Responses from the RERA Group to CREDAI comments on the Draft RERA Rules Suggestion by developers
RERA Group Response
Suggestion that projects which are granted municipal approvals/sanctions AFTER the notification of the Rules and formation of RERA be covered by the act
This provision is defined in the RERA Act, and the rules cannot override that.
3.2.(a) Inclusion of small projects since act provides for discretion of the state
Agreed.
Suggestion that sanctioned plans or building approvals be sufficient in place of commencement certificate for submission to authority
We disagree. Requirement of a commencement certificate is a very wise provision!
Also, most provisions of RERA except for the regulatory authority, registration and appellate authority are already covered in the Karnataka Ownership Flats Act in one form or the other. The concern that including “existing” projects without CC/OC in the ambit of RERA will lead to massive disputes and lot of complaints on day one is probably justified, in light of the massive irregularities that exist. The solution is not to put those cases out of scope, but to frame processes to tackle the issues effectively and protect the buyer since the act has clearly brought such projects “in scope”. The rules will do well to spell out the handling of existing projects without OC/CC in more detail, laying out the in scope and out of scope issues for clarity
According to the Bangalore Building Bye-laws, the developer has to submit all plans with endorsement from a certified architect/engineer to 5-7 agencies and obtain their NOCs. Then he submits the plans to BBMP and applies for the building license. The plans may change significantly if any of the agencies object. After this, he informs BBMP of the start of work, and does lineout. BBMP issues a CC if this is properly done as per sanctioned plans. This is the right moment for the announcement of project, as the plans are very fluid before this. Therefore a CC is very much needed (along with the relevant NOCs).
Separate account and certification by If the money is directly deposited by all buyers to this account and architect, CA etc. then paid out from this account to vendors of material/service, it is an ideal situation. We propose that ALL deposits by customers/allottees be made to this single account and withdrawal be allowed according to provision of 70% and project completion
Suggestion by developers
RERA Group Response status. If this is audited by an independent CA, it will provide proper checks and safeguards that the money is being correctly spent for the project.
13(l) Registration of Agreement For Sale There is opposition to registration of sale agreements since “prevailing marker practice” is that these are not registered and because two agreements… for undivided share of land and construction are made.
We disagree. This argument is incorrect: Firstly, registration of sale agreement is already required in Karnataka Apartment Ownership Act! The present practice of two agreements, including construction agreement is artificially foisted on the buyer. Land is sold as part of one agreement, but where is the undivided share in the remaining common areas sold? The real intent is to sell the fully prepared apartment when it is ready. The Karnataka Apartment Ownership Act was passed to remedy this situation. In other words, both the agreements are really the contract to sell the apartment for the specified consideration. It is fulfilled when the Sale Deed is registered. The stamp duty and VAT are supposed to be based on Sale Deed; not based on the contract document. Since the promoter builds the apartment for himself and finally sells it at a profit to the buyer, the Service Tax is not applicable. So now we will have only one contract document called “Sale Agreement”. Thus the process is simplified, and not complicated!
Request for “Common Basements” being defined for areas that house common services (for the use of all allottees) such as elevator lobbies, generator rooms, boiler rooms etc.
This is not at all needed. In fact, there is no need to talk about any types of basements at all. KAOA treats all types of basements as equal, and part of common areas. Out of this, the parking slots are “limited common areas” and the plant areas are called “restricted common areas”. Both have no bearing with this clause.
4(b) Completion Certificate
A developer can hire an architect who will gladly issue a The suggestion that the responsibility completion certificate. of the builder end at applying for a But this does not satisfy the buyers’ needs. completion certificate / occupancy About 93% of the apartments in Bengaluru today do not have OC, certificate. because they violate some law or the other. In most cases, heavy work continues after the CC is issued by the developer’s office. In fact, in many apartments extra floors are built illegally. Who will protect the buyers if the CC itself is taken as reference? Current laws also do not sanction occupancy of OC is not available. What is a buyer to do with an apartment without OC which is there to ensure compliance and safety of the occupant? There may be cases where administrative corruption also delays
Suggestion by developers
RERA Group Response OC, which also ultimately hurts the buyers, but a deemed OC is not the solution to such a problem and is also a measure out of ambit of RERA.
