Real Estate (Regulation and Development) Bill: Outline

By Aakanksha Joshi and Tarini Menezes, Economic Laws Practice
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The Real Estate (Regulation and Development) Bill was introduced by the previous government to protect the interest of consumers, promote fair play in real estate transactions and ensure timely execution of projects. In April 2015, the current government had proposed certain changes that diluted some of the bill’s more stringent provisions. Based on the recommendations in a report of a select committee of the Rajya Sabha, further amendments were approved by the cabinet on 9 December for better protection of the rights of consumers as well as speedy and effective dispute resolution. The revised bill will be considered by the parliament. Key features and issues are outlined below.

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Aakanksha Joshi

Scope: The original bill sought to cover only residential projects. An amendment proposed in April 2015 extended the scope to commercial projects as well. Further, the bill covers both new projects and those in which sales are in progress.

Registration and disclosure requirements: Mandatory registration of real estate projects and real estate agents is one of the largest systemic changes that this bill seeks to bring. For registration promoters and real estate agents are required to disclose material information including details of the promoters, project, layout plan, development plan, land status, carpet area, number of apartments booked, status of statutory approvals, pro forma agreements, names and addresses of the real estate agents, contractors, architects, structural engineer, etc. Based on recommendations of the Rajya Sabha select committee, residential projects covering an area of even 500 (down from 1,000) square metres or eight apartments would need to be registered. Further, misrepresentation in advertisements issued by a promoter would entitle the buyer to compensation or refund of all amounts paid along with prescribed interest.

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Tarini Menezes

Deposit of amounts realized: Promoters are required to deposit 70% of amounts realized from allottees in a separate bank account to finance construction of the project. The April 2015 amendments sought to reduce this figure to 50% but following stiff resistance, it has reverted to 70%. Given that land cost is a major component of a promoter’s investment, promoters may be hamstrung by such a requirement.

Regulatory framework and dispute resolution: The bill proposes the establishment of a real estate regulatory authority (RERA) in each state and union territory for the regulation and development of the real estate sector. The powers of the RERA include registering projects and agents, investigating offences and adjudicating certain issues. Appeals from decisions of the RERA may be made to an appellate tribunal.

The provision of an alternate forum for resolution of real estate disputes is a welcome move given the prolonged judicial process that has thus far discouraged consumers from proceeding against errant builders. Although the jurisdiction of civil courts is barred, a recent amendment permits consumers to approach consumer forums. The Consumer Protection Act, 1986, however excludes persons who acquire goods or services for any commercial purpose. Therefore, the recourse for purchasers of commercial real estate may be more limited.

Change of plans: Promoters will not be permitted to change plans and designs of a real estate project without the consent of consumers. This is a condition that was previously relaxed but reinstated following severe criticism. Plans often require change due to constantly changing local norms and, depending on the size of the project, complying with this consent requirement could get unwieldy.

Refunds and penalties: If the promoter fails to complete or to give possession in line with the terms of the sale agreement, the buyer is entitled to a full refund with interest. Promoters may be liable for a monetary penalty or imprisonment of up to three years while real estate agents and buyers may be imprisoned for up to one year for violations of orders issued under the legislation.

Legislative framework: Under the state list of India’s constitution, states are entitled to make laws related to land, or rights in or over land. However, contracts between buyers and promoters and transfer of property fall within the concurrent list, creating a possibility of overlap.

Several states have already enacted laws for setting up regulatory authorities based on the Model Real Estate Act, 2009, which also forms the basis for the bill. The bill clearly provides that in case of any inconsistencies between the bill and any state law, the bill will prevail. However, where there is no inconsistency, but separate authorities and requirements, administrative and compliance difficulties are inevitable. Multiple registrations and disclosure requirements under both central and state laws would make compliance cumbersome and confusing, leading to project delays and increased regulatory risk.

The bill seems like a step in the right direction, given the justified anxiety of consumers in the real estate sector. By boosting transparency and accountability, a consequent increase in consumer confidence could lead to a revival of the now sluggish real estate market. However, the increase in restrictions and liabilities of the promoters may leave them unenthused.

Aakanksha Joshi is an associate partner and Tarini Menezes is an associate at Economic Laws Practice. This article is intended for informational purposes and does not constitute a legal opinion or advice.

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