Overview of The Real Estate (Regulation & Development) Act, 2016

I. Introduction

The real estate sector in India has witnessed a remarkable growth over the years in terms of volume of construction activities driven by the rise in demand both of the home seekers and the investors. However, the real estate market lacked regulatory framework, transparency and professionalism. There was a long felt need for a regulated market where the investor or end user consumer is protected and simultaneously, results in boost in investments in this sector.

The Real Estate (Regulatory and Development) Act, 2016 (in short ‘the Act’) was passed by Parliament and it received the assent of the President on 25th March, 2016. The Act came into effect from 1st May, 2016.

This Act establishes the Real Estate Regulatory Authority for regulation and promotion of the real estate sector and to ensure sale of plot, apartment or building, as the case may be, or sale of real estate project, in an efficient and transparent manner and to protect the interest of consumers in the real estate sector and to establish an adjudicating mechanism for speedy dispute redressal and also to establish the Appellate Tribunal to hear appeals from the decisions, directions or orders of the Real Estate Regulatory Authority and the adjudicating officer and for matters connected therewith or incidental thereto.

Thus, this Act is a positive step towards the development and regulating the real estate sector by making disclosures of various information mandatory, thereby bringing in transparency, and protect not only the home buyers but also the investors and in turn increase the investments in this sector. However, there shall be many hurdles faced in the implementation of this Act which will be discussed hereinafter.

II. Scope of the Act

The Act applies to not only residential apartments but to all apartments, plots and buildings whether residential or commercial. The Real Estate Project as defined in the Act, states that it shall include:

Development of buildings;
Development of buildings consisting of apartments;
Converting existing buildings or part thereof into apartments (e.g.:- converting a bungalow or hotel into apartment);
Development of land into plots or apartments for the purpose of selling all or some of the said apartments or plots or buildings.

Thus, it is pertinent to note that the Act is wide enough to cover within its scope development of land for buildings, apartments as well as plots. Further, the Act covers not only residential projects but also commercial projects.

Moreover, upon interpretation of the definition of the term allottee under section 2(d), it can be said that this Act shall also apply to or govern transactions wherein the allottee resells the flats, plots or apartments to another person but will not include transactions wherein the allottee gives the said plot or apartment or building on rent.

III. Who is a Promoter?

As per the Act, the promoter is:

A person who constructs or causes to be constructed an independent building or a building consisting of apartments, or converts an existing building or a part thereof into apartments, for the purpose of selling all or some of the apartments to other persons and includes his assignees; or
A person who develops land into a project, whether or not the person also constructs structures on any of the plots, for the purpose of selling to other persons all or some of the plots in the said project, whether with or without structures thereon; or
Any development authority or any other public body in respect of allottees of—
1. Buildings or apartments, as the case may be, constructed by such authority or body on lands owned by them or placed at their disposal by the Government; or
2. Plots owned by such authority or body or placed at their disposal by the Government, for the purpose of selling all or some of the apartments or plots; or
An apex State level co-operative housing finance society and a primary co-operative housing society which constructs apartments or buildings for its Members or in respect of the allottees of such apartments or buildings (The allotment herein, even though it is not sale in technical sense, is taken to be so for the purpose of this Act); or
Any other person who acts himself as a builder, coloniser, contractor, developer, estate developer or by any other name or claims to be acting as the holder of a power of attorney from the owner of the land on which the building or apartment is constructed or plot is developed for sale; or
Such other person who constructs any building or apartment for sale to the general public;
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.

Who is an allottee?

The term ‘allottee’ is of noteworthiness as the Act revolves around the obligations and responsibilities of the promoters towards the allottee and vice-versa. The term occurs at several places; almost in every provision dealing with such obligations. The term has been defined as –

“Allottee” in relation to a real estate project means the person to whom a plot, apartment or building, as the case may be, has been allotted, sold (whether as freehold or leasehold) or otherwise transferred by the promoter, and includes the person who subsequently acquires the said allotment through sale, transfer or otherwise but does not include a person to whom such plot, apartment or building, as the case may be, is given on rent.

Thus, it can be said that the term ‘allottee’ is used for the transferee of the building, apartment or plot from the Promoter who gets the property, by whatever mode including by way of allotment, sale, as consideration for services, exchange for development rights or by any other means. Moreover, the building, apartment or plot transferred can be a freehold property as well as leasehold property. Therefore, an allottee of a building, apartment or plot on a leasehold land is also an allottee. However, tenants are excluded from the definition of ‘allottee’

Real Estate Regulatory Authority

The Act mandates for the appropriate Government to establish Real Estate Regulatory Authorities (in short ‘RERAs’), appoint adjudicating authorities and to establish Real Estate Appellate Tribunals in all the States and Union Territories (except Jammu & Kashmir) within a period of 1 year of its notification, to exercise the powers conferred on it and to perform the functions assigned to it under the Act.

