Construction Week | 6th September, 2021
A Development Agreement is a contract concluded between the owner of the real estate property and the entity who takes up the development of the property to enlist the obligations of the parties, the standards and the conditions that will govern the development of the property.
In a city like Mumbai, where development is perpetual, existing cooperative housing societies have been entering into development agreements with developers for redevelopment of their existing old buildings. In order to regulate such redevelopment by cooperative housing societies, Government Directives were given under the Maharashtra Cooperative Housing Societies Act, 1960.
As per section 2(zk)(iv)1 of the Real Estate (Regulation and Development) Act, 2016 (RERA), co-operative housing societies are ‘Promoter’ in their eyes. Therefore, when the society enters into Development Agreement with a developer, the society is actually stepping into the shoes of a Promoter and is equally responsible towards the existing members as well as new purchasers of the proposed redeveloped project. This position has been reiterated in several orders passed by the Maharashtra Real Estate Regulatory Authority (MahaRERA). At the time of appointing a developer, the society must keep in mind that;
a. a fair procedure for appointment of developer should be adopted;
b. confidence of existing members of the society should be taken;
c. adequate due diligence must be carried out with respect to the experience of the developer;
d. terms of Development Agreement must be carefully drafted and vetted to ensure that developer completes the project in a time bound manner;
Despite the aforesaid, if there is breach or disagreement in terms of the Development Agreement, and the co-operative society decides to terminate the Development Agreement, then the society shall be liable for the delay caused in completion of the project as a Promoter. MahaRERA has, in its recent ruling, ordered the society to step into the shoes of the Promoter and ensure the smooth completion of the project and pay interest on delayed possession of existing member allottees as well as new allottees till handover of possession of the project.
A batch of complaints filed against Parthesh Developers was heard and adjudged by the Hon’ble Chairperson, MahaRERA. The brief facts of the matter entail that the Ganga Jamuna Co-operative Housing Society had entered into Development Agreement with the Respondent Developer in 2011 to develop the project ‘Ganga Jamna Sangam’. However, the said society terminated the said DA. Pursuant thereto, certain allottees in the project approached MahaRERA to seek interest on delayed possession under section 18 of RERA.
While passing its order dated 18th August 2021, the Hon’ble Chairperson observed that adjudging the legal validity of the termination of the said DA was not within the scope of MahaRERA and also emphasised that mere termination of the said DA would not extinguish the obligations of the Developer who was in the first place appointed by the said Society. The Hon’ble Chairperson held that since the project was delayed, interest shall be payable irrespective of the change in the developer from present Respondent to any other developer. At the same time, it was also noted that the said Society could take necessary legal recourse for recovering the interest and other charges on account of the delay caused from the entity responsible for it.
Though Hon’ble MahaRERA held that the obligations of the Developer would not extinguish due to termination of the said DA, the operative part of its Order dated 18th August 2021 directed only the said Society to pay interest to the Complainant allottees.
On reading the definition of ‘Promoter’ under RERA, the term is applicable on such entities who carry out development for the purpose of selling the units. However, in case of co-operative housing societies, the purpose is not to sell flats. At the same time, the society has no privity of contract with the new purchasers of the redevelopment project.
Even the MahaRERA Circular No. 12/2017 dated 4th December 2017 (“said Circular”) had directed that the liabilities of landowner Promoter shall be as co-terminus with the written agreement/ arrangement governing their rights in the real estate project. Further, it stipulated that the obligations and liabilities of all such Promoters shall be at par with each other for the purpose of withdrawal from the designated bank account of a real estate project. Therefore, even if the Society is the landowner Promoter, then casting the liability of paying interest for delayed possession upon the said Society appears beyond the ambit laid out in the said Circular.
The aforesaid Order has clearly put co-operative housing societies in a tough spot in as much as any new Developer who would be interested in completing the project would have to bear the burden of the interest claimed by complainants seeking interest for delayed possession.
In light of the aforesaid, it is likely that the co-operative housing societies would turn reluctant towards redevelopment owing to the possible liabilities to be borne by them and get involved in legal entanglements without any fault of theirs.