RERA: Protection of the Builders

Harshit Batra, Advocate and RERA Consultant The real estate industry was streamlined with the implementation of the Real Estate (Regulation and Development) Act, 2016 (the “Act”). It introduced the three important stakeholders of the industry, the allottee, the promoter and the real estate agent.  It has been widely advocated that the introduction of the Act was for the protection of the allottees who have been defrauded by the dishonest builders. However, that is not the case. The Act also promises the promoters/developers/builders of their rights in cases of development of a real estate project.    The Promoter/Builder/Developer  The Act recognises the builder under the heads of a promoter and a developer, for the purpose of convenience, we shall refer to the term ‘builder’.    The Act specifically refers to a builder who is

1. a person who constructs or causes to be constructed an independent building or a building consisting of apartments, or converts an existing building or a part thereof into apartments, for the purpose of selling all or some of the apartments to other persons and includes his assignees; or 
2. a person who develops land into a project, whether or not the person also constructs structures on any of the plots, for the purpose of selling to other persons all or some of the plots in the said project, whether with or without structures thereon; or
3. any development authority or any other public body in respect of allottees of— 

1. buildings or apartments, as the case may be, constructed by such authority or body on lands owned by them or placed at their disposal by the Government; or 
2. plots owned by such authority or body or placed at their disposal by the Government, for the purpose of selling all or some of the apartments or plots

4. an apex State level co-operative housing finance society and a primary co-operative housing society which constructs apartments or buildings for its Members or in respect of the allottees of such apartments or buildings;

      5. any other person who acts himself as a builder, coloniser, contractor, developer, estate developer or by any other name or claims to be acting as holder of power of attorney from owner of land on which building or apartment is constructed or plot is developed for sale;     6. such other person who constructs any building or apartment for sale to the general public.         The Act gives a wide space to include builders within its ambit by virtue of this definition. Section 31 of the Act allows “any aggrieved person” to approach the Authority or the Adjudicating Officer (“RERA”), thus, allowing the aggrieved builders to approach RERA.  The builders can exercise this right in case of violation or contravention of the provisions of the Act or the rules and regulations made thereunder.  There are several contraventions and violations, upon which, the builder may approach RERA, which, as guaranteed by the statute, are as follows:  1.  When the allottee defers in payment: At the inception of the relationship between the builder and the allottee, an agreement for sale is executed which guides their relationship by establishing the terms of conduct between both the parties from the time of its execution till the delivery of physical possession or the registration of the conveyance deed. As per such terms and conditions and in the manner as agreed between the parties, the allottee is bound to make the payments for the allotment. As per section 19(6) of the Act, these payments include the share of the registration charges, municipal taxes, water and electricity charges, maintenance charges, ground rent, and other charges, if any. The allottee is also liable to pay an interest at the rate of Marginal Cost Lending Rate (MCLR) of SBI plus 2% (This rate differs from state to state) for the period of delayed payment.  2. When the allottee does not participate in the formation of the association:  The allottee is obligated to participate towards the formation of an association or society or cooperative society of the allottees, or a federation of the same as per section 19(9) of the Act. Not following the same entitles the builder to approach RERA under section 31 of the Act. 3. When the allottee fails to pay the maintenance charges: The maintenance services provided to the allottee are at a charge and the same are provided till the same is transferred to the association of allottee as per section 11(4)(d) of the Act.  4. When the allottee does not take the possession: An allottee is required to take the possession of the allotment within two months of issuance of the occupancy certificate as per section 19(10) of the Act. In a case where the allottee delayed in taking the possession of the allotment after giving the occupancy certificate, the Haryana RERA Authority directed the allottee to pay the remaining amount in lieu of his allotment and take the possession of the allotment with 60 days from the date of the order. 5. When the allottee does not participate in the registration of the conveyance deed: Another ground for the promoter to approach the RERA is as per section 19(11) according to which the allottee has to participate towards registration of the conveyance deed of the allotment.   The Act stands not only in the offensive capacity for the builders by providing them with grounds to approach RERA but also in the defensive capacity by promising them certain rights. Apart from the aforementioned, the builders have additional instances of claiming their defence, which are as follows:  1. Adherence to the Builder-Buyer Agreement: As mentioned before, the builder-buyer agreement or the agreement for sale is the basis according to the terms and conditions of which, the conduct of the parties is established. The promoter can approach the RERA if the allottee defaults in fulfilling any such obligation as per the builder-buyer agreement. This Agreement executed must be in accordance with the state rules and in some states like Maharashtra, is also required to be necessarily registered.  2. Extension of registration in case of force majeure circumstances: Registration is an important aspect which ensures the transparency and accountability in the sector.  Every builder is bound to register its real estate project with the concerned state RERA Authority. The Act gives an advantage to the builders by providing for “extension for registration” in force majeure circumstances, which, as defined by the explanation to section 6 shall mean to be a case of war, flood, drought, fire, cyclone, earthquake, or any other calamity caused by nature affecting the regular development of the real estate project. 3. In case of cancellation of the allotment: An extension to compliance of the terms and conditions of the builder byer agreement has been provide by Section 11(5) of the Act which specifically allows the builder to cancel the allotment of an allottee as per the terms of the agreement. As a general manner of pronouncing orders, it has been viewed that the RERA Authorities have often taken a view to protect the builders, especially in cases where the project is at crucial stages of completion and the allottees seek refund from their respective allotment.   In cases of withdrawal of allotment, so that the builder is not greatly harmed by the acts of the allottee, the builder is allowed to forfeit 10% of the cost of the allotment of the allottee in case of such withdrawal by the allottee or breach of contractual obligations. This forfeiture has to be of a reasonable amount.  As per the practices across RERA or in cases of forfeiture of earnest amount in cases of breach of contractual obligations, 10% has been generally considered to be the reasonable amount.  Thus, it can be viewed that the builder is well protected within the limits of the Act and by the conduct of the respective RERAs. The legislative intent must be seen with an equitable stance, protecting not only the allottees or the real estate agents, but the builders as well.