15D It is suggested that the time period of Even a single day’s delay is unjustified. We are talking about updates be extended from 7 days to documents that are approved by ULB. What justifies a month?? 30 days Suggestion that submission of audited balance sheet be restricted to public or private limited companies and income tax return should be excluded as a requirement from this rule
Although 70% of the money is locked in an escrow amount, the buyer still needs to know if the remaining 30% of the money is diverted by the developers in his more critical projects. This has happened in mega projects like DLF. Such declarations can form an important part of any adjudication by the regulatory authority in the event of dispute. Hence the need for financial statement.
It is suggested that the land cost may If the land was purchased long ago, and if the cost has escalated he clarified as the cost incurred by after the last purchase, the owner of the land should get the benefit. the promoter or guideline value of Thus this seems to be a fair proposal! such land on the date of project approval (whichever is higher) … Rule 42 The Act provides the compounding amount as up to 10%. Accordingly required change to be made in the rules.
Well, the net effect is, penalty up to 30% of the project cost can be applied! The rules must include a detailed criteria for applying such a huge range.
Agreement 1.10
Disagree.
proposal to delete this clause...
In some cases the buyers may assume that a certain property is part of the deal. This is true for any assets/amenities that stand on the residential land. Actually such property cannot be excluded when the land itself is transferred to the RWA (ref: Transfer of Properties Act).
Otherwise there will be lot of discretionary application of penalty and non-uniform application of the law.
But there are cases where the developer claim that the amenity belong to him, and tries to sell it to outsiders. But at least this paragraph will alert the buyers if the developer tries to include such properties in this list. Agreement 1.11 The maintenance charges should be deleted from the list.
Agree. The buyers should be made liable for the maintenance charges only after the property is handed over. Note that this clause actually lists the liability of the buyer. The
Suggestion by developers
RERA Group Response developer only collects this money from the buyers and pays it out. He does not pay it out of his pocket!
Rule 3(1)(d)
Agree.
There is no clarity as to who will authenticate the title Inclusion of the land owner/joint developer as a promoter.
Agree and Disagree This is a complicated topic. In practice, joint developers add a lot of difficulties for buyers. Joint developers often hold a big block of apartments and sell them over the years to maximize price appreciation. They are mostly in it to maximize their returns without any consideration for the buyers. Often, rogue land owners will not pay maintenance charges towards their block of flats causing major hardship for other buyers. In the interim, the apartments may be unoccupied or given out on rent. What happens when the apartment is finally sold and the first real buyer finds construction defects? Who is liable? Many cases ends up in dispute between the developer and the land owner and buyers find themselves hostages or stuck between the two and many times find themselves running between these two parties. Sometimes the developer and land-owner collude to avoid their liability, and point to each-other. Suggestion: Define joint developer/land owner also as a promoter with a defined scope of liabilities. Indeed, the Rules must set the liability as jointly and severally (meaning, the buyer can catch any one of them for the full liability, and it is up to them to settle the amount internally). The practice of joint developers holding on to apartments must be discouraged by (a) treating any sale by the joint developer as the “first sale” of the property with the liabilities accompanying in the warranty period. (b) Also making clear that joint developer/landowner is liable for all maintenance expenses of unsold apartments in the possession of the joint developer.
Rule 3(1)(c)
Agreed
The terms ‘Open car parking’ is very vague Agreement for sale 1.3
Not true!
Should be modified:
Clause 14(2)(i) calls for consent of each and every buyer
1. In line with the provision of the Act.
Section 14(2)(ii) covers minor changes, which need a 2/3 majority approval from the buyers.
2. To permit such variations as are allowed under the by-laws
Thus RERA does not allow the developer to carry out even the smallest changes on his own.
