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How RERA impacts buyers

RERA Act is to regulate and promote the development of the real estate sector to bring transparency in the real estate development and business by insisting on mandatory disclosure of project details by the builders to the property buyers. This article discusses why RERA was enacted, the problems with the earlier laws and how RERA was able to address those errors. We shall also shed light on how the RERA has impacted the buyers, what are its provisions and how to file a complaint under RERA.
Written by:
Shivi Gupta
Published on
15-Oct-19

The Central Government of India passed the Real Estate (Regulation and Development) Act and transformed the real estate industry profoundly. The real estate sector in India has always had a very high level of information asymmetry, with the buyers always being on the receiving end of this asymmetry. The homebuyers were often deceived and defrauded in real estate transactions due to the inequality of bargaining power and there had been no adequate legal remedies against it. This was because this sector was largely unregulated.

However, this position was changed in 2016 with the passing of the Real Estate (Regulation and Development) Act, 2016 (“RERA”) by the Indian Government.  The Indian Real Estate market has gone through a lot of transformation in time with the most radical change that had been the enactment of the RERA Act.

"RERA mandates the registration of Real Estate Projects and prescribes a standard form of Agreement, which together eliminate the previously occurring legal hindrances ensuring a smooth and safe transaction for the consumers, ultimately increasing their willingness of people from all sections of the society to buy the property of choice in a relaxed fashion," says Advocate Pushkar Taimni.

This article focuses on how the RERA Act is taking over the real estate sector by providing a central redressal forum to the aggravated buyers helping them to legally deal with the developers, how the new RERA regulations have impacted the buyers and how to file a complaint in the RERA Authority. 

Table of Contents: 

  1. What is RERA?
  2. Pre-RERA: NCLT and Consumer Forum (How the process worked before RERA)
  3. Broad provisions of RERA
    1. Obligations on the builder after RERA
    2. Rights of the Buyers after RERA
    3. Penalties for delayed possession
  4. How to file a RERA Complaint?
  5. RERA Case Studies
  6. Frequently Asked Questions

What is RERA?

RERA, the Real Estate (Regulation and Development) Act, was passed by the Central Government on 10th March 2016, to address the various grievances of the homebuyers aiming to safeguard them from dishonest builders and channel investments in the real estate industry.

The RERA Act stipulates that on its enforcement, every state must have a Real Estate Authority and Real Estate Appellate Tribunal to give proper redressal forums to the buyers. It further stipulates certain norms for the development of the real estate sector through which will enhance transparency and guarantee accountability in the developer dominating sector.

From a quick look at the legislation itself, it can be seen that RERA was brought in with a good intent to promote the sector. It provides for certain specific rights which will benefit the flat-buyers and regulates the conduct of the players in the real estate business to even the playing field. It is certainly a forward-looking and much-needed legislation.

 

Pre-RERA: NCLT and Consumer Forum (How the process worked before RERA)

Before RERA, the homebuyers had only one option whenever they faced any problems that was to file a complaint against the developers in the Consumer Court requesting compensation for their investment. But almost in all the cases, the contracts or agreements made by the developers were in their own favor and in all these contracts or agreements, there was a clause of Arbitration which is time-consuming and costly.

Apart from this, there were some more problems faced by the homebuyers before RERA, such as,

  1. Budget cap: The NCDRC only receives and accepts complaints of the properties valued over one crore. If any buyer has to file a complaint against any of the developers, for the property having a value less than one crore, they have to go to the district level authority first, win a case and then go to the state-level authority to claim justice before they can even approach the NCDRC. Last year, however, the Hon’ble Supreme Court in a landmark case had said that the homebuyers can form a group to make the sum amount of Rs 1 crore to directly go to the apex body, however, this also didn’t turn out to be so well for a majority of the homebuyers.

  2. Bureaucratic procedure: Also, until and unless a consumer files a complaint the NCDRC cannot initiate an action or an investigation into a matter. However, the position is not similar to the RERA Authority. 

  3. Softer penalties: The NCDRC imposes softer penalties like fine on the defaulting developer and cannot impose a jail term (serious punishment). The RERA, on the other side, can impose a fine on a defaulting promoter or impose a jail term however it sees fit as per the crime.

 

Broad provisions of RERA

1. Obligations on the builder after RERA

The RERA makes it compulsory for all the real estate projects, where the land is over 500 square meters or 8 apartments for sale, to mandatorily register with the RERA Authority. For this, the developer has to disclose the names of promoters, project layout, land status, the status of statutory approvals, plan of development work, the draft of builder-buyer agreements, names and addresses of real estate agents, contractors, structural engineers and architects to the authority. All of this information has to be given on the RERA website and has to be regularly updated by the developer himself.

