Introduction to the Real Estate (Regulation and Development) Act 2016

real-estate-law

Real estate involves the sale, purchase and development of land, apartments, buildings, etc, for various purposes.  Different aspects of real estate are regulated by different levels of government.  Real estate projects are currently regulated by state governments under their respective state town and country planning or apartment ownership Acts.   Typically, Town and Country Planning Acts regulate land use and development.  Apartment Ownership Acts regulate individual ownership of apartments in buildings with multiple apartments.  Approvals for the construction of real estate projects are primarily given at the local and state level.  Certain approvals are given by the central government.  Consumer grievances are mainly redressed through forums established under the Consumer Protection Act, 1986.  Unfair trade practices may be challenged under the Competition Act, 2012.

Several court cases have addressed issues in the sector such as unfair buyers’ agreements and illegal construction.1 The Competition Commission of India has pointed out that the absence of a single regulator for the real estate sector is partly responsible for poor grievance redressal.2

The Real Estate (Regulation and Development) Act, 20163 (The Real Estate Act) provides for establishing regulatory authorities at the state level to register residential real estate projects and seeks to regulate contracts between buyers and sellers in the real estate sector to ensure sale of plot, apartment or building, etc, in an efficient and transparent manner. It also proposes to ensure greater accountability towards consumers, and significantly reduce frauds and delays as also the current high transaction costs. It attempts to balance the interests of consumers and promoters by imposing certain responsibilities on both. It seeks to establish symmetry of information between the promoter and purchaser, transparency of contractual conditions, set minimum standards of accountability and a fast track dispute resolution mechanism.

Salient Features of the Real Estate Act

  1. Real Estate Regulator Authorities, Appellate Tribunals & Central Advisory Council
  • All states and union territories (UTs) must establish state-level regulatory authorities, called Real Estate Regulatory Authorities (RERAs) within one year of the Act coming into force. Two or more states or UTs may set up a common RERA.  A state or UT may also establish more than one RERA.
  • Functions of a RERA include: (a) ensuring that residential projects are registered and their details uploaded on the RERA website; (b) ensuring that buyers, sellers, and agents comply with obligations under the Real Estate Act; and (c) advising the government on matters related to the development of real estate.
  • Each RERA will consist of a chairperson and at least two full-time members with experience in sectors such as real estate, urban development, law and commerce.One or more tribunals, called Real Estate Appellate Tribunals, will be established in states and union territories to hear appeals against decisions of RERAs. One Tribunal may be established for two or more states.
  • Each Tribunal will consist of a chairperson and two members, one with a judicial background and one with a technical background.If a RERA observes that an issue impacts competition, it may refer the case to the Competition Commission.
  • A Central Advisory Council, consisting of representatives from union ministries, state governments, RERAs and representatives of the real estate industry, consumers, and labourers will be established.  The Council will advise the central government on major questions of policy, and protection of consumer interests.
  1. Registration of real estate projects and agents
  • The Real Estate Act requires that all residential projects, with some exceptions, be registered. Promoters cannot book or offer these projects for sale without registering them.  Registration is not required for projects that : (a) are less than 1000 square meters, or (b) entail the construction of fewer than 12 apartments, or (c) entail renovation/repair/re-development without re-allotment or marketing of the project.
  • State governments can establish a lower limit for the exemption. Where a project is developed in phases, each phase must be registered separately.  In order to register, the promoter must provide details such as the layout plan of the project and the carpet area of property for sale to the RERA.
  • If the applicant does not hear back from the RERA within 15 days of the application for registration, the project will be considered registered. Registration may be revoked after giving 30 days notice to the promoter.   In the case of revocation, the RERA can recommend the completion of the project through the competent authority or association of buyers or in any other manner.  Here, a competent authority refers to the local authority responsible for land development.
  • Real estate agents must register with a RERA in order to facilitate the sale or purchase of property in real estate projects that have been registered. Registered agents must not facilitate the sale of unregistered projects or mislead buyers regarding services offered.
  1. Duties of the promoter and the buyer
  • On registration, the promoter shall upload details of the project on the website of the RERA including the number and types of properties for sale, and quarterly updates on the status of the project. In addition, the promoter must make the site and layout plans of the project, and the schedule of completion of the project available to the buyer.  In case a buyer incurs a loss because of false advertising, and wishes to withdraw from the project, the promoter must return the amount collected, with interest.
  • 70% of the amount collected for the project from buyers must be used only for construction of that project. The state government can change this amount to less than 70%.  The promoter shall not accept more than 10% of the total cost of the property as an advance payment without entering into a written agreement.
  • The promoter shall: (a) obtain a completion certificate from the relevant authority; (b) form an association or society of buyers; and (c) provide essential services till the association of buyers takes over the maintenance of the project. If the promoter is unable to give possession of the property, he shall be liable to return the amount received by him for the property, with interest.
  • It shall be the duty of the promoter to promptly rectify any structural defects occurring in the project within a period of two years from the date of handing over possession, without further charge.
  • The buyer must make required payments within the term specified in the agreement signed with the promoter.  He will be liable to pay interest for any delay in payment.  Buyers must participate towards the formation of an association/society/cooperative society.
  1. 70% of amount collected from buyers to be used only for construction

