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Lecture on Property law with reference to current issues and controversies in Property Law and stamp duty MOFA – TDR – ULCR, Slum Redevelopment Scheme, Property Tax etc.

Kirit N.Damania

Solicitor and Advocate

1-9-2006

It is desired by the Organisers of the Seminar that in the present lecture which has a duration of about 1 hr. 15 minutes (out of which 20 minutes are set apart for question / answer session) I should deal with a wide range of subjects like, MOFA, TDR, ULCR, SLUM REDEVELOPMENT SCHEME, STAMP DUTY, PROPERTY TAX etc INCLUDING CURRENT ISSUES AND CONTROVERSIES IN RELATION TO THE SAME. Due to constrain of time I shall attempt to give only a bird’s eye view of the above topics and in the process deal with some important issues of topical interest.

  1. Considerable construction activity is carried on in Mumbai by individuals and corporates. Public Financial Institutions have come forward to provide very substantial financial assistance in shape of bridge loans and construction loans to Builders and Developers and Home loans to flat Purchasers. This financial output has given entirely a new dimension to the construction industry in Mumbai.
  1. The construction industry is set to create more and more housing stock to provide the same to the ultimate users in Mumbai on ownership basis.
  1. It is recongnised in most cases that the land Owner has no expertise, experience, infrastructure, resources, co-ordinating or organizing skills to undertake development work in respect of any developable piece of land. This responsibility can be undertaken only by Developers having the above attributes.

MOFA

  1. The construction activities of the Builders and Developers in Maharashtra are regulated by the Maharahstra Ownership Flats Act, 1963. The full title of the Act is

“The Maharashtra Ownership of Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer Act), 1963”.

The Act has a very wide amplitude and imposes various responsibilities on the Builders/Developers which they may ignore to discharge only under the threat of penal proceedings including imprisonment.

  1. The Builders / Developers were found to indulge in unbusiness like and unethical activities which compelled the Legislature to step in and enact the Maharashtra Ownership Act.
  1. I would make it clear that in this lecture I will only give gist of the main provisions of the Act without going into the technicalities of various sections.
  1. The Act has been amended on quite a few occasions to plug some loopholes which came to light in course of its administration. However, in the interest of consumers and for controlling the activities of the Developers (which may be harmful to the consumer interest) there is considerable need for widening the scope of the Act and making more strigent provisions therein. This aspect will have to be considered by the Government on the consumer becoming more and more aware of his rights. Apart from the provisions of the Ownership Flats Act fortunately there is a wholesome trend as appearing from the several decisions of the Consumer Courts which have held that Developers selling flats on ownership basis are liable to the flat Purchasers for deficiencies in carrying out their obligations. It is held by the Consumer Courts that Builder/Developer while constructing and selling flats is supplying / rendering services and is answerable to the consumer for deficiencies in such services. Consumer Courts have succeeded in providing to an extent quicker and cheaper justice to flat Purchasers and/or their housing societies in respect of quite a few range of consumer grievances.
  1. The Ownership Flats Act applies to the construction and sale of flats. The term flat has been given a wider definition in the Act. In Section 2 (a) the term ‘flat’ is defined to mean a separate and self contained set of premises used or intended to be used for residence, or office, or show room, or shop or godown or for carrying on any industry or business and includes a garage, the premises forming part of a building and includes an Apartment. Thus it would be clear that the Act applies to the construction and sale of premises which can be used for any one or more of the above uses.
  1. As per the Act a Builder / Developer falls in the category of a Promotor which term is defined in Section 2 (c) to mean a person who constructs or causes to be constructed a block or building of flats or apartment for the purpose of selling some or all of them to other persons, or to a Company, Co-operative Society or other Association of persons.
  1. Section 3 of the Act deals with the general liabilities of the Promotor. Thus a Promotor who intends to construct blocks of buildings containing flats which are to be sold on ownership basis is required to furnish to the intending Purchaser various important information relating to the Property, the building plans, the nature of construction and the amenities to be provided in Buildings and flats intended to be sold.
  1. Under Section 4 of the Act a Promotor is obliged to execute with each Purchaser of flat an Agreement for Sale on ownership basis. The Agreement has to be stamped and registered and must contain the prescribed particulars.
  1. Sections 3 and 4 thus oblige the Promotor to make full disclosure of the state of title of the Property, the nature of construction, particulars of amenities to be provided in the flats/building as also the period within which the flat would be delivered to the Purchaser complete in every respect as per the Agreement. All these provisions are intended for safeguarding the interests of the flat Purchasers and the Courts are prone to construe these provisions liberally in the interest of flat Purchasers.

