Will UP RERA's model format for possession letters enhance transparency or add to complexity?

UP RERA has said that the model letter of offer of possession has been introduced to curb the arbitrariness

There is good news for homebuyers in Uttar Pradesh (UP) as the real estate regulator has increased transparency in the homebuying process.

Heeding to complaints received regarding the Offer of Possession letters issued to homebuyers by real estate developers and several formats of the letter, the UP Real Estate Regulatory Authority (RERA) has uploaded a model format of Offer of Possession letter, to ensure uniformity in the language and purpose of this letter.

Further, the UPRERA also made it mandatory for developers to obtain an occupation certificate (OC) or completion certificate (CC) before sending an offer of possession to homebuyers.

The introduction of a model format for the offer of possession has elicited mixed reactions.

As the name suggests, an offer of possession is a letter from the developer inviting homebuyers to take possession of their apartments. “This letter signifies the fulfilment of the promoter/developer's obligations outlined in the agreement for sale/allotment letter and confirms that the flat is ready and complete, allowing the homebuyer to take possession of the same,” said Kinjal Champaneria, Partner, Solomon & Co.

In its press note dated June 8, UP RERA stated that the model letter of offer of possession has been introduced to curb the arbitrariness of promoters regarding Offer of Possession letters. “It had been observed that few developers were using “Possession Letters” for altering mutually agreed terms in other documents such as sale agreements. Homebuyers were often being presented with final payment schedules in possession letters itself, which was defeating the intended purpose of such letters,” said Vimal Nadar, Senior Director, Research at Colliers.

Elaborating on the letter’s importance, UP RERA said in its press note: “The core intention of the letter related to Offer of Possession should be that the allottee is being invited to hand over the possession of his unit. If any construction work is still remaining in the unit, the promoter will have to clearly mention the remaining finishing work of the unit and the duration required for it in completion. If the allottee has any liability, then it should not be outside the scope of the Agreement for Sale and its legal justification should be proved. Letters sent using demand notice, final demand notice and offer of possession or similar language will not be considered as Offer of Possession letter.”

Champaneria concurred: “The developer usually issued vague documents under the guise of letter of possession with conditionalities creating ambiguity with respect to the date of handing over possession and attempting to absolve themselves from further liability and on the contrary creating binding obligations on the homebuyer contrary to the agreement for sale/allotment letter.”

All this led to legal disputes between homebuyers and developers, eventually prompting UP RERA to bring a model possession letter.

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According to UP RERA, the model letter aims to safeguard homebuyers' interests.

Experts believe that this model letter will remove ambiguity to some extent. Since it can only be issued after obtaining the OC and CC, homebuyers will be in a better position to take possession of their homes. Because, “if any construction work is pending for the flat, the promoter will be required to specifically mention the details of the pending/finishing work and the duration required to complete the same in the new model format. Therefore, this model format would ensure that the developer satisfies its obligations and provide more clarity with respect to the possession date and timely handover of possession to the homebuyers. This would lead to a decrease in chances of getting possession of property with incomplete work,” said Champaneria.

According to Nadar, “The model ‘Possession Letter’ clearly defines the contours of the important legal document, removing any scope of ambiguity between developers and homebuyers. It safeguards homebuyers from developers demanding additional payment or setting binding terms in the guise of a possession letter,” said Nadar.

However, President of Forum for People's Collective Efforts (a homebuyers’ forum) Abhay Upadhyay, also a member of the Central Advisory Council of RERA, feels it is an eyewash to create a perception that authorities are doing a great job.

“It is difficult to understand the rationale behind this notification. The Act itself has a provision that possession can be offered by the promoters only after getting OC/CC. If UP RERA is receiving any complaint from allottees that promoters are offering possession without obtaining OC/CC, then action should have been taken against such promoter rather than issuing notification,” said Upadhyay.

He asked if builders are not obeying the provisions of the Act, then how can it be expected that they will obey this notification?

It's been nearly eight years since the Real Estate (Regulation and Development) Act 2016 was enacted, yet many homebuyers still feel that RERA hasn't been very effective in addressing their concerns.

Typically, developers request the final instalment at the time of possession, which is usually outlined in the payment plan. So, Upadhyay said, “If any amount is due and payable by the allottee (homebuyer) to the builder then how does it matter to allottees if the demand notice comes along with the possession letter or separately? The moot question is whether the demand, whether it comes with possession letter or separately, is a valid demand or not, which has not been addressed in the notification.”

According to Upadhyay, this notification will add further complications for homebuyers rather than offering any benefits. “This notification’s only condition is that demand notice should be sent separately which, in fact, could create a problem if promoters start sending the last and final demand notice first as per this notification since they cannot combine it with the possession letter and later, they start delaying possession on some or the other pretext. In that scenario an allottee would end up paying 100 percent of the consideration amount without getting possession,” he added.

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While the model offer letter of possession has received mixed responses, there are several other areas that RERA should address for the benefit of homebuyers, experts said.

“Similar to the model possession letter, RERA can recommend a model framework for issuance of other important documents such as sale agreement; deed, land transfer document, occupancy certificate etc. Advocating a well-defined construction-linked payment schedule and quantum of advance payment can further enhance transparency and uniformity in the real estate sector,” said Nadar.

Champaneria feels the dispute resolution process should be simplified further. He said there is a need to incorporate time-bound provisions for speedy redressal of homebuyers’ complaints. “Additionally, more penal provisions should be enforced on promoters and developers for non-compliance with RERA provisions to safeguard the financial interests of homebuyers. Updating the database of registered real estate projects in a timely manner is essential, as is extending RERA's jurisdiction to protect home buyers involved in unregistered projects,” he added.

Besides these, Nadar feels that RERAs of various states can work to standardise the legal process of homeownership and reduce ambiguity arising from local differences in residential real estate. “User-friendly RERA websites encompassing various project-specific updates can enhance the confidence of homebuyers and provide a regulatory boost to housing demand in the country,” he said.