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Can RERA authorities direct homebuyers' associations to complete stalled real estate projects?

This model of homebuyers taking over stuck projects could become popular in post-COVID-19 world, said experts.


Earlier this week, the Uttar Pradesh RERA (UP RERA) allowed the homebuyers' association of a project in Noida to take charge of the completion of four stuck towers. It is currently in discussions with the original builder (Jaypee Associates) to come on board as a contractor.

The question here is: Can RERA Authority approach homebuyers' associations or the original developer or for that matter bring in a third party to complete a stalled project? Interestingly, RERA can take over an unfinished realty project if it is 80 percent complete. It can act as a facilitator and work with the committee of homebuyers to complete the project under Section 8 of RERA.

RERA authorities Moneycontrol spoke to said this could become a successful model to complete stuck projects going forward, especially after COVID-19, when there are bound to be more such cases wherein developers may not be in a position to complete projects due to lack of liquidity issues.

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"This model of completing stuck real estate projects can work and will certainly be tested post-COVID-19 because we will have many more developers falling by the wayside. It is then that the authorities would have to empower homebuyers to come forward and take on the task of completing the stalled projects with the help of RERA Authority," MahaRERA Chairman Gautam Chatterjee told Moneycontrol.

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"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," said MS Shankar, General Secretary, Forum for People's Collective Efforts.

Section 8 of RERA empowers authorities to hand over completion task to buyers' association

The RERA Act clearly states that “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.

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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," the Act said.

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.

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

The Noida RERA case

Kalypso Court is a housing project launched by Jaypee Associates, the parent company of embattled Jaypee Infratech, way back in 2007. Its UP RERA registration lapsed in June 2019 following which the regulator invoked Section 8 of RERA. As many as 240 homebuyers had bought into units in the four incomplete towers.

Seven towers of Kalypso Court were registered under UP-RERA in 2018. The project has a total of 15 towers and eight of them were completed by 2018 and did not have to be registered under UP-RERA net. The original date of completion of the project was 2012.

UP RERA on May 19 allowed the buyers’ association of the project located in Jaypee Wish Town to take charge of completion.

"We got the builder and buyer together on our conciliatory platform to agree on the completion method. We have now asked the buyers’ association to take control of the completion of the project. JAL's concurrence on the matter is awaited. Details would be finalised by next week," RD Paliwal, conciliator, UP Rera, told Moneycontrol.

UP RERA Authority has held a series of meetings over the last five months with representatives of the homebuyers association ever since the registration expired last year. The homebuyers have now decided that the project should be completed by the original promoter which is JAL. The estimated fund requirement for completion of the four towers is Rs 104 crore of which 40 percent would be contributed by Jaypee and the remaining would be in the form of receivables from homebuyers.

"This is a unique case because the original promoter is being brought on board. Had a new promoter come in, he would have had to re-evaluate the entire project and that could have become both time consuming and an expensive exercise," said Paliwal.

Legally, it would now be presumed that the project is being completed by the Association of Allottees and the propriety rights will remain with JAL even though it would now take on the role of a contractor.

Once JAL agrees, we hope to start the project within a month and complete it by the end of the year. Since two to three months have elapsed due to COVID, construction could stretch up to March 2021, said Paliwal.

As for registration, RERA authority will decide whether to treat it as an exception and continue with the old registration or provide a new registration.

"We are doing this on an experimental basis. There are four or five more associations waiting for this project to succeed," he told Moneycontrol.

Balvinder Kumar, UP-Rera member said that Section 8 of the Rera Act has been invoked in the Jaypee matter.

"We are in some financial negotiations with JAL. Once a decision is reached, construction should begin," he said.

There are two to three projects that we had deregistered in the past and one more project is under consideration which may be get completed under a similar model, he said.

Sources at Jaypee Associates told Moneycontrol that they were in touch with RERA Authority and the Association of Allottees and were keen on taking on construction of the project.

"But for construction to commence, we will have to wait for orders from RERA. From the date on which we receive the orders from UP RERA, we will take three months to mobilise resources and then start work," company sources said.

MahaRERA case

MahaRERA on October 22, 2019, ordered the resolution of a project in Pune under sections 7 and 8 of the state's RERA Act and revoked the registration of the project. It permitted homebuyers invested in the project by the stressed company DSK Group to complete the remaining construction and register the sale agreements for the project.

The project is located in Talegaon and is 90 percent complete. Altogether 161 people have booked flats in the project, while 118 apartments are yet to be sold. The resolution panel had to be submitted in February so that MahaRERA could have ensured completion of the project by a new developer.

The Authority had also directed Tata Capital Housing Finance, an investor in the project and MahaRera designated resolution panel comprising developer Niranjan Hiranandani and consumer rights activist Shirish Deshpande, to assist the AOA to complete the project. The AOA, Tata and the two-member panel were directed to come up with a blueprint for completion of the project to be submitted by February this year.

"They have held two meetings so far and were expected to revert to the authority but then COVID happened. Things have not moved since. We are waiting for the lockdown to get over and work to start," Chatterjee told Moneycontrol.

DSK Group Chairman DS Kulkarni and his wife are currently lodged in Yerawada jail in Pune for allegedly cheating nearly 33,000 depositors and investors of nearly Rs 2,043.18 crore.

The Haryana RERA matter

Last year, the Real Estate Regulatory Authority (RERA) of Haryana's Panchkula had asked a group of residents to take over their project and complete remaining construction work as the directors of the company were in jail and work had come to a grinding halt.

Of the 16 residential towers, the builder had completed 14. Buyers of the remaining two towers had moved RERA as the builder could not give possession.

Over 100 residents of Faridabad's Piyush Heights society finally agreed to pool in Rs 8 lakh each to complete the project. The completion date of the project was 2011.

Difficult for RERA to undertake project from scratch

RERA can step in provided a project has reached its completion stage. Doing something from scratch is difficult and not advisable. 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 RERA experts.

"If the project is 80 per cent complete or 90 per cent 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 complex construction. 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," they said.

Agreement among allottees important

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," experts said.

Who gets to pay for the remaining construction?

In these cases, some buyers may have paid 80 per cent, others may have paid more. But all buyers may have to pay some amount.

"They will have to show the receipts that they have so far paid and the balance money that is due from them to the committee. These amounts will be kept in a separate account and the committee will have to work with corpus," said RERA experts.

The committee will have to make do with the funds collected. They have to decide whether they would want to reduce certain specifications as funds may not be enough.

"Whatever is available and whatever they can do with the balance amount, they will have to do. For example, if there is an ornate lobby, they may have to cut down on those specifications and manage with whatever they have," they said, adding that the idea is to complete the project and hand over the units to the buyers.

Can it be replicated for other projects?

There could be cases wherein the promoters are in jail or absconding. In those circumstances, there may not be too many choices available to buyers. RERA too can pass multiple orders but that would not have any impact because there is no entity to return monies to buyers with interest. The other option with RERA is to seal the property but in this case, the property belongs to buyers who have been waiting for possession for years.

In such cases too, this model of handing over construction to buyers may work.

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First Published on May 21, 2020 11:49 am
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