14.Section 6 casts on the Promotor responsibility for payment of outgoings in respect of the Property till the Property / Flats / Premises therein are transferred to the flat Purchasers. This is provided to ensure that the Promotor does not put on the flat Purchasers the burden in respect of the outgoings for the period prior to the handing over possession of the flats to the Purchaser.

15. Section 7 imposes a very clear restriction on the Promotor by providing that the Promotor shall not make any alteration in the structure described in the building plans disclosed to the flat Purchasers in respect of the flat or flats which are agreed to be taken or any alteration or addition in the structure of the building without the previous consent of all the persons who have agreed to take the flats in such buildings.

  1. In order to get over this restriction Promotors resorted to a subterfuge of taking blanket consent of the flat Purchasers in advance in the Agreement for Sale of flat itself to carry out changes in the building plans in respect of the flat and/or the building concerned in the manner he thought fit without disclosing the nature of the alternations / amendments which the Promotor intended to make in the flat / building. Here the courts have stepped in for protecting the rights of the flat Purchasers declaring that the consent contemplated by Section - 7 can by no means be in the nature of a blanket consent. The Promotor has to indicate if at all he wants to take an advance consent of the flat purchaser giving broad details in the Agreement itself of the additional constructions and/or alterations he would intend to make in the flats/buildings. Thus if the Promotor intended to put up any additional construction in the building he should broadly indicate in the Agreement itself the maximum number of additional floors he would construct and/or the nature of any other construction and/or alterations which he would make in the proposed building. This would give an idea to the Purchaser at the time of the Agreement itself as to what type of changes would be made in the approved building plans, which were disclosed to him at the time of entering into Agreement.
  1. Since however the Promotors complained that the restriction contained in Section - 7 impinged upon the right to construct additional buildings and/or construct buildings in the layout area as many times the layout has to under go changes from time to time for variety of reasons, Section 7 – A came to be inserted in the Act whereby it was declared that the provisions of Section - 7 which put restrictions on the Promotor to make changes / alterations in the building plans in respect of the flat or the building containing such flats would not apply in case where additional buildings are to be constructed by the Developer in a layout area in so far as the same shall be relate to such additional Buildings.
  1. Under Section – 8 of the Act it is provided that in case for any reason the Promotor failed to deliver possession of the flat to the Purchaser within the agreed period or such extended period as may be mutually agreed upon the Promotor has to refund to the Purchaser all the monies paid by the Purchaser under the Agreement with interest at the rate of 9% per annum from the date of such payments and the amount so becoming payable is declared as a charge on the Property.
  1. Under Section – 10 the Promotor is required to take steps for formation of a Co-operative Society / a Company as soon as the minimum number of persons required to form such Co-operative Society / or Limited Company have entered into Agreements for purchase of flats.
  1. Under Section – 11 the Promotor is required to convey title in respect of the Property to such Co-operative Society within the agreed period and if no period is agreed upon for the execution of the Conveyance, the Promotor is required to execute the Conveyance within the prescribed period i.e. four months from the date of registration of the Co-operative Society / Limited Company.
  1. Inspite of such mandatory provisions there have been many instances where Promotors have for decades avoided executing Conveyances and therefore the legislature is now stepping in. A Bill No. 73 of 2005 on the subject is already passed by the Maharashtra Legislative Assembly and is pending before the Maharashtra Legislative Council. Under the Bill it is provided that if the Promotor fails to make application within the prescribed period to the Registrar for registration of the Society as per provisions made in the Maharashtra Co-operative Societies Act then on receipt of the application from the persons who have purchased tenements from the Promotor in question the Officer appointed for the purpose viz. the Competent Authority shall direct the concerned Registrar to register the Society and it shall be the duty of the Promotor to produce before such competent authority in the prescribed time limit copy of the conveyance deed and if the Promotor fails to execute the Conveyance Deed in the prescribed time limit in favour of such Co-operative Society or as the case may be the Company, such Society / Company shall be provided by the Competent Authority with certificate that they have right of one party Conveyance Deed executed in their name and have right of registration and accordingly on receipt of an application so made by the certificate holder society the Registrar shall execute a deemed conveyance. The provisions of this Act is not yet been discussed by the Legislature Council. However the passage of the Bill in the Council conferring these rights upon the Purchasers of flats cannot be delayed much This law will give very important rights to the flat Purchasers for completing the title. Stringent provisions are made in the Bill in respect of penalties on the promotors guilty of non compliance with its provisions, including black listing them and providing for imprisonment of the derelect Promotors.
  1. As a supplemental to the Maharashtra Ownership Flats Act there is another enactment called Maharashtra Apartment Ownership Act under which a Promotor may instead of conveying the Property to a Co-operative Society or a Limited Company of the flat Purchasers he may submit the Property i.e. land and building to the provisions of the Maharashtra Apartment Ownership Act and thereafter convey each unit separately to its Purchaser by executing a Deed of Apartment. Under the Apartments Ownership Act the term ‘Apartment’ has the similar definition as given to the term ‘flat’ in the Maharashtra Ownership Flats Act. The Apartment Act deals with the post construction period in respect of the building especially for conveying of title while the Ownership Flats Act deals with the obligations of the Promotor and rights of the flat Purchasers while the building is under construction.