The RERA shall be a Body Corporate by name ‘Real Estate Regulatory Authoirty’, having perpetual succession and a common seal, with the power to acquire, hold and dispose off property, and to enter into contract. RERA can sue and be sued in its corporate name. RERA comprises of chairperson and minimum of two members.

The function of the RERA apart from acting as a regulatory authority, is also to function as policy advisor to the appropriate Government and to ensure promotion of the real estate sector in a manner provided in section 32 of the Act. This includes, inter-alia, to recommend to the appropriate Government to create single window system for ensuring time bound project approvals and clearances for timely completion of project and also to recommend measures to encourage construction of environmentally sustainable and affordable housing, promoting standardisation and use of appropriate construction materials, fixtures, fittings and construction techniques.

Any aggrieved person can file a complaint against the promoter before RERA for the contraventions and violations of the provisions of this Act. If any party is aggrieved with the Order passed by the RERA then it can file an appeal within 60 days to the Real Estate Appellate Tribunal.

The function of the adjudicating authority is to adjudge the compensation/damages for loss sustained due to

Incorrect, false, misleading statement in the advertisement or prospectus,
Failure of the promoter to rectify the structural defect or any other defect in workmanship, quality or provision of service or any other obligations of promoter under the agreement for sale within 30 days.
Failure of promoter to complete or inability to give possession of the apartment within stipulated period as mentioned in section 18(1) of the Act or due to defective title of the promoter to the land and failure of promoter to discharge his obligations under the Act, Rules or Regulations and in terms of the Agreement for sale.

IV. Registration of Real Estate projects

The Act requires the Promoter to compulsorily register the real estate projects in planning area, with the RERA, where the area of land proposed to be developed exceeds 500 square meters or where the number of apartments proposed to be developed exceeds eight apartments inclusive of all phases (where phase-wise development is proposed).

Where phase-wise development is proposed, the Act also requires every phase of a project to be registered separately as a standalone real estate project, and the promoter shall obtain registration under this Act for each phase separately. Moreover, Projects cannot be advertised, booked or sold in any form prior to registration and obtaining the necessary construction approvals.

The RERA is required to either grant or reject registration applications within 30 days and on failure of the RERA to grant or reject such applications within 30 days will result into deemed registration of such project.

In the case of existing projects i.e. ongoing projects as on the date of commencement of this Act, which have not received completion certificate, the Promoter shall make an application to RERA for registration of the said Project within 3 months of such commencement of the Act.

Let’s consider a scenario wherein the project is completed but completion Certificate is not received by the Promoter and more than half of the plots or flats are already sold. Does the Promoter still have to register the project under this Act? As per first proviso to Section 3 of the Act, if the two-fold conditions are fulfilled i.e. a) project is ongoing and b) commencement certificate for the said project is not yet received; then the Promoter shall get the project registered with the RERA under this Act. Moreover, upon perusal of Section 2 and 3 of the Act, it can be said that the project shall be deemed to be ongoing if completion certificate is not received by the promoter of the project. Therefore, in the given scenario, the promoter needs to get his project registered with RERA within 3 months of the commencement of this Act.

V. Disclosures/Transparency

Publicly accessible disclosures of the project and promoter details, along with a self-declared timeline within which the Promoter is required to complete the project, are mandatory. Quarterly project related disclosures are also required. The disclosures are to be made available online on the website of RERA.

For this purpose, the RERA shall create a web-based online system for receiving applications from promoters for registration of their projects. After the project is registered, the promoter will be given a registration number, login ID and a password for accessing the website. The promoter upon receiving the said details, shall create his web page on the said website and enter all details (i.e. as mentioned in Section 4(2) and Section 11(1) of the Act) of the proposed project, including his other ongoing and completed projects during last 5 years, in all the fields as provided, for public viewing.

VI. Standardising by defining various terms

The Act defines key terms such as ‘apartment’, ‘carpet area’, ‘interest’, etc., which will bring about uniformity in sector practices and prevent abuse of consumers due to biased classifications such as ‘super built-up area’, etc.

Clause (h) of sub-section (2) of section 4 mandatorily requires the Promoter to provide the number, type and the carpet area of apartments for sale of the Project along with the area of the exclusive balcony or verandah areas and the exclusive open terrace areas with the apartment, if any, while making the application for registration of his real estate project. This will help the Buyer to know,what is the price per square feet that he is paying for the actual usable area and, in turn, make an informed and right decision.

