value of the land as ascertained from the Annual Statement of Rates (ASR) prepared under the provisions of the Maharashtra Stamp Act, relevant on the date of registration of the real estate project.”
c) In view of the deletion of the entire Explanation I of the Rules, which prescribed the details of cost, fees and expenses, which would form part of the land cost, a doubt is cast as to whether or not these costs and expenses still form part of the land cost.
d) In this regard, it would be pertinent to take note of Form – 3 appended to the Maharashtra Real Estate Regulatory Authority (General) Regulations, 2017 dated April 24, 2017 (Regulations). This prescribes a format of the ‘Form of Chartered Accountant’s Certificate (For the registration of a Project and Subsequent Withdrawal of Money)’ and the same provides for particulars of various costs and expenses, which form part of the land cost. The particulars of cost and expenses of the land cost’ now deleted in Explanation I of the Rules, already form part of the exhaustive list of costs and expenses provided in Form – 3. Thus, the deletion of the aforesaid Explanation I from the Rules does not change the earlier position as no amendment has been suggested to aforesaid Form – 3. The said deletion appears to have been made in order to avoid any overlap between the Rules and the Regulations.
e) Further, the Amendment Rules introduce two new explanations in the definition of land cost prescribed in the Rules. These are:
“Explanation IV−all cost items should be mutually exclusive. There should not be any double counting of costs.
Explanation V−The development cost or cost of construction of the project shall not include marketing and brokerage expenses towards sale of apartments. Such expenses though part of the project cost, should not be borne from the amount that is required to be deposited in the designated separate account.”
f) MAHA RERA had already issued a Circular bearing No.5/2017 dated June 28, 2017 clarifying the above position. The industry, however, is expressing concerns on the implication of the above amendment, as it restricts them from withdrawing marketing expenses from the 70 per cent in the separate account, but the aforesaid amendment does not brings in any new change. The aforesaid restriction affects the cash flow of promoters who are already facing challenging times on account of liquidity crunch and low sales velocity.
2. Period of Registration – Mitigating Circumstances
a) Rule 6 of the Rules provided that the period for which registration of a project shall be valid shall exclude such period where actual work could not be carried out by the promoter as per the sanctioned plan, due to specific stay or injunction orders relating to the real estate project from any Court of law, Tribunal, competent authority, statutory authority, high power committee etc., or due to such mitigating circumstances as may be decided by the MAHA RERA. The proviso to this Rule stated that “while deciding on such mitigating circumstances, the Authority shall give reasonable opportunity of hearing to the allottees and such other person, who in the opinion of the Authority, have interest in the project”.
b) Interestingly, the Amendment Rules have completely deleted the provision of “mitigating circumstances” as grounds for seeking extension of validity of registration of a project, from the aforesaid Rule and proviso thereof.
c) It is pertinent to note that under Section 6 of Act, the only ground for extending the period of registration available to the promoter is force majeure.
3. Time Period for Conveyance of Title
a) As per the proviso to Section 17 of the Act, a conveyance is to be executed in favour of the allottee/association of allottees within a specified period as provided under the local laws and in absence of a local law, within a period of three months from the date of issue of Occupancy Certificate (OC).
b) As on the date of enactment of the Act, the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963 (MOFA) was the local law prevailing in the State of Maharashtra for under-construction projects, which was not repealed by the Act. Section 11 of MOFA read with Rule 9 of MOFA Rules provides that if no period of conveyance has been agreed upon, then the developer shall execute conveyance within a period of four months from the date of formation of co-operative society / company / association of the flat purchasers.
c) Under the Rules, Rule 9(2) allowed the promoter and allottees to decide timelines for conveyance of land / building in their Agreement, which was in line with the position under The aforesaid Rule further provides that if such timelines are not agreed upon, then conveyance of the land/building has to be completed within the following timelines:
In case of a single building – within three months of issuance of the OC or fifty one per cent of the total number of allottees having paid the full consideration, whichever is earlier.
In case of a building/wing in a layout – within one month of the formation of society/company/association or within three months from the date of issuance of the OC, whichever is earlier.
In case of undivided lands under buildings /basement /podiums in a layout – within three months from the formation of the Apex Body/ federation/ holding company /association or within three months from the date of issue of the OC of the last building, whichever is earlier.
d) Further, in relation to the above it would be relevant to note Clause 9.1 and 9.2 of the Model form of Agreement annexed to the Rules. These clauses provide that a promoter shall within three months of registration of the association of allottees / apex body cause to transfer the building to the association of allottees / apex body. It is surprising to note that in these clauses the provision ‘unless provided in the local laws or unless agreed between the parties in the agreement’ has not been included. Thus, to this extent, the aforesaid clauses seem inconsistent with the aforesaid Section 17 of the Act and Rule 9 (2) of the Rules.
e) Further, MAHA RERA had issued a Circular bearing No. MahaRERA/Secy/Order/106/2017 dated June 27, 2017, clarifying that conveyance should be executed within three months from the date of issue of the OC. The aforesaid Circular completely overlooks the provisions of Section 17 of the Act and Rule 9 (2) of the Rules as then existing, which allowed parties to mutually decide timelines for execution of conveyance. MAHA RERA has further taken a view that the timeline prescribed for conveyance under MOFA would be applicable only in respect of ongoing projects for which Agreement for Sale was executed prior to May 1, 2017. For all other agreements the timelines will be governed by the Act as it overrides MOFA.
f) Now, in the Amendment Rules, the GoM has brought an amendment to Rule 9(2) of the Rules to give effect to the aforesaid Circular dated June 27, 2017. As per the Amendment Rules the conveyance has to be executed within a period of three months from the date of issuance of the OC. The Courts will have to finally decide whether for the purposes of the timelines for execution of conveyance, the local law would be MOFA (which allows parties to decide mutually such timelines) or the Rules prescribed under the Act (which now require execution of conveyance within the aforesaid three months).
For further information, please contact:
Abhishek Sharma, Partner, Cyril Amarchand Mangaldas
abhishek.sharma@cyrilshroff.com
