When homebuyers turn developers: RERA provision turning out to be a mixed bag for pushing stuck projects

After a decade-long wait, over 270 homebuyers in the Jaypee Greens Kalypso Court project in Noida would get possession of their homes next month.

The last ten years were nothing short of a nail-biting thriller ride for these buyers, who have been among the first in the country to take over a stuck project and see through its completion.

It was under Section 8 of the RERA Act, which allows for stripping the developer of the stuck projects and handing over to competent authorities or to an association of homebuyers that Jaypee Greens allottees took over the project.

While perseverance and staying united paid for Jaypee Greens homebuyers, those who purchased flats in Sampada Livia project in Greater Noida have not been lucky. They too had booked their flats a decade back and took over the project, but are now fighting a bitter legal battle before NCLT and Supreme Court.

Similar is the case with several projects in Bengaluru, Chennai and Mumbai, where buyers have taken over but the work is stalled for one reason or another.

In Uttar Pradesh alone, 14 struck projects are being monitored by the project advisory and monitoring committee headed by a member of the UP RERA, out of which around three have been handed over to homebuyers’ associations.

Though taking away a stuck project from the developer and handing it over to others for completion seems to be a quick fix but the implementation of the model under Section 8 of the RERA Act has been tricky.

Real estate and legal experts say that for the model to be successful it is important for homebuyers to be united in the cause of completing the project and agreement among allottees is important.

Jaypee Greens homebuyers were in for luck as all three stakeholders — developer, homebuyers’ association and UP RERA — were on the same page. In most projects there are differences between the concerned parties, say legal experts.

What does the RERA Act proscribe?

Section 8 of RERA empowers authorities to hand over the completion task to the 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.

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 regulator 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 when the RERA registration lapses. 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 hurdles

While the provisions sound fool-proof on paper, the project completion by homebuyers requires efforts to bring all homebuyers on the same page and trust among buyers and the third-party builder or the former developer who may be brought in to complete the project

It has to be a synchronised and targeted effort by all stakeholders -- the buyers and the developer, they said, adding the buyers have to make the payment of the balance amount to the committee on time for construction to progress. Most important, the stuck project has to be financially viable.

Even while it is well-intended, there are several challenges in implementing it, said Prashant Thakur, senior director and head - research, ANAROCK Group.

“Firstly, for any completion, more than 50 percent of the owners have to give their consent. This becomes quite a Herculean task. Secondly, since funding is one of the key reasons why projects never get completed and remain stalled, it can get difficult to convince the owners to pay their instalments if a project has to be completed. Thirdly, the association must have greater perseverance to pursue the completion of a project,” he said.

The Uttar Pradesh case studies

Next month, all 274 homebuyers of Jaypee Greens Kalypso Court Phase 2 located in JP Wish Town, Sector 128, Gautam Buddh Nagar, will get their flats. The homebuyers had booked their flats in 2010-11 but the developer Jaiprakash Associates Ltd was only able to complete and deliver four flats before the expiry of its RERA registration. The project was rehabilitated by UP RERA under the provisions of Section 8 of the RERA Act.

The UP RERA has said that the Kalypso Court project in Noida is the first in line among 14 other projects of the state that shall be completed under the supervision and monitoring of the regulatory authority.

The promoter had registered this project, comprising 8 towers, with UP RERA in 2017. When the registration expired, UP RERA vide its order dated July 29, 2020, approved the plan of rehabilitation of the remaining 4 incomplete towers – 7, 8, 11, and 12 having 304 units – in the project by authorising the promoter to complete the remaining construction and development work with the consent of the association of allottees – Progressive Welfare Society, which had more than 50 percent of the allottees in the towers, said the UP RERA in a statement. The UP RERA directed the developer to complete the project within 18 months from the date of order.

While the homebuyers came together to complete the project, they did not have the expertise to hire contractors to get the project completed nor the financial wherewithal. The total cost to complete the pending work stood at Rs 135 crore, of which Rs 103 crore was required to complete the four towers and the remaining amount for the common services. The amount that was due to the 274 buyers was around Rs 90 crore. The unsold 30 units could have fetched around Rs 25.06 crore. So, the project had a net negative cash flow between Rs 18 crore and Rs 19 crore.

