RERA allottees: With great power comes little responsibility

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The smallest chapter of The Real Estate (Regulation and Development) Act, 2016 (RERA) is titled “Rights and Duties of Allottee” and the first five of a total of eleven clauses in the chapter are about the entitlements of the allottee.

Is this the least thought-through part of the Act and have India’s legislators missed a trick or two? It almost seems as if mid-way during drafting of the Act, lawmakers lost interest.

There is very little to discuss in the first five clauses highlighting allottees’ entitlements as they are exactly similar to the developer’s obligations. I would focus the analysis on the last six clauses to understand the duties highlighted and the glaring gaps that have been missed in the act.

1. Payments by allottee: It is the duty of the allottee to make all necessary payments in the manner, within time and at proper place. But what if there is a delay in payment? And, what if there is an inability to make payment? There is no suggestion or clarity on possible resolution to such situations.

2. Interest for delay: While the allottee is obliged to pay interest for any delay in payment but the Act also allows reduction in the interest payable if both the promoter and allottee mutually agree. While this seems in favour of the allottee it is a positive move as its resolution driven.

3. Participation: Every allottee is obliged to participate towards formation of an association or equivalent. What if the buyer is unable to or unwilling to?

a. There could be a genuine inability of allottee to take possession or participate as they are out of the city or country.

b. There is also a possibility that allottees don’t come to an agreement on how the association has to be established or managed and by whom?

4. Taking possession: Within two months of receiving the occupancy certificate the allottee has to take possession. In case there is a delay by allottee to take possession what are the steps to be taken? The act is silent.

5. Claim refund: The alottee can claim a refund amount along with interest if the promoter fails to comply or is unable to give possession as per the agreement to sell. This claim can also be executed if the developer’s account is suspended or his registration is revoked by RERA. Theoretically, suspension of a developer’s registration is a kairotic moment for allottees to determine their future association with the project.

It was a common belief that RERA, once implemented, would resolve most of the problems faced by all participants of the real estate industry. The ground rules have been set. However, there are still several exclusions. To elaborate:

1. Regular payment of maintenance charges: this is one of the main reasons for deterioration of building quality (commercial or residential) across India. The decay is caused by unwillingness or inability of owners to contribute to maintenance of the building. That issue will remain. We can be certain that facades of building across Mumbai (and several other cities) won’t be improving due to this Act.

2. Alteration in the property: this is also a country-wide phenomenon where owners make several changes to their property after taking possession. There is no restriction/ guideline given regarding this in the Act. Structural changes are disallowed; however, if issues (in design or day-to-day usage, not finishing) are noticed post occupancy, there is no resolution mechanism.

3. Time to give consent by the allottee is not specified in the Act. Consent is required for a number of things and delay (deliberate or inordinate) should be managed in a timeframe so it doesn’t impact the project. Also, in case there is dissent from an allottee or a number of them, in how much time or manner will the same get resolved? Status is unclear.

4. If FSI in a project increases, does the association have rights to undertake fresh development? This could be either to increase the number of dwelling units or to increase facilities in the project. Either way, mechanism of the same is not specified.

5. Information to be shared with allottee: There is still no clarity if the status of all sales undertaken and their rates will be accessible to the alottee. There are arguments to be made for both sides. What specific information would an alottee have access to from the RERA website? Status is unclear.

6. Chapter 2, Clause 8 of the Act: Remaining work, in case the promoter is unable to, is to be done by the association of allottees as they have the first right to decide on how to complete the project. So do they turn into promoters? More importantly, would they now be treated as a promoter? Will all the responsibilities and liabilities be managed by the association? Status is unclear.

7. Associations’ responsibility is to maintain the projects and most of the good ones ensure:

a. Good upkeep of the project

b. Insurance of the project and all capital goods

c. Health and safety norms are followed diligently

d. Process of election/ management etc is shared and confirmed on a regular basis

e. Third parties are appointed for specific needs in a fair and transparent manner and

f. Accounts of the association would be open for audit if the members so require.

But none of the above is specified in the Act.

8. Most of the current associations are set up through the Societies Registration Act. One can’t argue that the Act is comprehensive enough to ensure real estate related associations are guided and covered well. The Act provided the opportunity to streamline this part of the industry and assist in improving building conditions significantly. Unfortunately that has been passed.

9. Sinking fund, to elaborate, is one example of a critical aspect missing in the Act. A building life is usually 30-40 years and it requires significant investments at various stages of its life to ensure it operates safely and efficiently. Guidance for ensuring a sinking fund is planned by associations would have gone a long way.

10. Finally, in case of a mishap post the handover by promoter, who is responsible? Besides structural issues, theoretically, all responsibilities would lie with the association of allottees. Such circumstances are absent from the Act and should be better covered in the state-specific rules and bye-laws.

We can debate that payment of maintenance charges, alteration to property and some other points mentioned above are covered under separate, existing Acts. But then so are several other requirements to be fulfilled by the promoter.

This Act was an opportunity to streamline all possible processes and professionalise the industry. A lot of ground still needs to be covered.

In my subsequent articles I would be sharing guidelines for developers and the RERAs that are expected to come up. Hopefully, that would assist in filling the gaps that have been identified so far.