By Accommodation Times Bureau
1. The Real Estate Bill was passed by the Rajya Sabha on 10th March, 2016 and the Lok Sabha on 15th March, 2016.
The Bill as passed by the Parliament was assented to by the Hon’ble President on 25th March, 2016. The Act as assented to by the Hon’ble President was published in the Official Gazette on 26th March, 2016 for public information.
2. When did the Act come into force?.
Section 2, sections 20 to 39, sections 41 to 58, sections 71 to 78 and sections 81 to 92 were notified by the Central Government to come into effect from 1st May, 2016.
3. Why have some sections of the Act not been notified yet?
Some sections of the Act have not been notified yet, as the institutional structures, namely the establishment of the Regulatory Authority and the Appellate Tribunal are necessary prior to their enforcement. For e.g. projects can only be sold after they are registered with the Authority, thus, in the absence of the same there would be a vacuum.
4. When would the remaining sections of the Act come into force?
Sections 20 and section 43 provides that the Authority and the Appellate Tribunal need to be established within 1 year of the commencement of the Act. As the said sections were notified for commencement on 1st May, 2016 the Authority and the Appellate Tribunal are required to be established maximum by 30th April, 2017. Sections of the Act which have not been notified yet, would be notified maximum upon the expiry of that period.
OBJECTS AND REASONS:
5. What was the need for a regulatory law for the real estate sector?
The real estate sector has grown in the recent years but has largely been unregulated from the perspective of consumer protection. Though, consumer protection laws are available, the recourse available therein are only curative, but not preventive. This has affected the overall potential growth of the sector due to absence of professionalism and standardization.
6. What are the objects and reasons for which the Act has been framed?
The Real Estate Act is intended to achieve the following objectives:
a) ensure accountability towards allottees and protect their interest;
b) infuse transparency, ensure fair-play and reduce frauds & delays;
c) introduce professionalism and pan India standardization;
d) establish symmetry of information between the promoter and allottee;
e) imposing certain responsibilities on both promoter and allottees;
establish regulatory oversight mechanism to enforce contracts;
g) establish fast- track dispute resolution mechanism;
h) promote good governance in the sector which in turn would create investor
7.Who is the ‘appropriate Government’ as per the Act?
Section 2(g) of the Act defines ‘appropriate Government’ to mean as follows:
for the (i) Union territory without Legislature, the Central Government;
for the (ii) Union territory of Puducherry, the Union territory Government;
for the Union territory of Delhi, the Central Ministry of Urban Development; (iii)
for the State, the State Government.(iv)
8. What are the important responsibilities of the appropriate Government?
As per section 84 the appropriate Government is required to notify Rules for the a) implementation of the Act, within six months of its commencement.
As per section 20 the appropriate Government is required to establish the Regulatory b) Authority within 1 year from its commencement i.e. maximum by 30th April, 2017.
As per section 20 the appropriate Government is required to designate an officer c) (preferably Housing Secretary) as interim Regulatory Authority, until the establishment of a full time Regulatory Authority.
As per section 43 the appropriate Government is required to establish the Appellate d) Tribunal within 1 year from its commencement i.e. maximum by 30th April, 2017.
As per section 43 the appropriate Government is required to designate an existing e) Appellate Tribunal (under any other law in force) to be the Appellate Tribunal, until the establishment of a full time Appellate Tribunal.
The Chairperson and Members of the Regulatory Authority and the Members of the f) Appellate Tribunal are required to be appointed based on recommendations of a Selection Committee, thus the appropriate Government is required to constitute the Selection Committee.
As per section 28 and section 51 the appropriate Government is required to appoint g) officers and other employees of Regulatory Authority and the Appellate Tribunal. In addition, it is required to identify office space etc. and other infrastructure for its functioning.
As per section 41 the Central Government (i.e. the Ministry of HUPA) is required to h) establish the Central Advisory Council.