A clear number of units sold and construction status has to be disclosed and the buyer will, henceforth, be aware and get information on the defaulting developers and the current projects going on.

2. Rights of the Buyers after RERA

There are numerous rights propounded to the Buyers under the RERA Act.

  • In case of false promises- If there is any disparity in the promises made by the builder and the property delivered, then the buyer has the choice to step away from the project with the full compensation along with the interest. 
  • In case of the defect after possession- Any structural defect in the construction revealed within 5 years after the possession of the building will be repaired by the builder within a maximum of 30 days without cost.
  • In case of delay in possession- If the builder fails to complete the project on the due date of completion then the buyer has the option to withdraw from the project with the entitlement of full refund. The buyers also have an option to continue with the project where he is entitled to the compensation of the delay in handing over the project.
  • In case of a defect in the title- In such a case, the buyer can claim compensation from the builder. The concept of a defect in the title is not barred by limitation.

3. Penalties for delayed possession

Section 18 of the Act is of specific significance, as it directs defaulting builders to pay compensation for delay in handing over the possession of the building/property.

Under Section 18 of the Act, if a constructor fails to hand over possession of the property as per the date mentioned in the Agreement of Sale, then the homebuyer has two options i.e. either to terminate the agreement and seek compensation or to continue with the project and claim reimbursement. If he decides to withdraw from the project, then the builder will be liable to return the entire amount paid for the property with interest. But on the other hand, if the homebuyer chooses to continue with the project, he can claim interest for every month of delay till the time the property is handed over to the buyer.

The rate of interest is prescribed under the Real Estate Regulation Rules, which always vary from state to state. For example, Rule 18 of the Maharashtra Real Estate Rules prescribes a rate of interest equal to SBI MCLR (Marginal Cost of Lending Rate) plus two percent (2%). Since the current MCLR rate is 8.6% (varies from time to time), the penal interest rate would be 10.6%.

Advocate Pushkar Taimni says, "The enactment of RERA implies one single legislation aiming to ensure a smooth purchase of the desired property, eliminating the prevailing malpractices and complicated and unnecessary technicalities. The establishment of a Regulatory Authority at State Level ensures the effective implementation of Real Estate Projects, thereby reducing the burden over both the Judiciary and the Consumer Forums. Truly, it is a social welfare legislation."

How to file a RERA Complaint?

Complaints can be filed under Section 31 of the Real Estate (Regulation and Development) Act, 2016, either with the Real Estate Regulatory Authority or with the adjudicating officer. Such complaints may be filed against the promoters, allottees and/or real estate agents. Most state government rules have laid out the procedure and specific forms, in which such applications can be made.

Step 1: Firstly, a consumer or any association of distressed buyers can approach the Real Estate Regulatory Authority (RERA) or the adjudicating or determining officer in charge to file a complaint.

Step 2: The authority then decides the fees to be charged.

Step 3: It is the complete discretion of the authority whether to direct the grievances to be heard and adjudged by a single bench of either the chairperson or any member of the authority.

Step 4: After the appointment of an adjudicating officer, now the Appellate Tribunal holds an inquiry in an authorized manner, and gives the person a reasonable opportunity of being heard.

Step 5: Lastly, the case has to be settled within 60 days from the date of receipt of the application.

Redressal for claiming compensation would be dealt with by the adjudicating officer in charge as efficiently and speedily as possible.

 Further, all State-owned regulatory authorities have uploaded the RERA complaint form on the website. Also, you can file the RERA complaint online by going on the RERA website of the concerned state. 

It is also imperative that the buyers are aware of all their rights well before buying their flats. They are necessarily going to get much more information than was available before the advent of this Act. Buyers or owners who are aggrieved by any action of the promoters or agents can easily approach the real estate authorities for easy and effective redressal of their dispute. It is expected that these issues would be ironed out gradually.

As the RERA Act is fairly new legislation, it is important that you understand the wide variety of rights that you can specifically assert. It is also imperative that you connect with the best lawyers in the field to assist you in asserting your rights under the RERA. My Advo can help you out in this regard. 

RERA Case Studies

  • RERA EXCLUDES REDEVELOPMENT OF SOCIETIES:

The MahaRERA, vide an Ex-Parte Order in Muralidhar Mahadeo Prabhu V. G.A.Builders Pvt. Ltd. has ruled that the members of the Housing Society cannot seek relief with regards to redevelopment under RERA.  In the said matter, the Complainant, a member of a Co-operative Housing Society which is taken up for redevelopment by the Respondent, alleged that they had promised that their development work of the said building will be completed within 24 months from thereon. The failure of the Respondent to handover possession and pay rent as per the Development Agreement dated October 25, 2007, was averred. However, it was discreetly held that since matters pertaining to re-development did not fall within the ambit of RERA, it directed the complainant to approach other forums for seeking redressal against the non-payment of rent by the builder during the course of re-development. The impact of this order appears to be severe as Sulaiman Bhimani contends that this order fails to take into account that over 85% of the constructions in Mumbai are related to redevelopments besides failing to address issues related with redevelopment. 

