objection / comments on draft Real Estate (Regulation and Development) Rules, 2016

Below are my below objection / comments on draft Real Estate (Regulation and Development) Rules, 2016 to  in terms of notice  Dated June 24, 2016 bearing No. O-17034/18/2009-H (Vol. IX) (Part III) / FTS No. 15980  

1.  Legal title to the land

Draft rule 3(1)(d) mandates to submit “copy of the legal title deed reflecting the title of the promoter to the land on which development is proposed to be developed along with legally valid documents with authentication of such title, if such land is owned by another person;”

This is in the furtherance of section 4(2) (l) (A) of the Real Estate Act 2016 that mandates promoter to submit a declaration, supported by an affidavit stating:

“that he has a legal title to the land on which the development is proposed along with legally valid documents with authentication of such title, if such land is owned by another person;”

Section 4(2)(l)(B) of the Real Estate Act 2016 mandates promoter to submit a declaration, supported by an affidavit stating:

“that the land is free from all encumbrances, or as the case may be details of the encumbrances on such land including any rights, title, interest or name of any party in or over such land along with details”.

Objection

There is neither any definition of the terms “legal title” to the land in the Transfer of Property Act 1882  neither there is any statutorily recognized procedure to ascertain “legal title” to the land. The Transfer of Property Act 1882 only uses the terms documents of title for conveyance deed. Judiciary used to define the term “title” case to case basis. It may be noted that the Transfer of Property Act 1882 uses the terms “property” while the Real Estate Act 2016 uses the terms “land”. Therefore either using the term “title”, the term ownership must be used or term “title” must be defined and a procedure must be recognized to ascertain “legal title” to the land. In absence of this, a promoter may be penalized for its no default on this account.

Always the land is not purchased and sometimes the builder also uses the Mode of Collaborations, Joint Venture, Build and operate for a limited period.  Therefore, in such a scenario who is going to submit the title document and non-encumbrance certificate. 

   

As of now, there is no statutorily recognized procedure to ascertain whether a land is free from all encumbrances. Hence a competent authority needs to be created to keep the record of the details of all encumbrances in or over a land, apartment or building. In absence of this, a promoter may be penalized for its no default on this account.

2.  Registration fee

Draft rule 3(3) mandates to calculate registration fee at the rate of:-

(a) rupees ten per square meter for residential projects where the area of land proposed to be developed does not exceed one thousand square meters; or rupees twenty per square meter for residential projects where the area of land proposed to be developed exceeds one thousand square meters or

(b) rupees fifty per square meter for commercial or any other projects, where the area of land proposed to be developed does not exceed one thousand square meters; or rupees one hundred per square meter for commercial or any other projects, where the area of land proposed to be developed exceeds one thousand square meters;

Objection

Registration of a real estate project is within the domain of state government as per present constitutional provision as colonization is under state list at entry no.18 of seventh schedule. Concerned development authority sanctions a real estate project after obtaining applicable fee. Registration of the project with the authority does not give any benefit to promoter. Registration of the project shall not be beyond the period provided as per local laws for completion of the project or phase thereof, as the case may be. As such a promoter would be double jeopardized. Hence registration with authority under Real Estate Act 2016 should be free of cost or nominal.

Propose fee is arbitrary and exorbitant. There is no rational for different rate of fee of a project of different size. Purpose of registration is to recognize anything officially just to validate. Registration is supposed to be used to meet administrative expenses. It cannot be used for the purpose of revenue generation. There is already provision for exorbitant monetary penalty upon promoter for delaying in handing over the developed plot or apartment or building. Further different registration fee for residential and commercial projects are arbitrary. It is nothing but hidden intention for revenue generation. Registration process is quasi-judicial process and it cannot be used for the purpose of revenue generation. Furthermore it will adversely impact the real estate sector as project will be costlier. Costlier residential project will not help the state to achieve its object to provide house to each citizen- fundamental right of citizen. Section 4(2) (l)(d) of the Real Estate Act 2016 mandates “that seventy per cent. of the amounts realised for the real estate project from the allottees, from time to time, shall be deposited in a separate account to be maintained in a scheduled bank to cover the cost of construction and the land cost and shall be used only for that purpose:” Hence registration cost cannot be used from the that seventy per cent. of the amounts realised from the allottees. As such promoter will face undue hardship to carry on the business of real estate.

3.  Processing fee

Draft rule 3(5) mandates “In case the promoter applies for withdrawal of application for registration of the project before the expiry of the period of 30 days provided under sub-section (1) of section 5, registration fee to the extent of ten percent paid under sub-rules (3) above, or rupees fifty thousand whichever is more, shall be retained as processing fee by the regulatory authority and the remaining amount shall be refunded to the promoter within thirty days from the date of such withdrawal.”

Objection

Proposed processing fee is exorbitant. A promoter may be compelled to withdraw application for registration due to certain development beyond its control. Hence processing fee to the extent of Rs.5000/--7000/- may be kept. Further reason of withdrawal may be asked and after analysis of these reason, it emerges that a promoter has sought to withdraw application for registration without any valid reason, it may be penalized for wasting the precious time of authority. Straight away retention as processing fee on higher side is nothing but an arbitrarily exercise of power with a view to use it as revenue generation.

