Can homebuyers’ associations complete a stuck project under RERA?

In the Kalypso Court matter, out of the 274 buyers, 152 took matters into their own hands and came forward to form an association called the Progressive Welfare Society.

This is how the math worked: The total cost of completing the remaining work amounted to Rs 134.15 crore and the amount that was due to the buyers was Rs 90.9 crore. The unsold 30 units could have fetched around Rs 25.06 crore. So, the project had a net negative cash flow of between Rs 18 crore and Rs 19 crore.

In this case, the developer agreed to salvage the situation by agreeing to contribute the balance.

Project viability 

In this particular case, the biggest challenge was the buyers’ lack of trust in the builder because of which they were not ready to pay the remaining installments. That’s when the builder was called upon to deposit an amount of Rs 45 crore in a separate escrow account in installments. That’s how the project finally took off.

“The project can be handed over to the homebuyers’ association only once authorities are assured that the project will be viable – the project should be cash-flow positive which means that it should have more amount that what is required to complete the project,” a RERA expert told Moneycontrol.

"Prima facie, this appears to be an excellent move and will also set a very good precedent. But it is also very important to know (a) how the project will be funded and (b) if the builder has taken more money than what work has been done by him, and how RERA plans to recover excess money from him,” he said.

Abhay Upadhyay, president of the non-profit Forum For People's Collective Efforts, is of the view that this episode not only sets a precedent, it would also go a long way in boosting the morale of the regulatory authorities.

“RERA authorities would now not wait for the project timelines to expire to take action against a builder. The day they find that construction is not progressing well or is moving slowly, they can revoke the registration of the builder and hand over the completion of a project to a third party. This would keep builders on their toes,” he said.

The long-term implication of the completion of the project would also be that authorities would now take speedy decisions on projects that may not be moving at all, he said.

Will it benefit only small projects?

This is a small project but this model can be adopted for large projects provided there are sufficient funds.

“It is not about small or big projects, it is about how financially viable is a project. If there are enough funds to complete a project, this model can be replicated for bigger projects as well,” said Upadhyay.

Venkat Rao of the Intygrat law firm and a legal adviser to the UP RERA, said completing large projects could be a challenge. For this model to be a success, buyers should be united in the cause of completing the project and if the existing builder is kept interested in it, several legal challenges can be overcome.

It should be both a synchronized and targeted effort by all stakeholders, he said.

Agreement among all the allottees is also important. The allottees have to trust the committee. "They have to make the payment of the balance amount to the committee,” he added.

Also read: India's Most Delayed Residential Project

Section 8 of RERA empowers authorities to hand over the completion of a project to a buyers' association

The Real Estate (Regulation and Development) Act, 2016  states: “Upon lapse of registration or on the revocation of registration under this Act, the Authority may consult the appropriate government to take such action as it may deem fit including the carrying out of the remaining development works by a competent authority or by the association of allottees or in any other manner, as may be determined by the Authority.”

It adds: “Provided further that in case of revocation of registration of a project under this Act, the association of allottees shall have the first right of refusal for carrying out of the remaining development works."

There are clear provisions in RERA under which the Authority also has the power to take away the project from a particular developer and assign it to another agency to complete it.

Section 8 of the RERA Act also comes into force in the event of the RERA registration lapsing. The authority can initiate the process of getting the remaining work completed. The first right of refusal in the process is with the association of allottees.

RERA can step in, provided a project has reached its completion stage. “Doing something from scratch is very difficult. We will not advise it. It all depends on the size of the project and should be taken up on a case-to-case basis. It is not something that can be applied across the board,” said an expert.

“If the project is 80 or 90 percent complete, something can be done about it. In its early stages, half complete, half structure, it may become very difficult for the committee of buyers to take over. Then it is a complex construction. It is important for the whole structure to be in place. If only finishing work is left, the committee can take over and complete it. The committee cannot do any structural work,” the expert added.