MC Explains: Madras HC says resident welfare associations cannot interfere in apartment transactions

After quashing a writ petition filed by Ankur Grand Owners Association in Chennai, the court ruled that the collection of transfer fees by the RWA whenever an apartment is sold is illegal.

The Madras High Court on May 25 held that the resident welfare association (RWA) does not have a role to play in the sale or transfer of apartment titles.
This includes charging a surplus maintenance fee for prospective homebuyers or owners who intend to resell their apartments.

After quashing a writ petition filed by Ankur Grand Owners Association in Chennai, the court ruled that the collection of transfer fees by the RWA, whenever an apartment is sold, is illegal.

Experts say the judgment will be a precedent for other states like Karnataka where homebuyers face similar issues. Homebuyers in Bengaluru told Moneycontrol that today, several RWAs in the city refuse to share no-objection certificates unless the apartment owner pays the transfer fee before resale. "The order clearly states that such interventions should not be permitted," one of them said.

What happened?

In 2009, 60 apartments were handed over to the RWA in Chennai and the following year the association raised the maintenance charges from Rs 25 to Rs 50 per square foot.

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One of the buyers, Roshini Kiran Davey, purchased her apartment in 2013 and paid a transfer fee of Rs 1.47 lakhs to the RWA.

In 2013, another homebuyer Ashish Davey, purchased an apartment, however, refused to pay the transfer fee. Following this, Roshni Davey demanded a refund of the transfer fee paid by her.

The matter reached the district registrar's office, which amended the section in the association’s bylaws about the collection of transfer fees and further asked the RWA to refund the amount.

The association then further moved the Madras High Court for relief.

Court finding

Referring to the Right to Property, the bench said that such rights are protected by the competent authorities, especially during the intervention of RWAs.

"The RWA cannot take the law into their own hands to deprive the basic right of the owners to live in their apartments. Thus, charging excess or collecting maintenance fees is illegal," the order said.

Justice SM Subramaniam, presiding over the bench, added that the purpose of an RWA is to maintain the apartments and common areas, and cannot intervene during resale or transfer of apartment titles.

It is a constitutional right that cannot be infringed upon at the instance of the association, the order concluded.

What is a sale deed or transfer of apartment titles?

At the time of every fresh sale or resale of an apartment, a sale of agreement is executed between the seller and the buyer, which also transfers the title of the property to the buyer.

After the sale deed is submitted to the RWA, the association issues a share certificate to transfer the undivided share of the common areas to the new buyer.

The issue at large

Advocates say the order passed by Madras High Court will be a precedent for other states, especially Karnataka.

Dhananjaya Padmanabachar, a homebuyer in Karnataka, has faced a similar issue while buying an apartment in Bengaluru. However, he said the transfer fee of Rs 25,000 requested by the RWA was later adjusted with the maintenance fee.

Vittal BR, an advocate at the Karnataka High Court, said that several RWAs in Chennai and in Bengaluru continue to collect transfer fees from new homebuyers. In other cases, they charge extra maintenance fees from the new tenants, he said.

The impact

When the RWA gets involved in apartment transactions, it frequently causes delays because the prospective buyer reconsiders the purchase decision after being faced with extra fees.

And in some cases, Vittal said, the RWAs also prevent the resale of the apartment unless the previous owner pays the transfer fee or extra charges.
The Madras High Court judgment will stop such incidents, he added.
Legal experts say that the ruling clearly points out the sale of agreement is a contract between the prospective buyer and seller, and the RWA cannot intervene in this matter.

"Additionally, the homebuyers must be aware that while reselling their apartment, they can sale it as a freehold asset without any intervention from the RWA," Vittal pointed out.