JUL-16: COVER STORY
New Real Estate Act simplified
You buy a house once in a lifetime but it may be the single largest purchase you ever make. Till recently, home buyers were not adequately protected under the law. Purchase contracts were biased towards the builder. There were no warranties against manufacturing/building defects, no refund/replacement policy, delays in possession were common and increased demands were made by builders for escalating costs.
Now, home buyers can breathe a sigh of relief. Eight years after it was proposed, the Real Estate (Regulation and Development) Act, 2016 was recently enacted and became effective from 1 May 2016. The Act makes a move towards ensuring consumer protection and standardising business practices by bringing in transparency and safety in the market.
We bring you important provisions of the Act:
- Builders cannot market or sell housing projects without registering with Real Estate Regulatory Authority (RERA). Registration of all new and ongoing real estate projects with RERA, where the total area is above 500 sq m or there are more than eight apartments, is mandatory.
- RERAs and Real Estate Appellate Tribunals will be set up in all states and union territories within one year by the respective stateÂ governments.
- Builders have to disclose carpet area. Carpet area is the net usable floor area of an apartment. It excludes area covered by the external walls; areas under services shafts; balcony or veranda area and open terrace area but includes area covered by internal partition walls.
- Disclosure of details of promoter, project, layout plans, land status, all approvals, and details of real estate agents, contractors, and engineers is also a must.
- Now, builders have to pay interest to buyers for delay in giving possession. Penalty on builders includes de-registration, imprisonment and monetary penalty on violations like delays and non-compliance of tribunal orders.
- No discrimination of any kind (religion, region, caste, creed or sex) towards home buyers is permissible.
- Model contracts for purchase agreements will be the norm.
- Seventy per cent collections from buyers have to be held in escrow account.
- Consent of two-third allottees required for any change in project plans.
- Seventy per cent of sales income from project must be for building and land.
- Builders are liable for structural defects for five years.
- RERA to decide on the complaints of buyers and developers in 60 days time. Decisions of RERA can be appealed before the Real Estate Appellate Tribunals.
- No prelaunch, marketing or advertisements to be allowed without all approvals and registration.
- Builders can no longer make tall claims in advertisements and promotion and then fail to deliver what they promise.
Excerpts of an interview with advocate Shirish Deshpande, chairman, Mumbai Grahak Panchayat:
Q.1. Â How will the Real Estate Act protect home buyersâ€™ interests?
A.1. Â Once this Act is implemented fully, its many provisions will protect Â consumersâ€™ interests. I would like to mention a few:
- Builder/developer must register the housing project (including ongoing projects) with the State RERA.
- Unless the builder obtains such registration from RERA, he cannot sell a single apartment in his project.
- Builder cannot prelaunch a housing project and is not allowed to market or advertise it without obtaining registration from RERA.
- For registration, the builder has to produce building approvals from the respective local authorities like municipal authority, town planning authority, among others.
Q.2 Builders often fail in their commitment to give possession and buyers suffer from long delays in getting flats. What remedy does the Act offer?
A.2 Â Â These provisions will prevent long delays:
- Registration of the project will be valid only for the declared project completion period. If the project is not completed in such period, the builder will have to get extension which can be for a maximum of one year.
- Beyond this period, the registration will be cancelled and the project can then be taken over by the association of flat buyers or any other state authority in consultation with RERA.
- In case of delay, builder will also have to pay interest to the buyer on the amount invested at the same interest rate which the builder charges the buyer for delay.
- Fear of cancellation of registration and mandatory payment of interest to buyer will help prevent delayed deliveries of flats to consumers.
Q.3. How does the Act resolve the problem of one-sided agreements executed in favour of builders?
A.3. The Act empowers RERA to prescribe a model agreement for sale. This will ensure that it is not one-sided and is fair to both parties. Despite this, if a one-sided agreement is made, it can be challenged before RERA, which is empowered to strike down the unfair and/or one-sided clause.