Suggestion by developers
RERA Group Response
The clause suggests that the written consent of each and every allottee is required. This is contrary the Section 14(1) & (2) of the Act which provides for 2/3 consent. There is no “garage” defined in apartment projects
Vital issue! KAOA does not allow separate sale of a parking slot (garage). This may be applicable in plots and layouts. But must not be mentioned in Apartments.
Rule 15(B)(iii) and (iv) requires name of real estate agent and contractors which is not permanent and hence impossible to
This is irrelevant, because RERA database is supposed to have all the agents’ names associated with each project, and their approved tenures. When those licenses are extended/rejected, this fact will reflected in the online database at RERA website. So this duplication will be error-prone!
CREDAI representative should be part of the team who appoints the RERA authority.
Considering that the developers are in the dock for most of the problems (no DoD, no OC, faulty STP, extra illegal floors, visitors’ car parks sold off,…) should the judges be of their choice?
The warranty of 5 years should be limited to structure
Most of the issues are NOT structural. For example, cracks in plaster, leaking tanks, bathroom roof. Therefore the developer cannot disown the non-structural problems.
Clause — 1 13 & 7 -
Getting approvals is very much part of the project cycle, and Time defined for delivery is inclusive cannot be excluded from the total time. of time taken for procuring OC. Only At the same time, each of the NOCs must have a criteria, and also a force Majure is excluded from time-limit. construction period. Strikes, Govt The officer can reject the application citing which specific and departmental delays n issuing criteria are not met. approvals, OC is not excluded, over If the time limit is exceeded, the NOC must be deemed as which Developer does not have any granted, and officer in charge must be held responsible for control. The same shall have to be granting that NOC despite non-compliance with specific specifically excluded criteria. Clause -7 Right to cancel-
Strongly disagree.
In case of delay in completion, allottee may prefer to retain apartment. Alternatively, he may terminate & seek refund with interest plus compensation. Rule talks about refund of entire purchase price which includes statutory payments.
A buyer is a buyer and not an investor or co-developer. If delays are caused by a builder’s lack of planning or foresight, FULL refund should be available to buyers with interest, including statutory payments. The developer always has the right to sell the unit to a new buyer and cover the costs incurred through that sale. If the developer is unable to sell, then there is a real problem for which the developer has to bear the cost.
Suggestion by developers
RERA Group Response
But developer should be allowed to forefeit the booking amount. Clause -1.13- Delay in handing over - First of all, readiness of the common areas is a core part of the individual buyer’s contract, although the actual possession of the Rules provide for payment of interest(2% above SBI prime lending common areas is given to the MC. rate). However, Rules do not provide for delay in taking possession by the Allottee from the promoter even after the apartment being made ready.
Usually the apartment becomes ready much before the common areas, and the developer puts pressure on the buyer to take possession even when the common areas are not ready and OC is not available (the building is not inhabitable). But unless the OC for the entire project is obtained, the contract is not satisfied. Therefore such penalties can be provided only if the buyer fails to take possession within the take-over notice period (3 months after getting OC). It is fair to start the maintenance charges from the date of OC.
Registration of Agreement seems compulsory. which as as good as creating EC entry on apartment. What happens in case of cancellation & how to remove the EC entry? Agreement does not make a provision for GPA in favor of Developer, for registering cancellation of Agreement on behalf of the customer.
This in fact exposes a huge scam with the registration process: How can the property records not show the encumbrance even when1. The owner has entered a contract to sell the property for a consideration, and the buyer has given money sufficient to cover the cost of the land and the construction till date? 2. A bank has extended a loan against the collateral of the apartment?
Even if the contract is canceled, the loan may still be outstanding. How can the developer unilaterally remove the encumbrance on the Developer cannot expect customer to apartment just by using a GPA from the buyer? cooperate for registration of When the encumbrance is really removed, that document can be cancellation. executed with the sub-registrar and the encumbrance can be removed under the registration Act. Not disclosing ongoing litigation because of frivolous lawsuits.