The cost of a real estate project includes the cost of land and the cost of construction (and the profit margin).  The Act mandates that 70% (or less, determined by states) of the amount collected from buyers for a particular project be deposited in a separate bank account and be used only for construction of the project.  The provision seeks to address the practice of builders using money from an existing project for other projects, resulting in delays in completion.

     5. Penalties

  • In case the promoter fails to register the property, he may be penalised up to 10 % of the estimated cost of the project.  Failure to register despite orders issued by the RERA will lead to imprisonment for up to three years, and/or an additional fine of 10% of the estimated cost of the project.    The promoter will have to pay up to 5% of the estimated cost of the project if he violates any other provisions of the Act.
  • Real estate agents will have to pay a fine of Rs. 10,000 for violation any provisions of the Act, for each day the violation continues.
  • An Allottee, who wilfully fails to comply with, or contravenes any of the orders or directions RERA or Appellate Tribunal, as the case may be, he shall be liable to a penalty up to 5% and 10% respectively of the purchase cost.
  1. Inconsistencies with state laws regulating real estate

The Real Estate Act provides that states can continue to apply their laws regulating  real estate, to the extent that these laws are not inconsistent with the Real Estate Act.  However, several states have enacted or are in the process of enacting laws that have provisions that are inconsistent with the Real Estate Act.  These provisions will be superseded by the Real Estate Act.

   7. Bar on jurisdiction of Civil Courts

Section 69 of the Real Estate Act, bars civil court’s jurisdiction to entertain any suit or proceeding in respect of any matter which the RERA or the Appellate Tribunals are empowered to determine and further prohibits any court or other authority from granting an injunction in respect of any action under the Act.

Conclusion

The real estate sector plays a catalytic role in fulfilling the need and demand for housing and infrastructure in the country. While this sector has grown significantly in recent years, it has been largely unregulated, with the absence of professionalism and standardisation. The lack of adequate consumer protection mechanism resulted in exploitation and profiteering by unscrupulous builders. It is hoped that the Real Estate Act will protect the interest of buyers and also give much-needed impetus to the sector.

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Notes

  1. Esha Ekta Apartments Co-operative Housing Society Limited and Ors. Vs. Municipal Corporation of Mumbai and Ors, AIR 2013 SC 1861; Belaire Owners Association vs. DLF Limited, HUDA, and Ors, CCI, Case No. 19/2010, August 12, 2011; Priyanka Estates International Pvt. Ltd. vs. State of Assam, AIR 2010 SC 1030.
  2. Belaire Owners Association vs DLF Limited, HUDA, and Ors, CCI, Case No. 19/2010, August 12, 2011-The CCI fined DLF Limited Rs. 630 crore for abusing its dominant position in the sector by enforcing unfair buyers’ agreements.
  3. All the sections of the Real Estate Act stand notified in Gazette of India and have come into with effect from 01st May 2017.
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About maheshspeak

I write randomly on law, jurisprudence, polity, travel, food and anything else interesting. You can also visit my personal homepage at maheshsreenivasan.com
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4 Responses to Introduction to the Real Estate (Regulation and Development) Act 2016

  1. Jacob Oommen says:

    Fantastic presentation of all the recent interesting topics related to law.

    All the Best for the endeavour, Mahesh….

    Like

  2. Anonymous says:

    Sir thanks for updating us on the latest developments.
    Continue the same.
    Regards

    Like

  3. Ramesh Babu says:

    Sir thanks for updating us from time to time.

    Like

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