As per section 75 the appropriate Government is required to constitute a ‘Real i) Estate Regulatory Fund’.
9. Authorities and Housing Boards?
The Act covers all bodies (private and public) which develop real estate projects for sale to the general public. Section 2(zk) defines the term ‘promoter’ which includes both private and public real estate promoters. Thus, both Development Authorities and the Housing Boards, when involved in sale are covered under the Act.
10. Does the definition of ‘promoter’ include all promoters in case of joint development?
As per the Explanation to section 2(zk) “where the person who constructs or converts a building into apartments or develops a plot for sale and the persons who sells apartments or plots are different persons, both of them shall be deemed to be the promoters and shall be jointly liable as such for the functions and responsibilities specified, under this Act or the rules and regulations made thereunder”.
What is the rate of interest payable in case of default by the ‘promoter’ or the ‘allottee’?
11. Is the rate of interest payable by either party (promoter or allottee) the same?
As per the Explanation to section 2(za) the rate of interest payable by either the promoter or the allottee shall be the same. The rate of interest is required to be specified by the appropriate Government in the Rules.
Does advertisement include solicitation by emails and sms? Is issuance of 12. prospectus considered to be a case of ‘advertisement’?
As per section 2(b), which defines ‘advertisement’ any medium adopted in soliciting for sale would be covered under the said definition, including sms and emails.
13. Does the term ‘allottee’ include secondary sales?
As per section 2(d) an allottee includes a person who acquires the said ‘apartment / plot’ through transfer or sale, but does not include a person to whom such plot, apartment is given on rent.
14. Is ‘open parking areas’ a part of ‘common areas’?
Section 2(n) defines ‘common areas’ to include ‘open parking areas’, thus open parking areas cannot be sold to the allottees.
15. Is ‘community and commercial facilities’ which are provided in a real estate project are part of ‘common areas’?
Section 2(n) defines ‘common areas’ to include ‘community and commercial facilities’, thus they are an integral part of the project, to be handed over to the Association of Allottees.
16. the ‘occupancy certificate’ and the ‘completion certificate’?
Section 2(zf) and section 2(q) respectively, define ‘occupancy certificate’ and ‘completion certificate’. The two definition are very broad and uses the term ‘by whatever name called’. Thus, if in a State/UT only one certificate is issued which provides for both the aspects covered under the two definitions, it would suffice the requirements under the Act.
17. What is the difference between the term ‘completion certificate’ and ‘occupancy certificate’?
Section 2(zf) and section 2(q) respectively, define ‘occupancy certificate’ and ‘completion certificate’. Occupancy certificate relates to the occupation of the apartment/building, which has provision for civic infrastructure such as water, sanitation and electricity and is habitable. Completion certificate relates to the completion of the entire project certifying that the project has been developed according to the sanctioned plan, layout plan and specifications, as approved by the competent authority.
18. The Act defines ‘estimated cost of the real estate project’, what is the significance of the definition?
Section 2(v) defines ‘estimated cost of the real estate project’, which means “the total cost involved in developing the real estate project and includes the land cost, taxes, cess, development and other charges”. The determination of the estimated cost of the real estate project is necessary due to Chapter VIII of the Act, which provides that penalties would be imposed on the promoter, for violations prescribed under the Act, based on the estimated cost of the real estate project.
19. What is the definition of ‘garage’ and can it be sold by the promoter independent of an ‘apartment’?
Section 2(y) defines the term ‘garage’, which can be sold to the allottee independent of the ‘apartment’.
20. What is the definition of ‘real estate project’? Does the term ‘project’ connote a ‘real estate project’?
The term ‘real estate project’ has been defined under section 2(zn) and the term ‘project’ has been defined under section 2(zj), which have been interchangeably used under the Act.
21. Are real estate agents covered under the Act? Does the term ‘real estate agents’include web-portals engaged in selling of apartments or plots?
