Introduction to Real Estate and Construction
Real estate and construction is one of those industries that were plagued with old complicated laws. Before the commencement of RERA, there was no specific legislation with respect to the real estate development, its selling and purchasing. This affected adversely the construction industry of India as a whole and due to doubts on the security of their investment. Taking advantage of this void the real estate developers used to make contracts and policies which were favourable to them and unfair towards the small retail buyers.
In order to counter this problem, the government came out a dedicated real estate law in the form of Real Estate (Regulation and Development) Act, 2016. RERA initiated the process of providing relief to the home buyers from the unfair trade practices of the real estate developers. This act filled void of uncertainly and brought transparency in the transactions taking place in the real sector.
Overview on Real Estate Regulation Act
The RERA provided equitable rules and regulations for both the buyers and sellers which they are bound to follow and put an end to the arbitrariness of the developers. RERA also brought out the provision for the establishment of Real Estate Regulatory for every state and union territory and also establishment of Real Estate Appellate Tribunal to redress the complaints in an expeditious manner and give relief to the victims. Some of the benefits of RERA are the following:
- Standardization of measurement of the carpet area to bring uniformity in the method of calculation of the carpet area by every developer so that the buyers are at the receiving end.
- Equalizing the rate of interest in case of default by both the buyers and seller. Before commencement of RERA the rate of interest in case of default were tilted in the favour of developers. So RERA brought an end to this unfair practice.
- In order to reduce bankruptcy of the developers, the act mandated the developers to maintain a separate bank account for every project and use the account for the completion of that project only and money can be taken in proportion to stage of completion of the project after the signature of the chartered accountant, engineer, architect only.
- Right to be refunded in full payment with interest now lies with the buyers in case of false promises made by the developer.
- An investment of not more than Rs. 10 lakh can be charged by the developer before entering into an agreement to sell with the buyer.
- The developer is now mandate to fix any defect in the workmanship caused within a period of five years after the buyer gets possession of the property.
- If the buyer realises that there is a defect in the title of the property anytime in future then the buyer has the right to claim compensation from the builder and such right is not barred by any limitation period.
- The buyer has now the right to demand from the developer any information with respect to the stage of completion of project, the layout plan, execution plan.
Real Estate and Construction related Services:
From the time of commencement to the stage of final completion, a plethora of compliances including registrations to submission of quarterly reports to post completion documentation have to be fulfilled by the developer. Litigation and due diligence associated with the project also has to be taken care of. In order to take care of the complexities associated with the compliances, there is a strong need for any developer to take due care of compliances failing which may result in penalties and even suspension of the project altogether.
Following are the essential services that are associated with any RERA related project:
Due Diligence of the project: Before the commencement of any real estate project, it is of utmost importance that the builder must get the due diligence done for the project. A due diligence depends on the time period it is supposed to be conducted. Due diligence can be of full search report where the history of the past thirty years is taken into account. The other type of due diligence that can be done is the Limited Title search report wherein the previous history of fifteen years is taken into consideration. Following are the things that are taken into consideration while conducting due diligence:
- Legal capacity of the seller to conclude the sale.
- Check the veracity of the sale deed and make sure that the property is not under any latches
- Whether the builder has been given the completion and occupational certificates.
- Checking of land type and mutation deed.
- Power of attorney has been notarised.
- Allotment and possession letter from the land authority
- Checking of khata
This is not the exhaustive list of documents that need to be taken into account before proceeding with buying or leasing of the project. It is a matter of skill to conduct a thorough research of the property before initiating the task of buying of property.
Registration of the Real Estate project: The next process is the registration of the real estate project with the real estate authority. Without the registration of the project the promoter cannot advertise, market, book, sell or offer to sell the project. Apart from the following, every other project needs to be registered with the real estate authority:
- Where the area under construction does not exceed 500 square meters or the number of apartments does not exceed 8 units.
- Where commencement certificate has been received before commencement of RERA.
- Where the work is only of renovation and redevelopment and does not involve marketing, advertising, selling or new allotment of any apartment, plot or building.
According to S.4 of RERA, an application has to be made by every promoter along with the prescribed fee and the following documents:
- Certificate of commencement of project and an authenticated copy of required approvals
- All the plans including sanctioned plan, layout plan and other specifications approved by the competent authority
- Affidavit by the promoters making the required declarations.
Registration of the Real Estate Agents: For engaging in the services of facilitating sale/ purchase of a real estate, the person has to get itself registered as a real estate agent by making an application along with the required documents:
- Name, address, type of enterprise
- Bye-laws, AOA and MOA in case of Real Estate agency.
- Name, address, contact details of directors/ partners/ agents.
- Authenticated copy of PAN card of the agent.
- Authenticated copy of address proof of the business.
Submission of prescribed reports: Every RERA registered project is bound to make submissions of quarterly reports to the authority on the following aspects of the project:
- Quarterly compliances under the Act which includes uploading the information relating to the inventory of the home units, approvals that have been obtained and also the ones to be obtained from the authority after certificate of commencement of the project. Report relating to the completion status along with such other documents that have been mandated by the act.
- Quarterly reports according to the rules: Depending on the location of the project, different rules are applicable relating according to the jurisdiction of the project made by their respective states and union territories. Some of the reports that are needed to be submitted with respect to status of the every stage of completion of the project, expected date of submission of the approvals mandated by the authority on account of any amendments made in the rules etc.
- Quarterly progress reports made according to Regulations which include prescribed submissions in the domains of construction, finance, certificates etc.
RERA Audit: Every year the promoter has to get the project’s account audited within six months after the end of every financial year by chartered accountant in practice. Along with it a statement of accounts verifying that the amount collected for the project has been utilised for the project only in proportion to the percentage of completion of the project which shall also be signed by the Chartered accountant.
In our opinion, it is a very good initiative taken by the government to regulate the conduct and practices of the developers and at same time empower the buyers from any unfair trade practice. For this, government brought the model law on Real Estate and left it to the states to make their own law on the basis of the model law suiting the environment of the state. However, it is very sorry state of affairs that some of the states have failed to implement this law in their own states.
Enterslice can give you overall advisory and assistance in securing registrations of RERA projects, promoters, agents etc. as we are a team of highly skilled & dedicated professionals. We specialize in providing legal consultancy services also.