Draft Maharashtra Real Estate Rules 2016: From ‘buyer beware’ to ‘builder beware’

The Maharashtra government has published the draft Maharashtra Real Estate (Regulation and Development) (Registration of Real Estate Projects, Registration of Real Estate Agents, Rates of Interest and Disclosures on Website) Rules, 2016 (“Draft Rules”) on 8th December, 2016. They will be open for public suggestions and objections till 23rd December, 2016.

The Draft Rules are largely based on the Centre’s rules for the Union Territories (“model rules”) under the Real Estate (Regulation and Development) Act 2016 (“Act”) but with some tweaks.

While buyer protection was envisaged to be the cornerstone of the Act, the Draft Rules are being criticised by some buyer groups for diluting this primary objective.

Highlights of the Draft Rules

  • Disclosure and registration of ongoing projects: The promoters of ongoing real estate projects in which all buildings as per sanctioned plans have not received occupation certificate or completion certificate, as the case may be, are required to register the projects.  While the Act, model rules and rules of many other states mandate registration of only those ongoing projects that have not received the completion certificate, the Draft Rules have gone a step further and stipulated registration even for those projects that have not received the occupation certificate with an aim to extend the protection under the Act to maximum number of buyers. This is an important inclusion as in many of the cases, projects receive completion certificates but they are delayed as the promoters do not get the occupation certificates due to their failure to adhere to fire safety standards, etc.

The promoters of these projects will have to disclose all information about the ongoing projects, including the extent of the construction work completed, expected date of completion, etc. While information such as particulars of registration of the promoters and addresses of the contractors, architect and structural engineer have to be mandatorily published on the website of the Real Estate Regulatory Authority (“Authority”), other details like the projects launched by the promoter in the past five years, the information relating to encumbrances in respect of the land, the expected period of completion, etc. would be submitted to the Authority but will not be published on the website. In the event of wrong disclosures by the promoters to the Authority, the Authority can revoke their registration. Further, if the promoter fails to deliver possession on or before the reported completion date, the buyers can withdraw from the project and get a refund of the amount paid along with interest. There are several cases where buyers, who were to receive their homes five or ten years back, are still waiting for it and this development is a huge relief for such buyers. 

  • Sale of parking spaces: The Draft Rules allow parking spaces to be sold by the promoters for consideration. Presently, approved parking spaces within a building were common areas for society members and could not be sold. Promoters often dodged this restriction by collecting payments for car parking spaces in cash. In an attempt to regulate it, the Draft Rules require the promoters to disclose the details of the sale of parking spaces in the sale deed itself.

  • Fees for filing a complaint with the Authority: For filing a complaint with the Authority, a complainant will have to pay a fee of Rs 10,000. This is a significant jump from the fee of Rs 1,000 as stipulated under the model rules. While it can be argued that this would discourage frivolous complaints, questions arise on the need for imposing a fee burden on already aggrieved complainants. 

  • Dilution of registration fee: While the model rules stipulate a registration fee of Rs 10 per square metre where the area of land proposed to be developed does not exceed 1,000 square metres and Rs 20 per square metre where the area of land proposed to be developed exceeds 1,000 square metres, the Draft Rules have proposed to reduce these to Rs 1 and Rs 2 respectively and have capped it at Rs 1 lakh. Many buyer activists have pointed to this, saying that the Draft Rules tilt heavily in favour of the promoters.

  • Registration of real estate agents: To protect buyers from being swindled by real estate agents, the Draft Rules mandate the registration of every real estate agent and imposes disclosure requirements on the agents. Brief details of the real estate agent’s enterprise including its name, registered address, type of enterprise alongwith its chartered documents, registration number and period of validity of the registration, photograph, etc. will have to be published on the website of the Authority.

    • Ring fencing of amounts realised from buyers:  In line with the requirements of the Act, the Draft Rules have maintained the provision for depositing 70% of the amount realised from the buyers in an account maintained in a scheduled bank that can be used only for construction cost and payment for land. This provision, however, may not be efficacious in a city like Mumbai where land cost is extremely high and the promoters may be able to withdraw a substantial sum before the actual construction of the project commences.

    • Rate of interest: If the promoter fails to give possession in accordance with the terms of the agreement with the buyer, the promoter is liable to return to the buyer all money received with interest. At the same time, the buyer is responsible to make necessary payments in the manner specified in the agreement for sale, failing which the buyer will be liable to pay interest for any delay in payment. The rate of interest payable by the promoters to the buyers or by the buyers to the promoters, as the case may be, is 2% above the prime lending rate of the State Bank of India, prevailing on the date on which the amount becomes due. The promoter cannot contractually decide to waive/reduce the prescribed interest payable by the promoter. However, the point to mull over is whether the mere refund of amount paid by the buyer with interest is sufficient compensation for the buyer who suffers on various fronts. One, he has to pay the interest on the capital borrowed to invest in such a property. Two, he has to incur the rental costs during such period of delay. Three, he suffers a double whammy. The buyer invests in the property in the hope of owning the property and when he does not receive it, he is also denied the benefit of escalation of the price of the property. At the same time, if the buyer decides to invest in another property, he has to pay a much higher amount due to the appreciation in the land value and increase in the cost of construction.

    Conclusion

    The requirement that 70% of the amount received by the promoters shall be maintained in a separate bank account will prevent diversion of funds by promoters to other purposes/projects. Enhanced liability of up to five years for structural defects will ensure that the promoters do not neglect the quality of work in their quest for timely completion. The mandatory public disclosure requirements will lead to enhanced transparency and boost fair competition in the real estate sector. All in all, while the Draft Rules may have diluted some of the rigours of the model rules, the Act in itself being a stringent piece of legislation, is expected to help clean up the real estate sector.

    Ramesh Vaidyanathan is currently managing partner at Advaya Legal and has been a commercial lawyer for over 20 years.

    Mansi Singh is an Associate at Advaya Legal and oversees general corporate matters.

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