What are the circumstances under which a homebuyer can claim compensation and/or withdraw his or her investment from a project?
Real Estate (Regulation and Development) Act, 2016 and the rules framed thereunder has changed the legislative landscape of the real estate sector. Prior to the introduction of RERA, the real estate industry in India was largely unregulated. Allottees were mostly at the mercy of the builders with respect to their investments in a project.
The allottees commonly faced problems relating to delayed delivery, lopsided contractual conditions, last-minute changes in the layout plan without obtaining prior consent of allottees, abandonment of projects. No specific dispute resolution mechanism to tackle was in place to address such concerns.
With the advent of RERA from May 1, 2017, the real estate industry is undergoing a transformation. The main objectives of RERA were to infuse transparency, increase the accountability of developers towards the allottees, ensure fair-play, reduce delays and have a unified system of law regulating the real estate industry. The intention of the legislators for induction of standardisation of real estate norms was to safeguard the interest of the allottees and seek protection of their investments in the real estate projects.
Some of the critical provisions under RERA required to be adhered by the developers are as follows:70:30 Rule
The promoter is required to deposit 70 percent of the amounts realised from a real estate project from the allottees, from time to time, in a separate account which shall be maintained in a scheduled bank to cover the cost of construction and the land cost and shall be used only for that purpose.
Subsequently, the promoter can withdraw the amounts from the Separate Bank Account, to cover the cost of the project, in proportion to the percentage of completion of the project.
The amounts from the Separate Bank Account can be withdrawn by the promoter after it is certified by an engineer, an architect and a chartered accountant in practice that the withdrawal is in proportion to the percentage of completion of the project.Structural Defects
Promoter is required to develop and complete the project as per plans, structural designs and specifications.
The promoter will be bound to rectify any structural defects or any other defect in workmanship, quality or provision of services or any other obligations of the promoter as per the agreement for sale relating to real estate project, within five years of handing over the possession, without charge and within 30 days from the allottees’ notice in relation to the aforementioned defect.
The promoter will be required to compensate the allottee, pursuant to the provisions under RERA, in case of failure to rectify such structural defects within reasonable time.Withdrawal from project and compensation
An allottee has the option to claim compensation and/or withdraw his or her investment from a project in the following circumstances:
In case an allottee sustains a loss on account of investment in the said project on the basis of incorrect or false statement contained in the notice, advertisement or prospectus of project, he or she shall have the option to withdraw from the project. Upon exercise of such option, the entire investment along with prescribed rate of interest shall be returned to the allottee along with the compensation in the manner provided under RERA.
In case of delay in completing the project according to the stipulated timeframe in the agreement to sell or due to discontinuance of the business of the promoter as a developer on account of suspension or revocation of registration under the Act or for any other reason, the allottee shall have the option to withdraw from the project. Upon exercise of such option, the entire investment along with prescribed rate of interest shall be returned to the allottee along with the compensation in the manner provided under RERA.
Where the allottee does not exercise such option to withdraw from the project, the promoters shall be obligated to pay an interest to the allottee for every month of delay till the handing over the possession at such rate of interest as prescribed under RERA.
In case of cancellation of booking or withdrawal by allottees, compensation of taxes paid by allottees will be governed by the GST Law. The GST law has specifically envisaged the transitional situation of cancellation of bookings.
The law has allowed the promoters or developers or the allottees to claim refund of service tax paid in case of cancellation of units booked prior to GST but such refund is subject to the provisions of the Finance Act, 1994. In terms of Section 83 of the Finance Act, 1994 read with Section 11B of Central Excise Act, 1944 the promoter or developer or allottes are entitled to claim refund within one year from the date of payment of service tax. Thus, the developers or promoters are not in a position to compensate the allottees the service tax paid by them under the pre-GST regime as the time limit of one year has been expired.
Even in case the unit is booked under the GST regime and the allottee opts to withdraw from the project under the said regime still, the benefit of taxes paid can be claimed up to two years from the date of payment of tax. The taxes paid before this period cannot be compensated to the allottees.Extension of registrationRERA authority has the discretionary power to extend the registration period granted to a project under RERA. The RERA authority may, on the basis of the facts of the case, may extend the registration granted to a project, where the delay in the particular project is not due to default on the part of the promoter. However, in any circumstance, such extension shall not exceed a period of one year.(The author is Partner, Lakshmikumaran & Sridharan Attorneys.)