Actually the situation is diametrically opposite: The buyers are the usual victim here, not the developers! As a practice, the developers always term any suit as frivolous, and tarnish the buyer(s) as mischievous. Developers traditionally prefer to rely on their superior money and legal power to drag the court cases indefinitely. In fact, most buyers do not pursue their genuine cases just because they fear wasting money and time in courts. The very point of settling the case out of court is to avoid having an official proof of their guilt.
Suggestion by developers
RERA Group Response
Rule 19 should be amended to allow the developer to borrow after the projects starts.
The developer has already declared that the property is free of any encumbrances. Based on that assurance, the buyer puts up his money. This money forms an encumbrance on the property. How can the developer borrow additional money using the property being developed as collateral?!! He should borrow money using his other assets that are not committed to any buyers (e.g. free-standing land-bank)
Rule is silent about entitlement of the @Private areas: developer for club membership, KAOA/KOFA provide for limited common areas, the cost of which infrastructure charges, private is used to determine the %UDS of the apartment. garden, private terrace, etc. The rights of a developer in a property upon completion should be restricted to any unsold apartments and the developers rights flowing from there. Buyers are not getting into a marriage with developers. @club membership This is an outrageous proposal: The KAOA/KOFA doe not allow any property to be retained by the developer. Thus there is no question of charging club membership fees. If there is a club, it would belong to all the buyers jointly. Its maintenance would be included in the overall monthly maintenance charges. The practice of using clubs and other properties developed on apartment purchasers land as a perpetual revenue stream for the developer is NOT to be encouraged. @Infrastructure charges: No such charge exists legally, or in AS7 (the accounting standard that builders have to follow). Therefore any such fictitious charges should be counted as cost of the property. Rules should clearly mention that the promoter is only supposed to quote the provisions of the law under which the various taxes are demanded.
Often the developer adds taxes that he does not really pay to the authorities. Service Tax is just one example. Complete transparency should be encouraged, especially when the buyer is literally “financing” the property development by paying his or her share commensurate with progress. Therefore, the developer must provide a full break-up of all the taxes and levies to the buyers. This must match with his accounting as per AS7.
Two sets of UDS contemplated in Clause 1.8: One for carpet area and the other for common area. Common areas with proportionate UDS to be transferred to the Association.
First of all, clause 1.8 of the Sale Agreement does not envisage two separate UDS. KAOA calculates the UDS only once, in which the value of the apartment and limited common areas is taken as a fraction of the total value of all units.
Suggestion by developers
RERA Group Response
Rules are silent on stamp duty or This UDS is used not only to determine the %votes of each registration fee by the association on apartment, but also share in the maintenance charges and share in the same. any profit when the property is sold. For apartments sold for properties to be submitted to KAOA, ownership of apartment plus % share in UDS vests with individual owners. Therefore, stamp duty is paid during registration of deed of apartment. If there are two separate UDS, how to calculate these? Only maintenance and upkeep of common areas etc. is transferred to association and NOT legal ownership. Therefore, there is no question on stamp duty or registration fees for common areas. The single UDS formula also makes sure that the value of all units equals the total value of the complex. Thus no part of the complex remains untaxed. With two separate UDS, this well-settled system will be violated. Rules only provide that the right to use the common areas is subject to payment of maintenance charges. However they do not provide for the disconnection of common amenities.
Agree.
There is no timeframe for the association to take over.
Agree.
However, note that certain amenities cannot be disconnected. For example, while water and genset can be disconnected, sewer line (going to STP) cannot be disconnected. Additionally, mention that the MC is empowered to bar the defaulter owner+tenants from entering and/or using the amenities like clubhouse, gym, and swimming pool.
Further, the registration of the association is impossible under KSRA and KCSA. This vital problem needs to be settled even before RERA is implemented. Otherwise not a single instance of a take-over will happen!
