The silhouettes of towers under construction are reflected in the facade of a commercial building in the Lower Parel area of Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Has RERA Succeeded In Sheltering Homebuyers?

This month, the Real Estate Regulation and Development Act or RERA will complete one year of implementation. While the Act was notified in 2016, it was given full force by notification of all its provisions only in May last year. It had promised consumers protection, transparency and fairness in the way property is bought and sold in the real estate sector.

One year later, BloombergQuint asked stakeholders how much has changed?

RERA In Numbers

But first, a status check.

  • Most states except Kerala, West Bengal and the six north-eastern states have notified the general rules.
  • Ten out of 28 states are yet to finalise the agreement for sale rules. The law requires states to notify through rules the Agreement for Sale to be entered into between the promoter and the buyer.
  • Fourteen of the 28 states are yet to start the registration process. Under the law, all ongoing projects which have not received completion certificate have to be registered.
  • Only six out of 28 states have appointed a permanent regulator while 16 are working with an interim regulator.
  • Maharashtra, Gujarat, Madhya Pradesh, Karnataka and Punjab authorities have taken the lead on RERA implementation, Abhay Upadhyay, president of Forum For People's Collective Efforts pointed out.
From states like Uttar Pradesh, Telangana, Andhra Pradesh, we are not getting many orders. So, that is disappointing. They should have been functional by now. Most of the web portals are also not ready. The authorities which are fully functional, they are doing a good job of passing orders. At least people have hope that they can approach the RERA authority and get an order.
Abhay Upadhyay, President, Forum For People’s Collective Efforts

Maharashtra’s RERA authority has single-handedly been able to create a “fear psychosis” in the minds of promoter developers, Sudip Mullick, a partner at law firm Khaitan & Co. concurred. “Developer mindset has considerably changed in terms of construction quality and delivery to homebuyers,” he added.

The Existential Hurdle

In its first year of its implementation, RERA also survived a constitutional challenge. The challenge was mounted before 21 high courts but at the Supreme Court’s direction, only the Bombay High Court was allowed to proceed with the hearings.

The court held that the RERA provision which levies an interest in case of project delays by developers is in the nature of a penalty and is constitutional. The court had also struck down the retrospectivity argument of developers, saying the provisions don’t apply to projects that have already been completed, but only to projects that have been initiated before RERA but are yet to be completed, that is, ongoing projects.

Now, many states that have diluted the law have feeble grounds to continue to do so, Upadhyay said. The court has upheld the constitutional validity of Section 3 of the law that requires registration of ongoing projects, that is, where a completion certificate has not been issued, he added.

States like Uttar Pradesh, Karnataka, Haryana, Tamil Nadu, Telangana have diluted the provisions with regards to ongoing projects. In view of the judgement passed by the Bombay High Court, there is no scope for these states to dilute provisions with regards to ongoing projects.
Abhay Upadhyay, President, Forum For People’s Collective Efforts

Jaxay Shah, president of builders’ association CREDAI disagreed. It’s up to each state how they want to define ongoing projects; the law allows for it, he said.

Mullick added he sees logic in keeping projects which have been delivered “say, 20 years ago” out of RERA’s purview.

If you stick to a very fine point that completion certificate was not procured and therefore it has to be registered, I think it may not be a good way of looking at things. When occupation certificate is there, people are living. There is no complication. The developer should be absolved of the responsibility or where conveyance has been done. I would assume that the society has taken upon themselves the obligations of any pending certification.
Sudip Mullick, Partner, Khaitan & Co.

Favourable Orders But….

Besides the Bombay High Court ruling, several orders by state authorities have been encouraging.

For instance, the Madhya Pradesh RERA authority allowed a homebuyer to withdraw from a project he had invested in and get a refund after a legible deduction. A default on the possession timeline by JNC Construction prompted the Uttar Pradesh RERA authority to order a refund with 24 percent interest and a compensation of Rs 2.5 lakh for mental distress. A complaint regarding lack of land rights and road encroachment led the Karnataka authority to cancel the developer’s registration.

Upadhyay said that while the orders by the authorities are laudable, builders are not paying up. Despite orders by the Maharashtra RERA authority directing developers to refund buyers, homebuyers can be seen agitating on social media that they have not received any refund from the builder, he explained.

Besides, several orders by the Maharashtra RERA authority are setting a wrong precedent, Mullick said. He pointed out one passed by the Appellate Tribunal in Lavasa’s case on inclusion of lease property under RERA.

It is construed that long-term leases, like letting out of mall premises, can come under the ambit of the RERA authority. I think that is a wrong construction. If you see the definition of allottee, it would mean a person to whom a property is sold – be it commercial or residential. Allottee does not include when a property is given on rent.
Sudip Mullick, Partner, Khaitan & Co.

If somebody is trying to defeat the provisions of the law by camouflaging a sale transaction as a lease, then that may not be permitted. But generally speaking, if it is a genuine lease or rental agreement, then I don’t think those premises will come within the ambit of RERA, Mullick added.

Another issue that experts pointed out was that in most cases, a compromise was agreed upon between the builder and buyer but the authorities’ orders failed to record the terms of compromise. For instance, 65 percent of the complaints to the Karnataka RERA authority have been settled, as per data compiled by research firm Vidhi Centre for Legal Policy.

The Power Dynamics

The other area where RERA has had considerable impact is the nature of builder-buyer agreements. In the pre-RERA regime, builder-buyer agreements typically favoured developers and buyers had little or no negotiating power. RERA has attempted to change the dynamics. Under RERA, the state authorities are required to notify Agreement for Sale rules. The prescribed agreement format lays down the title details, possession date, approved layout, carpet area etc. of the property.

Upadhyay said since RERA has come into force, one-sided clauses that were ubiquitous in builder-buyer agreements have been taken care of.

“I have seen developers changing their agreement and bringing them in line with the prescribed format. Assuming a developer does not do it, there is an existing statute which provides for higher compensation or higher interest rate than that has been provided in the agreement. In such cases, the statute will prevail.”

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