“The biggest challenge was the buyers’ lack of trust in the builder. They were not ready to pay the dues. It was a case of once bitten twice shy,” Jayesh Patel, one of the homebuyers, who spearheaded the effort, adding this would not have been completed had the builder not taken the lead and deposited Rs 45 crore in a separate escrow account in installments. It’s only after that, that the buyers agreed to pay timely installments to maintain the cash flow required to complete the project.

Of the 274 units, around 150 buyers in towers 7 and 8 have received the offer of possession and some have got their homes registered. "We are expecting offers of possession for towers 11 and 12 by next week. We chose to go with the original builder because the towers were not standalone buildings but stood in between other towers and for us to enjoy continuity of services within the complex, we had to make sure that the same developer completed the project," said Patel.

“Our aim was to get the flats completed. The biggest challenge was to get all buyers together. The worst thing to do was to go the legal way. Buyers had to stay together and ensure that both parties trusted each other,” he said, adding that while this project has set a precedent, there is no one solution that fits all, every case is different and will require a customised solution.

In another case, the regulatory body after several hearings decided to cancel the registration of the Sampada Livia project in Greater Noida after it received complaints of project delay and alleged irregularities by promoter PSA Impex Pvt Ltd, and in 2020 invited the buyers to take over the project and complete all the 726 units themselves.

While homebuyers managed to get all the project documents updated and registered with RERA, collect money for project completion and restart construction work, the developer threw a spanner in the works by declaring insolvency and getting an interim resolution professional appointed. There’s been no construction on site since August this year.

Hundreds of buyers had invested in a project located along the Yamuna Expressway way back in 2011, paying a total amount of Rs 100 crore, of which 10 percent was paid by the builder to the authority.

Akanksha Aggarwal, who was among the first few buyers to have booked a unit in PSA Impact, and president of the Sampada Livia Buyers (SLB) Welfare Association told Moneycontrol that the buyers’ association managed to complete the tendering process and even lined up the entire team that included an architect, co-developer, project engineer, technical staff and even got the site cleared for work to begin. They even got the re-registration of the project by UPRERA done in the name of the homebuyers’ association and started construction in December 2021.

“In October last year we readied six sample flats and with the Rs 5 crore, we collected from buyers we managed to complete 19 slabs across 6 towers (totalling 57 flat roofs). The builder put a spanner in the works by taking the case to NCLT, following which an insolvency professional was appointed. The buyers have appealed before NCLAT,” she said.

A case has also been filed by the builder before the Supreme Court, she said.

In September this year, the regulatory authority invited proposals, through a public notice, from homebuyers in two Antriksh Sanskriti projects to complete the project after it cancelled the registration of three real estate projects by Antriksh Sanskriti phases 2 and 3, and Raksha Vigyaan Sanskriti Phase 2, located in Ghaziabad in June.

Karnataka case studies

The Unishire Spacio project on Bannerghatta Road in southern Bengaluru was launched in 2013 and was to be completed by 2018. The construction of the project comprising 235 apartments came to a halt in 2017. Lokesh Reddy, president of the Unishire Spacio Association alleged, "Mostly due to financial mismanagement, the construction halted and we did not hear back from the developer."

The buyers filed several cases before Karnataka RERA for delayed compensation.

"We decided to form an association in 2019 and with the help of the landowners we approached Karnataka RERA asking for conveying the project in the name of the association under Section 8 of the RERA Act," he said

In September 2021, KRERA launched a forensic audit and ordered the builder to hand over the project to the RWA for completion. ”Only 35 percent of the construction had been completed by the time we took over and the biggest challenge was generating funds,” said Reddy.

"To complete the project, we need about Rs 40 crore. The landowners contributed about Rs 20 crore and the rest was collected from individual homebuyers. We have a claim of about 35 crore on the builder --- the audit is still going on," Reddy said.

After the KRERA order, homebuyers resumed construction and the plan is to complete the project by June 2023. “Till date, we have completed almost 60 percent of the construction,” Reddy added.