Since sanctioning and other authorities are not under the purview the act, the timeline captured in the rule should exclude government sanctions as there is in-ordinate delay on the part or the authorities to grant service Connections. CC and OC etc. Otherwise a period should be granted to the BBMP/BWSSB or other authorities to construe deemed sanction or having accorded the necessary permission or certificate say about 30 days or 60 days from
Strongly agree! Not only all NOCs should be time-bound, but there should be strict criteria for passing and rejecting each NOC. This will not only get the NOCs fast, but also eliminate bribery. It will also ensure that the developer cannot change his project after getting a NOC (there are many examples of NOC violations). Further, any project can be examined and any of its NOC can be cross-checked. If the NOC was given fraudulently, the project can be demolished without further ado, and the officers and developers can be
Suggestion by developers
RERA Group Response
the date of the application made by the applicant online/physical.
punished.
In a large project, the amenities are common for all later phases. The completion of the overall amenities would be done after completion of the entire project.
This is not acceptable: The contract with any individual buyer gets completed only when all the promised amenities are completed, in usable condition and have obtained all official approvals. This is why the early buyers in a large project always suffer, because the amenities like roads, clubhouse, parks are not prepared, and yet he is forced to take over the possession of his apartment. That is why each stage/phase needs to be treated as a separate property, with nothing common with other phases/stages. Further, the amenity completion must be calculated in completion of the project and amount kept in escrow.
Irrelevant cases filed by predecessors entitled to the land. Similarly the developer would also be filing cases against authorities to challenge certain rules and charges. As the developer undertakes to indemnify and resolve these cases, they are not detrimental to the interests of the buyers. Therefore the allottee should continue to make payments as per agreement.
How can the developer declare that a case is irrelevant while it is subjudice? Similarly, how can the developer underestimate the project’s liability under the law just by challenging it?
In case of BWSSB, the supply is not assured, and there are inordinate delays. In such cases, the responsibility of the developer is limited to making the application.
This is a serious matter, and deserves serious thought.
Thus these risks must be shared transparently with the buyers. There are many cases like Sobha Daffodil and Sobha Garnet, where the customers were not protected when an adverse decision came finally.
How can city fathers allow development in an area without assured amenities like water and sewer lines? If the builder also absolves himself of this responsibility, the buyer is left with no viable option. Such a situation is unthinkable.
All NOCs covered in Section 15(D) Indeed this exposes a major scam: Even before the foundation is (V.1) to be dropped. Only sanctioned laid, the proposed project is supposed to be carefully examined by plan should be enough. 5-7 authorities, and they are supposed to issue NOCs. But the problem is, none of them have any criteria for passing or rejecting the project. Neither is the existing situation is carefully recorded in the NOC.
Suggestion by developers
RERA Group Response This allows the developer to change the project drastically after getting the NOC. (e.g. Coremind SEZ, Agara). Even then no one can challenge the violation, because all tracks are carefully wiped out, and no one knows what was approved originally, and why. Therefore not only must the NOCs remain, but each of them must have stringent approval and rejection criteria. Thus if any of the projects is found to be violating any rejection criteria, that NOC must be canceled, and the developer must be held responsible.
Clause 14(2)(i) to be replaced as follows: The promoter may make such minor additions or alterations as may be required by the allottee or such minor changes or alterations as may be necessary due to architectural and structural reasons duly recommended and verified by an authorised Architect or Engineer after proper declaration and intimation to the allottee. Terms-Point 11 The date of maintenance should be from the date when the project architect declares the project complete.
This is highly objectionable, because this particular clause is to protect the buyer from major changes, as against minor changes covered by the clause 14(2)(ii). Under no circumstances should the developer be allowed to make such changes “under intimation”, which may not even happen. Secondly, it is incorrect to say that a buyer’s rights are not affected when common areas are altered: The buyer is the joint owner of all amenities and common areas. Therefore anything happening is common areas and amenities is his concern.
Also, changing the fixtures and fittings in his apartment without his prior consent is unthinkable.
Actually RERA Act provides 3 months for the association to take over from the date of the OC. Regardless of taking over, the OC date itself can be treated as the reference date from which the maintenance starts. But to start the maintenance from the “project completion” declaration date is absolute cheating, as often the developer declares the project completed, and yet heavy work continues. In fact, in 93% of the projects, the developer has simply declared the project as closed and walked away, without getting the OC. It is precisely this evil that RERA needs to protect us against!
