Are states providing an escape window to builders by adopting diluted RERA rules? It seems so, with most of the 13 states and union territories that have so far notified the RERA rules, a majority of them have tweaked the regulations in the interest of builders by either excluding ongoing projects from the purview of the real estate regulatory authority or reducing penalty for compounding offences.
Most of these states and union territories have also watered down the definition of common areas and in some cases even increased the timelines for delivery of projects.
With barely four days to go for the Real Estate (Regulation and Development) Act (RERA) 2016 to get implemented, the highest parliamentary body, the Committee on Subordinate Legislation (COSL) of Lok Sabha, has taken up the issue of tardy progress made by some states in the implementation of the Act and dilution of rules at the state level.
"The COSL yesterday took stock of the status of implementation of RERA by different states, dilution of state rules etc with officials from the Ministry of Housing and Urban Poverty Alleviation," sources confirmed not wanting to be named.
“By diluting rules, many states have ignored the interests of homebuyers and favoured developers. The fact that the parliamentary body of both houses has taken up the issue of dilution of real estate rules by the states means that not only the government but also the lawmakers are serious about implementing the Act in true letter and spirit which gives us hope that the states will fall in line,” says Abhay Upadhyay, national convener, Fight For RERA.
RERA mandates that all “promoters of all ongoing projects which have not received completion certificate” will have to register with the state-level regulatory authority and provide complete disclosure of project details.
Here are samples of how some states have watered down the RERA rules:
Gujarat rules exempt all projects from RERA launched before November 2016
“The Gujarat government has decided to exempt all ongoing projects that were launched before November 2016 from the purview of RERA,” confirm sources.
Rules pertaining to procedures required for registration of real estate projects, revocation of registration, and extension of registration and registration of real estate agents etc will be notified before the May 1 deadline, they say.
Uttar Pradesh excludes projects for which completion certificate has been applied for.
The UP government has incorporated a clause that seeks to exclude projects that have applied for (but not received) completion certificates, projects where conveyance deed has been executed with 60 percent buyers and incomplete projects where maintenance has been handed over to association of allottees. The UP RERA rules have to be read in conjunction with amendments to the Apartment Act – both being equally important public policies. The UP Apartment Act 2010 is unique minus the amendments (of 2016).
What was it like before?
As per the UP Apartment Act 2010, units in UP had to be delivered within two years (24 months) and buyers compensated for delays under Section 4(4) and 4(5). It had also specified that plans once sanctioned could not be changed, laying down jail terms for violations. Read along with RERA rules, UP would have perhaps been the safest place to invest in real estate. But these very sections have now been diluted.
What it is now?
Under the amended Uttar Pradesh Construction, Ownership and Maintenance Amendment Act 2016, there is no control or restriction over the completion time of a project and the changes a builder can make. Instead of the specified 24 months, a builder can take up to seven or eight years to complete the project. No assurance is required, everything is flexible. The amended Act states that once a completion certificate has been received by the builder, he cannot make any changes to a project.
“The inference one can draw from this is that a builder can make changes in the original project plan till he decides to apply for a completion certificate. What this means is that the maximum number of projects will now be out of RERA, especially those who have applied for completion certificates," says SK Pal, a Supreme Court lawyer.
It also states that if 60 percent of sale or lease deed has been executed then the builder will be out of RERA or if maintenance of common areas has been assigned to RWAs then the project will be out of the ambit of RERA. In most of these common areas are not complete.
Several imprisonment clauses have been made into compounding clauses (where money is paid in lieu of actual punishment). The offences and penalties chapter states that upon payment of a certain sum of money, “any person in custody in connection with that offence shall be set at liberty and no proceedings shall be instituted or continued against such a person.”
In effect, if compounding option is available to developers, they will have nothing to fear as they will avoid punishment for any fault by just paying a simple fine. The rules also mention that the money to be paid for compounding shall be proportionate to the term of imprisonment subject to a maximum of 10 percent of the estimated cost of the real estate project for three years. Since the minimum is not specified it could be NIL or a nominal Rs 1, say legal experts.
UP rules do not have any reference to the rate of interest at which the money has to be refunded to homebuyers as against the central RERA Act under which developers will now be required to refund or pay compensation to the allottees with an interest rate of the State Bank of India’s highest marginal cost of lending rate plus 2 percent within 45 days.
Only disposed-of legal cases to be uploaded by Delhi
The rules notified by Delhi lay down that the developer will have to give details of only those legal cases which has been disposed of and not of all those which are pending adjudication in various courts. “This is a dilution in favour of builders. This is in contradiction to Section 4(2)(b) of RERA, which clearly provides for information to be given with regard to details of cases pending,” say RERA experts.
RERA rules call for setting up of a real estate regulator and this is likely to have an impact on projects that are expected to come up under land pooling policy that is awaiting clearance from the AAP-led Delhi government.
Maharashtra rules perhaps the ‘worst’
Maharashtra notified its final rules last week. The state rules have a provision for ‘phases of real estate project’. It seems to notify a set of buildings and even a wing of building as a project. While the RERA Act allows for large projects that are spread over 100 acres to be completed in phases, it does not allow for dividing a project into buildings, say experts.
Maharashtra rules have a new nomenclature called ‘proposed plans’. As per the RERA Act notified by the Centre, only sanctioned plans can be submitted and not proposed plans.
"Once you have uploaded documents and registered the project with the regulatory authority, you cannot get the proposed plan changed unless you have the approval of two-third allottees of the project," say experts.
It also has a provision of ‘last approved sanctioned plan’. RERA clearly states that consent from two-third allottees is required for changes in approved sanctioned plans shared at the time of booking a house. “Considering only the last approved sanctioned plan is a clear indication to legalise all changes made by the promoter in the plan subsequent to booking," say experts.
Maharashtra rules also provide discretionary power to the Authority, to withhold any information or document from uploading on the website for public viewing. RERA does not provide for any such power to be given to the Authority. Providing for such discretionary powers completely defeats the the objective of the Act.
Madhya Pradesh and Rajasthan
The draft rules of Madhya Pradesh and Rajasthan are a replica of the Union government’s ‘flawed’ draft rules instead of the final undiluted rules that were brought out on October 31, 2016.
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