Section 2(zm) defines the term ‘real estate agents’, which is a very broad and inclusive definition and covers all from of agencies involved in sale and purchase of projects, registered under the Act. Consequently, web-portals etc. engaged in selling plots or apartments are also covered under the Act and are required to comply with the duties and responsibilities as provided therein including under the Rules and regulations made thereunder.
22. What happens in case a term is used under the Act but has not been defined?
Section 2(zr) is an omnibus definition which provides that terms which have not been defined under the Act or the Rules and Regulations made thereunder, would have the same meaning as respectively assigned to them under the relevant Municipal laws or under any law for the time being in force.
CHAPTER II – REGISTRATION OF PROJECT AND AGENTS
23. Does the Act cover both residential and commercial real estate?
The Act covers both residential and commercial real estate. Section 2(e) defines ‘apartment’ and section 2(j) defines ‘building’ which include both residential and commercial real estate.
24. Does the Act cover ongoing / incomplete projects?
As regards the ambit of the Act, there is no distinction between an ongoing project and a future project, i.e. both ongoing / incomplete projects and future projects are covered under the Act.
Section 3(1) first proviso provides that promoters of ‘all ongoing projects which have not received completion certificate will need to register their project with the Regulator Authority, within 3 months of its commencement’.
25. Does the Act cover all projects in urban areas and in rural areas?
Section 3(1) provides that all projects within a ‘planning area’ will require to be registered with the Authority. ‘Planning Area’ has been defined under section 2(zh).
However, section 3(1) second proviso gives powers to the Authority ‘in the interest of allottees’ to order / direct the promoter to register projects beyond the planning area, which has the requisite permission of the local authority.
26. Which projects are exempt from the ambit of the Act?
As per section 3(2) the following projects do not require to be registered under the Act:
(a) where the area of land proposed to be developed does not exceed five hundred square meters or the number of apartments proposed to be developed does not exceed eight, inclusive of all phases;
(b) where the promoter has received completion certificate for a real estate project prior to commencement of this Act;
(c) for the purpose of renovation or repair or re-development which does not involve marketing, advertising selling or new allotment of any apartment, plot or building, as the case may be, under the real estate project.
27. At what stage can a promoter start to advertise his project for sale?
The promoter can advertise his project for sale after the project has been registered with the Regulatory Authority as provided in section 3(1).
28. What are the details to be furnished at the time of application for registration of real estate project with the Regulatory Authority?
Section 4 of the Act provides for details / information and undertaking to be provided by the promoter to the Authority for registration of the project. The mechanism for registration i.e. the requisite forms to be filled, the fees to be paid etc. are to be determined by the Rules made by the appropriate Government.
29. What are the formalities for the registration of a real estate project with the Regulatory Authority?
The promoter is required to make an application as per Form and fees prescribed by the Rules made by the appropriate Government, along with the documents / information and undertaking specified in section 4 to the Authority for registration of the project. In addition, the promoter is also required to append other / additional documents / information as specified in the Rules.
30. In how many days is the Regulatory Authority required to register the real estate project?
The Regulatory Authority is required to register the project, if in compliance with the Act and the Rules and Regulations, within 30 days of the application having been received by the Authority.
31. What in case the application for registration of the real estate project is incomplete?
If the application for the registration of the project is not complete as required under the Act or the Rules and Regulations made thereunder, the Authority may grant an opportunity to the promoter to complete the application in all respects. However, in case of non-compliance the Authority has the power to reject the application, only after giving an opportunity to the promoter of being heard.
32. Is there a provision for deemed registration of a real estate project in case the Regulatory Authority does not respond to the application?
Section 5 of the Act provides that the Authority has to decide on the application within 30 days of its receipt. It further provides that in case the Authority fails to take a decision within the said period of 30 days the project shall be deemed to be registered.