Chennai case studies

In March 2019, about 350 homebuyers of the Sahara Housing Investors Association (SHIA) filed a case at Tamil Nadu RERA asking for the handover of the delayed Sahara City Homes in Coimbatore. The project had to be handed over by 2011. After multiple hearings, the judgment was pronounced in favour of the association in January 2020,

Laxminarayan, one of the homebuyers, said, "The project has been stalled for more than 10 years. Few individuals' houses are almost 80 percent complete, some apartments are around 40 percent complete."

TNRERA directed Sahara to execute the sale deed for the undivided share of interest in respect of allottees and to convey the common areas in favour of the association within three months from the order. However, even after the TNRERA judgement, homebuyers claim nothing has changed. "Sahara did not comply with the order, and we had to file an execution petition in November 2020 asking TNRERA to complete the registration. The verdict for the petition came in May 2021."

Around July 2022, the homebuyers submitted the first batch of documents containing 17 homebuyers to TNRERA for registration. "Now TNRERA has to send the documents to the developer and only after a no-objection can we proceed with registration. First, we want the registration done so that we have significant control over the project and only then we will go for the conveyance of the common areas to the association," Laxminarayan added.

Homebuyers claim the inability of TNRERA to implement its orders coupled with the Covid pandemic has delayed the entire process. "We want to complete the whole registration project within one year at least," they say.

In another case, homebuyers of Neelkamal Apartment in Chennai continue their fight to get the property conveyed to Neelkamal Apartments Buyers Association even after Tamil Nadu RERA (TNRERA) passed the order for the handover of the project to the association.

The apartments were to be handed over in 2013. After winning a case at National Consumer Disputes Redressal Commission (NCDRC) in March 2020, the developer failed to comply with the orders. "We filed an execution petition at NCDRC for the compensation, and we decided to approach TNRERA for the completion of the project and handover of the project to the association," Saravanan, one of the homebuyers, said.

The homebuyers filed the TNRERA case in July 2020, following which TNRERA passed an order in August 2021, directing the developer to hand over the project to the association and to complete it with funds collected from the homebuyers. The developer was to reimburse the amount to the association.

Homebuyers said they have constructed a 300-metre-long approach road from the entrance to the main block for Rs 35 lakh. Homebuyers claim that the orders have not yet been implemented. "The developer did not share the contacts of the homebuyers in the project and it became a huge challenge for us to get the apartment owners together to raise the money for the completion of the project. There are a total of 550 homebuyers and our association has around 120 owners. Currently, we need more than Rs 10 crore to complete the project," Saravanan added.

"TNRERA has powers but only on paper. A failure of strict enforcement has led us to fight for years altogether. It may take us three more years to complete the project," a homebuyer said.

Legal experts say that if the developer fails to comply with the RERA orders, homebuyers need to file an execution petition. “They may also approach the civil court for further respite,” said Akash Bantia, an advocate.

Maharashtra case study

More than 150 homebuyers had purchased housing units between 2011 and 2016 in Boisar in the Palghar district near Mumbai from the developer Goldstar Realtors. In all, 30 buildings were registered with MahaRERA. Buyers were promised possession within 48 months from the date of allotment of flats and shops. Goldstar Realtors collected 30 percent and 60 percent respectively for flats and shops sold from 2011 to 2016 but no work was executed on the ground and the project was abandoned in 2017.

A group of around 160 buyers formed an Association of Allottees (AOA) and filed a complaint with MahaRERA asking it to probe the alleged misappropriation of funds and initiate criminal prosecution against Goldstar Realtors and its partners. It sought revocation of the registration of the developer under sections 7 and 8 of the RERA Act.

The MahaRERA, in its order of July 2022, ordered the landlord on whose land the project was being constructed to take over the project and complete it. This was done after the AoA submitted that they were ready to take over the project and hand it over to the landlord for completion after consent terms were signed between the home buyers and the landlord.

However, after three months, there’s no progress on the ground, said a homebuyer on condition of anonymity.

(Maharashtra inputs by Mehul Thakkar; Bengaluru and Chennai inputs by Souptik Datta)