TDR

  1. I shall now deal with the concept of TDR, TDR means Transfer of Development Rights [i.e. Floor Space Index (FSI)] and such rights are available only in respect of Properties which are under public / specific reservations. The development activities in all Cities. Towns and specified areas in the State are governed by the provisions of the Development Control Regulations separately made for each district / town/ specified area by the local authority and approved by the Government. For each district / town/specified area development plans are prepared as per the requirements of the Maharashtra Regional and Town Planning Act. In such development plans several lands/properties are earmarked for reservation for public purposes such as schools, hospitals, gardens, recreation grounds, roads etc. These lands / properties cannot be taken over by the Municipal Corporation or the local authority free of charge. Payment of compensation for such reserved areas in City like Mumbai will run into hundres of crores of rupees and it would not be possible for the government or the local authority to pay such large amounts to the land owners whose hands are under reservation.
  1. The Development Control Regulations have therefore evolved a new concept whereby the development potential (i.e. FSI) of land under reservation is separated from such land and is allowed to be utilized on other properties. This seperation of the development potential for use on other properties is called Transfer of Development Rights (TDR). The Owner of the land under reservations is thus compensated by grant of Transfer of Development Rights. In respect of such TDR, Certificates called Development Rights Certificates (DRCs) are issued . Such Certificates are transferable like negotiable instruments and for consideration. The holder of such Development Rights Certificate woule be entitled to utilize on other properties the development potential of such land under reservation i.e. FSI (which is expressed on the certificate in terms of sq.mtrs/ sq.ft area). The person holding the DRC would thus get monetary consideration for transferring and/or allowing the potential (Floor Space Index) of such DRC to be utilized on other properties. Before however the DRC is issued the original land would have to be handed over free of cost to the Government or the Local Authority by carrying out certain development work thereon as per the requirements to the Local Authority. TDR is allowed to be utilized only in the suburban areas of the City in such manner to the extent of 1 (one) FSI. Thus if on the basis of the physical area of the land it is possible to construct built up area of 10,000 sq.ft. on the basis of FSI being 1 (one) the Owner of such land would be entitled to purchase Development Rights Certificate i.e. TDR from the person holding the same to the extent of equal area and construct additional 10,000 sq.ft . Local Authority follows certain norms while allowing user of TDR. Many NGOS felt that there was indiscriminate use of TDR by Developers and this would adversely affect the already overburdened civic infrastructure facilities in the suburbs and cause more congestion. They accordingly filed Writ Petitions in High court by way of Public Interest Litigations to prevent use of TDR, Courts have granted initially stay on the use of such TDR in respect of the areas in the two corridors viz; Swamivivekanad Road in the Western Suburbs extending from Bandra to Dahisar and in the Eastern Suburbs in the Eastern Express High Way from Sion to Mulund. These litigations have been pending for quite sometime and no final decision is given by the High Court. How long such user of TDR could be restricted will have to be considered by the Court . It may be noted that if TDR is not allowed to be used then the local bodies will not be able to obtain free of cost the lands reserved for public reservation and in this confusion the slum loards will step in and create slums on such lands. Thus the remedy will be worse than the disease . All concerned will have to take a practical and pragmatic approach to the user of TDR rather than curbing the TDR user all together. There is a restriction also in the user of TDR in certain areas covered by CRZ areas i.e. areas which come within 500 mtrs of the High Tide Mark.