4.  Extension of registration

Draft rule 7(3) stipulates “Extension of registration of the project shall not be beyond the period provided as per local laws for completion of the project or phase thereof, as the case may be.”

Objection

Registration of a real estate project is within the domain of state government as per present constitutional provision as colonization is under state list at entry no.18 of seventh schedule. Concerned development authority sanctions a real estate project after obtaining applicable fee. Local laws already provides extension of registration with penal fee. Registration of the project shall not be beyond the period provided as per local laws for completion of the project or phase thereof, as the case may be. As such extension of registration with authority under Real Estate Act 2016 should be fee of cost or nominal. Further registration of the project is violation of constitutional frame work of colonization.

Force majeure must be illustrative.

5.  Land cost definition

 Draft rule 5(1) define land cost as the land cost shall be the cost incurred by the promoter, whether as an outright purchase, lease charges etc

Objection

It is salience in case of joint venture or land development agreement etc.

6.  Registration fee by the real estate agent

Draft rule 10(2) stipulates different registration fee for individual and company.

Objection

It is against equality of law mandated by constitution.

7.  Renewal Registration fee by the real estate agent

Draft rule 12(2) stipulates different Renewal registration fee for individual and company.

Objection

It is against equality of law mandated by constitution.

8.  Detail of past litigation

Draft rule 16(1) (a) (iii) stipulates to provide details of past or ongoing litigations in relation to the real estate project

Objection

Everyone has right to start a fresh and as such it has right to hide its bad record. Hence details of past litigation is uncalled for. Further no purpose

9.  Legal title deed

Draft rule 16(1) (a)(e) (ii)B mandates to submit “copy of the legal title deed reflecting the title of the promoter to the land on which development is proposed to be developed along with legally valid documents with authentication of such title, if such land is owned by another person;”

Objection

Same as Para 1

10.  Rate of interest

Draft rule 17 mandates “the rate of interest payable by the promoter to the allottee or by the allottee to the promoter, as the case may be, shall be the State Bank of India Prime Lending Rate plus two percent.”

Objection

Allottee get house loan @ 9-10% while promoter gets commercial loan at higher rate@14-15%.

In case of default by allottee to pay amount (in construction link plan), promoter has to take commercial loan at aforesaid rate to complete the project otherwise promoter has to pay compensation to allottee his any fault.

As such in ultimate case, a promoter will always be sufferer.

11.                Retrospective applicability or overriding of previously signed allotment letter

Draft rule 9(3) mandates “Any application letter, allotment letter or any other document signed by the allottee, in respect of the apartment, plot or building, prior to the execution and registration of the agreement for sale for such apartment, plot or building, as the case may be, shall not be construed to limit the rights and interests of the allottee under the agreement for sale or under the Act or the rules or the regulations made thereunder.”

Objection

Real Estate Act 2016 has not been made applicable retrospectively. Hence previously signed allotment letter prior to the execution and registration of conveyance / sale deed should not be allowed to be overridden. Agreements entered into by promoter with customer before implementation of the act should not be allowed to be overridden. Because these agreements were entered into by the parties considering provisions of law prevailing at the time of entering into those agreement and accordingly necessary arrangements with respect to liability has been made. Arrangements between the parties based upon previously executed documents such as allotment letter (prior to the execution and registration of conveyance / sale deed) would be adversely affected. Penalties defined in those agreements cannot be changed arbitrarily as these were agreed for between the buyers and the companies.

12.                Fee for filing appeal

Draft rule 29 mandates that fee for filing appeal would be rupees one thousand.

Objection

Appeal would be filed against either not appreciation of law / documents or misinterpretation of provisions of law / clauses of documents. As such ideally filing of appeal should have been permitted without any fee however fee may be Rs.100/ Rs.200/- to meet the administer cost. A motivated appeal must be dealt with higher penalty.

13.  Compounding fee

Draft rule 35 mandates flat rate of 10% of the estimated cost of the real estate project as compounding fee.

Objection

Flat rate of 10% of the estimated cost of the real estate project as compounding fee is arbitrary and against the mandate of the Real Estate Act 2016. The Real Estate Act 2016 mandates for Compounding of offences about fee compounding fee at Section 70 “…………the sum prescribed shall not, IN ANY CASE, exceed the maximum amount of the fine which may be imposed for the offence so compounded”. It further stipulates with regard to punishment of imprisonment “ …imprisonment for a term which may extend up to ……year”. Furthermore monetary penalty has been prescribed as “…….which may extend up to ten per cent. of the estimated cost of the real estate project as determined by the Authority”. Thus neither the imprisonment period nor the penalty amount is intended by legislature to be absolute. By using the terms IN ANY CASE at section 70, the penalty amount intended not to be absolute. Legislature has given discretionary power to the concerned authority to decide the extent of imprisonment period or penalty amount depending upon the fact and circumstance of each case. In furtherance of this, Compounding fee ought to have been provided with certain slabs for different case so that court may using its discretionary power may fix certain amount depending upon the fact and circumstance of each case. The legislature never intended to prescribe a flat rate of compounding fee for every case. It seems that penalty amount has been decided to be a source of revenue.