Terms point-12 Delete the following from the defect liability: “Defect in workmanship, quality or provision of services and any other obligations of the promoter”
Not acceptable: Why should the developer be exempted from the other liabilities?
clause relating to development in the remaining areas and that the purchaser shall not have any objection to such construction and to the usage of the common areas and
This is probably the most prevalent exploitation of the buyers by the developers, and the biggest scam! According to KAOA, the entire property gets divided among the buyers, and nothing is left with the developers.
Suggestion by developers amenities.
RERA Group Response Therefore the developer cannot retain any of the common areas or facilities, and the right to develop them and allow his outsider customers to use them. Similarly, he can not charge the buyers for use of these facilities. By definition, the common amenities are for the enjoyment of residents only, and not to be used commercially.
A clause for the name of the building and the right to name the building shall vest with the developer and the purchaser shall not change the name to be included.
This is a ridiculous proposal: Such a right is not defined anywhere in the Transfer of Property Act. When the Association takes over the possession, it automatically gets the right to rename the property.
The force majure should include availability of materials
This is not acceptable, because availability of material is controlled by timely ordering, proper logistics and timely payment. Thus the developer cannot site lack of material as reason for delays.
In fact, even if the developer inserts such a clause in the sale agreement, it is void under the Indian Contracts Act.
The exceptions are cases where a global/national calamity or economic situation makes the material scarce. But this is already covered as “act of god”. Terms point 5 The income tax tribunal has recently recognized the soft possession given by society as the date of possession and not the occupancy certificate. Therefore a completion should be redefined as certificate issued by the project architect.
This is a major scam in Karnataka: 93% of the apartments do not have OC. In a vast majority of them, the developer has built extra floors. No OC means the building is not inhabitable. BBMP is supposed to demolish such “unsafe” buildings, according to KMCA. These apartments are not supposed to have BESCOM and BWSSB connection. Still, an architect hired by the developer will gladly certify the project as complete. In fact, to enable early closure, most projects are declared closed, and even then heavy work continues. Thus a completion certificate issued by an architect hired by the developer has no value.
Terms point 7.5 cancellation by allottee The unscrupulous elements may exploit the following provision:
This diametrically opposite of the truth: As long as the buyer pays his installments regularly, the developer has always recouped his money. So if the buyer exits at any time, he cannot even take the advantage of the price escalation, and the developer gets to re-sell the apartment at the new higher price.
In fact, the developer is not affected if the buyer decides to transfer Provided that where the allottee proposes to cancel/withdraw from the his rights to anew buyer.
Suggestion by developers
RERA Group Response
project without any fault of the BTW this provision is not there in the Act! Further, the state promoter, the promoter herein is government is not empowered to make this provision in the Rules. entitled to forfeit the booking amount Therefore the buyer should get his full money refunded. paid for the allotment. The balance amount of money paid by the allottee shall be returned by tie promoter to the allottee within 45 days of such cancellation. Terms point 8(v) The developer should not have to declare the following, because frivolous litigation would prevail: “There are no litigation pending before any Court of law with respect to the said land, project or the apartment or plot.”
Only the landowner would be a party to any litigation. If he hides this fact, then this amounts to cheating! While a case is subjudice, the parties cannot declare themselves to be innocent, or call the other parties “frivolous”.
Terms point 9.1 Since water and electricity connection is with government, this should not be considered as responsibility of the developer.
What will the buyer do if an apartment is handed over without electricity and/or water (or sewer lines)? While this responsibility rests with the ULB, the same ULB should not allow a project without confirmed water and electricity supply.
The developer cannot walk away from this situation. If there is no “Promoter fails to provide ready to water and electricity, maybe the solution is to not build a project at move in possession of the apartment all! What use is a building without water or electricity, except as a or Plot to the allottee within the time warehouse or storage? period specified. For the purpose of this clause, ‘ready to move in possession’ shall mean that the apartment shall be in a habitable condition which is complete tn all respects.”