SLUM REDEVELOPMENT SCHEME

  1. I shall now briefly deal with the Slum Redevelopment Scheme. There has been proliferation of slums in almost all open spaces in the City which have become not only eye sores but have become breeding ground for anti social elements and anti social activities. The Slums have come up under the benevolent umbrella of the State Government and the Politicians. Slums provide large vote banks to the Politicions. Slums impede the planned growth of the City. The Government has no resources to remove the slums and rehabilitate the slum dwellers in new buildings. The Government has therefore taken assistance and help from the private Developers and Builders. Specific provisions are made in the Development Control Regulations whereby private Developers are given permission to carry out redevelopment work in respect of the slum areas. The Developers are normally allowed l FSI to the extent of 2.5 for redevelopment of the slum Property. The Developers are required at their own costs and expenses to carry out construction of the buildings for rehabilitating the slum dwellers. Each eligible slum dweller gets tenement of 225 to 250 sq.ft. built up area in such rehabilitation building on the same Property. The Developer also has to make advance payment of municipal taxes in respect of each tenement of the slum dweller by depositing with the local authority a corpus amount. The Slum Dweller is thus not required to pay Municipal taxes for his new tenement. On the construction of the rehabilitation building and providing accommodation to the slum dwellers in such rehabilitation building, the Developer can carry out development work on the remaining portion of the slum Property which has been cleared of the slum and construct buildings (i.e. Sale Buildings) premises wherein can be sold on ownership basis. The realization of sale price of such premises in sale buildings would cover the cost of the entire redevelopment of the slum Property i.e. construction of rehab buildings, payment of deposits corpus / for municipal taxes in respect of the tenements in the Rehabilitation Building and also cost of construction of the sale buildings. This would leave substantial profits in the hands of the Developer. Normal procedure for development of slum property is that slum dwellers form a proposed co-operative society for the Slum Property. Such co-operative society gives development rights to a Developer. The Developer thereafter prepares building plans and scheme for redevelopment of the Property; enters into individual agreements with each hutment dweller for providing alternate permanent tenement to him in the Rehabilitation Building and submits such development scheme to the Slum Redevelopment Authority (SRA) who after appropriate examination approves the same. If the Developer is able to obtain consent of atleast 70% of the slum dwellers to opt for alternate permanent tenements he will be in a position to obtain vacant possession from the remaining 30% through SRA by use of police force. In case the Developer is not able to obtain consent of atleast 70% of the slum dwellers he would not be in a position to carry out the Slum Redevelopment work. The local authority also gets advantage of the rehab buildings by reserving for it therein certain tenements which would be allotted to the persons who have been displaced on account of various projects undertaken by the local Authority for development of the specific areas i.e. construction of D. P. Road or Development of gardens etc. Thus slum rehabilitation schemes if sincerely carried out will to a large extent reduce congestion in the City and remove eye sores.

URBAN LAND (CEILING AND REGULATIONS) ACT, 1976 (ULC & R) ACT