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Decoding the real estate Bill

March 21, 2016 17:47 IST
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Sudipto Dey looks at some key legal and regulatory challenges facing the proposed real estate regulator.
When does the regulatory authority come into effect?
The central and the state governments must establish the authority within one year of the proposed Act coming into force. Each government could establish one or more authority within a state or Union territory.

If they deem fit, two or more states or Union territories could establish a common regulator. "Technically, we could have one regulator and an appellate tribunal in each district, if the state so decides," says Gulam Zia, executive director, Knight Frank India.
How is the real estate regulator different from regulators in other sectors like insurance and telecom?
The real estate regulator will have no price determining powers. It also does not have any control over clearances and approvals developers need for starting a project.
"It does not address a long-standing demand of developers for a single-window clearance," says Kalpesh Maroo, partner, BMR & Associates.
However, the regulator could suggest to the government to create of a single-window system to ensure time-bound project approvals.
How are promoters granted registration of a project?
No promoter is allowed to advertise, market, book, sell or offer for sale, or invite persons to purchase any plot, apartment or building, in a project without registering with the authority.
The regulator, within a year of its establishment, must have an online system for submitting applications for registration of projects. The authority must grant registration to a project within 30 days of receipt of an application provided it meets the rules. In an ongoing project, the promoter has to apply for registration within three months of commencement.
What are the legal challenges to the 70-30 rule?
To prevent diversion of funds from a project, the proposed Act prescribes that 70 per cent of the amount a project developer receives from allottees be deposited in a separate bank account to cover the cost of construction and the land cost.
The promoter is allowed to withdraw the amount to cover the cost in proportion to the percentage of completion of the project. The account has to be audited every financial year by a chartered accountant. Any withdrawal from the account has to be certified by an engineer, an architect and a chartered accountant.
According to Anil Harish, partner, DH Harish & Co, the rules for valuation of land will play a key role in making the 70-30 provisions effective. Each state may come out with different rules on valuation of land, leading to ambiguity in the provision, he adds. Factoring in the historical cost of land, in cases where the promoter has a land bank build over years, is another issue that could become contentious, feel experts.
Can state governments change the 70-30 provisions?
The Real Estate Bill falls under the Concurrent List and state governments are entitled to legislate. However, any amendment to a central legislation by a state government will require presidential assent if the amendments are inconsistent with the provisions under the central law.
"In theory, state governments could change the 70-30
rule, however, we expect them to uphold the provisions of the bill," says Yogesh Singh, partner, Trilegal.
Does the proposed law have overriding provisions over existing laws?
The provisions of the proposed Act come into effect in addition to the provisions of any other law that are in force. So the central and state laws continue to be in force. However, the proposed Act expressly repeals the Maharashtra Housing (Regulation and Development) Act, 2012. Legal experts point out that many provisions of the Maharashtra Act have been incorporated in the proposed central bill.
Within the first two years of notification of the proposed Act, the central government is allowed to make necessary changes in the provisions to remove operational difficulties. However, these changes have to be ratified by Parliament.
Legal experts feel a significant amount of alignment will be needed between the central legislation and laws already in place in various states. Formulation of laws related to land, or rights in or over land, land improvement and colonisation of land falls in the State List. Typically, town and country planning legislations of respective states regulate land-use and development. Approvals for construction of projects are primarily granted at the local and state level.
Moreover, rights of individual owners of apartments in large complexes are governed by the respective apartment ownership laws.
What are the penalties for non-compliance?
Promoter: For non-registration of a project a promoter is liable to a penalty that may extend up to 10 per cent of the estimated cost of the project, as determined by the authority. If a promoter does not comply with the orders, decisions or directions issued by the authority, he is punishable with imprisonment of up to three years.
Similarly, non-compliance with any orders of the appellate tribunal is punishable with imprisonment that may extend up to three years, or with a daily fine that may cumulatively extend up to 10 per cent of the estimated project cost, or both.
Allottee: If any allottee fails to comply with, or contravenes any of the orders, decisions or directions of the authority, he is liable to a penalty that may extend up to five per cent of the cost of the plot, apartment or building, as determined by the authority.
Non-compliance with any order of the appellate tribunal could attract prison terms of up to one year, along with a fine that may cumulatively extend up to 10 per cent of the cost of the plot, apartment or building.
Company: When a company is found to have committed an offence, every person responsible for the conduct of the business is deemed guilty and liable to be proceeded against and punished accordingly. However, it has to be proved that the offence was committed with the consent, or connivance, of or is attributable to any neglect on part of the person.
Will the proposed Act increase the cost of compliance for the promoter and the buyer?
It will increase compliance requirements for promoters, as each project has to be vetted by chartered accountants, lawyers, tax experts, engineers, apart from other professionals.
"It is likely that any increase in the cost of a project on account of additional cost of compliance, paperwork and manpower requirements, will be passed on to the allottees," says Rajesh Chavda, partner, Luthra & Luthra Law Offices.
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