33. What is the period of validity of registration granted to a real estate project by the Regulatory Authority?
As per section 4, the validity of the registration granted to a project shall be the period declared by the promoter under section 4(2)(l)(C), at the time of making the application for registration, within which he would complete the project.
34. Is the promoter required to maintain an ‘escrow account’ or a ‘separate account’? Is a ‘separate account’ to be maintained for every project or it can be for one or more projects? What are the purposes for which the promoter can withdraw the money from the separate account?
Section 4(2)(l)(D) provides that the promoter shall maintain a ‘separate account’ for every project undertaken by him wherein seventy percent of the money received from the allottees shall be deposited for the purposes of construction and land cost. The account has to be self maintained and is not an escrow account requiring the approval of the Authority for withdrawal.
Section 4(2)(l)(D) clearly provides that the funds can only be used for construction and land cost.
35. On what basis is the promoter required to withdraw the money from the separate account?
As per section 4(2)(l)(D) first and second proviso, the promoter is required to withdraw the amounts from the separate account, to cover the cost of the project, in proportion to the percentage of completion of the project. In addition, the promoter is permitted to withdraw from the separate account after it is certified by an engineer, an architect and a chartered accountant in practice that the withdrawal is in proportion to the percentage of completion of the project:
36. Is the promoter required to get his accounts audited?
As per section 4(2)(l)(D) third proviso, the promoter is required to get his accounts audited within six months after the end of every financial year by a chartered accountant in practice, and shall produce a statement of accounts duly certified and signed by such chartered accountant and it shall be verified during the audit that the amounts collected for a particular project have been utilized for the project and the withdrawal has been in compliance with the proportion to the percentage of completion of the project.
37. Is the application for registration of a real estate project, proposed under the Act is manual or it can also be done online?
Section 4 envisages that for a period of one year the application process can be both manual and online based, however, after one year it is mandatory to make the entire process online. However, for the purposes of project information to the prospective consumers, it would help in establishing the web portal at the earliest.
38. Can the period of registration granted to a real estate project by the Regulatory Authority be extended? What is the definition of force majeure?
Section 6 envisages two situations within which the registration granted to a project can be extended. Extension of registration can be granted in case of force majeure, in addition, it can also be granted under reasonable circumstances, without the fault of the promoter, which shall not be more than a maximum period of 1 year.
Explanation to section 6 has defined force majeure to mean ‘a case of war, flood, drought, fire, cyclone, earthquake or any other calamity caused by nature affecting the regular development of the real estate project’.
39. What are the terms and conditions for extension of registration?
The terms and conditions, the application form and the fees payable for extension of registration shall be in the manner as prescribed by the Rules.
40. Can the registration of a project be revoked?
As per section 7 the Authority has the powers to revoke registration of a project, for violations specified under the said section. However, revocation of registration of a project is envisaged as a last resort and can only be done after providing a reasonable opportunity of being heard.
41. What are the next steps that can be taken for project completion in case of revocation of a project?
In case a project is revoked, section 8 provides for various mechanisms in which the project can be completed. However, in such a scenario, the association of allottees shall have the first right of refusal for carrying out the remaining development works.
42. Does the Act also cover real estate agents? What are the duties and responsibilities of the real estate agents?
Section 9 of the Act provides that real estate agents which engage in selling projects registered under the Act, can only do so after registering themselves with the Authority. The mechanisms for registration, the fees payable, the period of registration, subsequent renewal etc. are matters to be detailed vide the Rules. Section 10 of the Act provides for detailed functions and duties of real estate agents.
CHAPTER III – FUNCTIONS AND DUTIES OF PROMOTER
43. What are the important functions and responsibilities of the promoter after registration of the project with the Authority?
As per section 11 of the Act, the promoter is required to update all project information as furnished at the time of application (as provided under section 4) on the website of the Authority. In addition, section 11 also provides for certain information, which needs to be regularly (quarterly) updated by the promoter, in order to make an informed choice by the buyer.