  • LAW CONSISTENT WITH RERA CAN BE UTILIZED FOR GRANTING RELIEF:

The MahaRERA, in Apl Yashomangal Developers and Anr. V. Yashwant Dashrath Sawant, while dealing with an appeal against an Order to refund the Buyer relied upon Section 8(b) of MOFA to conclude that extension in granting possession beyond 6 months is impermissible - the Buyer thus, was entitled to compensation. Although relief was sought under Section 18 of RERA which talks about compensation in case of delay in possession, reliance was placed upon MOFA, stating:

“One should not be oblivious to the impact of RERA as a whole. The Preamble of the Statute needs a harmonious reading to the applicability of Section 18 or any other relevant provisions of the RERA Act.” 

In simple words, Section 71 and Section 88 of RERA was read together for allowing the application of the relevant provisions of MOFA, for meeting the ends of justice. In the said case, 92% of the consideration amount was paid for booking a flat in Alfa Greenfield Project in Wadgaon Maval near Pune for which the possession had to be granted the latest by December 2013 - however, the Developer had failed to do so until January 2018. Rejecting the plea of the failure to secure environmental clearance for the project, it was ruled that such a facet was to be included in the agreement beforehand and the failure to do so gives rise to suppression of facts. 

  • LEASE TRANSACTIONS INCLUDED UNDER RERA:

The Bombay High Court in Lavasa Corporation Limited V. Manju Narendra Joshi while concluding that the definition of “allottee” includes sale via an agreement to lease under RERA, held that:

“If they are excluded from the definition of 'Allottee' and thereby from the protection given under the Act, by giving restrictive meaning to the term 'Allottee', the very object of the Act would stand frustrated.” 

Highlighting the object of RERA to regulate the real estate industry, ensure greater accountability towards consumers and reduce frauds and delays, bring about standardization, professionalism and the transparency, for protecting the interests of consumers, averred that RERA cannot be to interpreted exclude such persons, who have invested huge amount in the Real Estate Project, maybe under the 'Agreement of Lease' and taken such apartment on the lease of '999 years', which transaction is, in reality, the transaction of sale.

In the said case, the respondents had already invested more than 80% of the consideration amount of the said apartment in the Real Estate Project of the Appellant. Their interests in the project undertaken by the Appellant were interpreted to be as that of the 'Allottees', who have entered into such 'Agreements' for the purpose of purchase of the said flat/apartment. Furthermore, the Court also held that the term 'selling' used in the definitions of 'Promoter' and 'Real Estate Project' also includes the allotment of a plot by lease. Merely because the Legislature has excluded the allotment when it is given on rent, it does not exclude the long term lease that was crystallized herein. 

Frequently Asked Questions

What is Rera and what is its main objective?

The Real Estate (Regulation and Development) Act, 2016 (RERA) is an Act passed by the Indian Parliament. Its main objective is to protect the interests of home-buyers and also boost investments in the real estate sector.

Why is Rera important?

Since the objective of RERA is to protect customers especially through the period of construction of the project, having the Occupancy certificate reduces the risk to the consumer drastically.

What happens if the builder delays possession?

“No real estate developer wants to delay his project by not handing over possession on the specified date, as the RERA prescribes penalties for delayed possession. However, delays are usually caused by bureaucracy and 'red tape', over which the real estate developer has no control.

Is Rera approval mandatory for plots?

Yes, from the date of commencement of the RERA Act (1st May 2017), it is mandatory to first register with the regulatory authority. Only then can the promoters book, sell, advertise or market these real estate projects.

How long can a builder delay?

Your builder must notify you in writing at least 65 days prior to the original closing date in your purchase agreement in order to delay your closing up to a maximum of 120 days.

Reviewed by: Antim Amlan
Associate - Legal, MyAdvo Techserve Pvt. Ltd.

Antim Amlan is the in-house corporate counsel for MyAdvo and has been associated since the inception of the legal team.

Antim is a graduate from National Law University Odisha and has the expertise of consulting several corporates on litigation strategies, due diligence projects, regulatory compliance & licensing. He also advises corporates on structuring of the work processes based on subject matter and curating suitable legal solutions that benefit the corporate clients. He is an avid blogger and has interest in Corporate, Banking and Finance laws.

LinkedIn: https://www.linkedin.com/in/antimamlan

Email: antim@myadvo.in