In addition, the promoter is required to carry out all the responsibilities as envisaged under section 11 at various stages of development of the project and upon its completion.
44. What are the disclosures to be made on the website of the Regulatory Authority?
Section 4 and section 11 provide for a detailed list of disclosures on the website of the Authority by the promoter for public viewing. Also, the detailed list is required to be specified in the Rules.
45. What is the promoter’s obligations regarding veracity of the advertisement or prospectus?
As per section 12 the promoter is responsible for the veracity of all information contained in the advertisement and the prospectus. In case of any loss sustained by any person due to false information contained therein, the promoter is liable to make good the loss sustained due to the same.
46. Can the promoter collect any amount of money towards booking of the apartment / plot?
Section 13 provides that the promoter cannot accept a sum more than 10 percent of the apartment / plot cost as an advance payment / application fees. For any further collection towards the apartment / plot cost, the promoter is required to enter into an ‘Agreement for Sale’ with the allottee.
47. What is the ‘Agreement for Sale’ and is it binding on the ‘promoter’ and the ‘allottee’?
As per section 13(2) the appropriate Government is required to specify through Rules the ‘Agreement for Sale’ to be entered into between the promoter and the allottee. This Agreement is binding on the parties, however, internal flexibility could be provided in the said Agreement for Sale, for determination / insertion of other provisions as decided between the parties.
48. Can the promoter modify / amend the sanctioned plans or project specifications after having been approved by the competent authority and disclosed to the allottees?
As per section 14 of the Act the promoter can only modify / amend the sanctioned plans or project specifications, after the approval of the competent authority and its disclosure to the allottees, in case of minor additions or alterations.
However, in case of major modification / alteration, the promoter can modify the sanctioned plans or project specification only after having taken approval from two-third of the allottees. In addition, for arriving at the number of two-third allottees, the number of apartments held by the promoter will be excluded. Also, irrespective of the number of apartments held by an allottee he/she shall only be entitled to one vote.
49. What is the period for which the promoter is liable for any structural defects etc. in the project / apartment etc.?
As per section 14(2) the promoter shall be liable for 5 years form the date of handing over of possession to the allottee towards structural defect or any other defect as specified therein.
50. What is the obligation of the promoter as regard transfer of the project to a third party?
As per section 15 the promoter is not entitled to transfer or assign his majority rights and liabilities in the project to a third party, without obtaining the prior written consent of two-third of allottees and the Regulatory Authority.
In addition, for arriving at the number of two-third allottees, the number of apartments held by the promoter will be excluded. Also, irrespective of the number of apartments held by an allottee he/she shall only be entitled to one vote.
51. What is the obligation of the promoter as regards insurance of real estate project?
As per section 16 the promoter is required to seek an insurance of the real estate project towards title of the land and towards construction of the project.
However, the said section provides that this provision shall only come into effect after and in the manner as may be notified by the appropriate Government.
52. What is the obligation of the promoter as regards transfer of title of the apartment / plot?
Section 17 of the Act provides for detailed provisions regarding transfer of title of the apartment and the project to the allottee and to the association of the allottees respectively.
53. What is obligation of the promoter towards return of amount and compensation to the allottee?
Section 18 of the Act provides for provisions as regards various situations in which the allottee would be compensated by the promoter due to delay in completion of the project etc.
CHAPTER IV – RIGHTS AND DUTIES OF ALLOTTEES
54. What are the rights and duties of the allottees under the Act?
Section 19 provides for the various rights of the allottees. This section specifies various rights which the allottees have against the promoters including those which the promoters are liable to fulfill based on the agreement entered into with the allottees, namely – stage-wise schedule of completion of the project and the services, claim timely possession of the apartment / plot, entitlement to necessary documents and plans etc.
Section 20 provides for the various duties of the allottees, which provide for matters relating to payment regarding the apartment / plot, liability towards interest for delay in payment, responsibility to take possession, participate in formation of association etc.