VII. Functions & Duties of Promoters

Endeavour is made in the Act to protect the interest of allottees, by casting various obligations and restrictions on the Promoter to ensure fairness and transparency in their dealings with them, empowering the regulatory authority to enforce such obligations and restrictions and providing deterrence by way of stringent penal consequences for defaults. Following are the functions and duties of the Promoter:

To get the proposed real estate project registered with the RERA (as discussed earlier);
To create a webpage and display the project on the website of RERA so as to make the details therein available on public domain;
Not to advertise or make offer for sale without registering the project;
The Promoter shall make available certain documents at the time of booking and issue of allotment letter such as:
1. Sanctioned plans, layout plans, along with specifications, approved by the competent authority, by display at the site or such other place as may be specified by the regulations made by the Authority;
2. The stage wise time schedule of completion of the project, including the provisions for civic infrastructure like water, sanitation and electricity.
To obtain the completion certificate and the occupancy certificate from the relevant competent authority as per local laws or other laws for the time being in force and to make it available to the allottees individually or to the association of allottees, as the case may be.
To obtain lease certificate, where the real estate project is developed on a leasehold land, specifying the period of lease, and certifying that all dues and charges in regard to the leasehold land has been paid, and to make the lease certificate available to the association of allottees;
To refund the amount received in case of failure to give possession on time;
To compensate the allottees for loss due to defective title of the land etc. (supra);
No deposit of advance can be taken without first entering into agreement for sale:
The Act states that the Promoter shall not accept a sum more than ten per cent of the cost of the apartment, plot, or building as the case may be, as an advance payment or an application fee, from a person without first entering into a written Agreement for sale, in prescribed form, with such person.
Consequences in case of misleading advertisements/prospectus

The Act provides that if any person (who has made an advance or a deposit based on the notice, advertisement, prospectus or model apartment to the promoter) suffers any loss or damages by reason of any incorrect, false statement included in the notice, advertisement or prospectus, or on the basis of any model apartment plot or building, then he shall be compensated by the promoter. Further, if he desires to withdraw from the proposed project then he shall be returned his entire investment.
No structural alteration:
After the execution of an Agreement for Sale, the Promoter is not authorised to alter plans, structural designs and specifications of the land, apartment or building without prior consent of two-third of the allottees.
The Promoter is also not allowed to transfer or assign majority of its rights and liabilities in a project to a third party, without prior consent of two-third of the allottees, along with the RERA’s prior written approval.
The Promoter is responsible for structural defects or other deficiencies for a period of 5 years from the date of delivery of possession.
Cannot mortgage or create charge after the execution of Agreement for Sale:
The Promoter is prohibited from creating any charge or encumbrance on any apartment after executing an Agreement for the same. In the event such charge or encumbrance is created, it will not affect the right and interest of the concerned consumer.
Usage of Project Realizations
Seventy per cent of the amount realised for the real estate project from the allottees from time-to-time shall be deposited in the separate account to be maintained in a Schedule Bank to cover the cost of land and construction. The amount from this account shall be utilised for payment of land cost and for cost of construction. The safeguard is provided for proper utilisation of such project receivables, by permitting its withdrawal by the promoter only after certification by the Engineer, Architect or Chartered Accountant and that the withdrawal is in proportion to the percentage of the completion of the project. This is one of the best measures for protection of interest of the allottee. The fund from this account can be utilised for completing the project by the RERA or authorities or agency appointed by it.

According to the author, the Act does not specify that the fund obtained by mortgaging the property also needs to be deposited in such separate account. This is the main drawback of this provision and may affect the interest of the allottee.
No deposit or advance (more than 10% of the cost of apartment) can be taken by the promoter without first entering into an Agreement for Sale
A promoter can accept only up to 10% of the cost of the apartment, plot or building, as the case may be as advance money or deposit or an application fee prior to entering into a written Agreement for Sale with the consumer.
According to the Author, this cost of apartment refers to the agreed sale price of the apartment and not the cost price of constructing the apartment as is clear from co-joint reading of section 13 and section 19(6) of the Act. If it is literally to be taken as cost of apartment then it shall result in absurd conclusions.
Various assurances and insurance
The promoter is required to declare that it has legal title to the project land or authenticate validity of title, if such land is owned by another person. The promoter is also required to obtain insurance for title and buildings along with construction insurance.
To provide essential services till handing over to the association of allottees
Promoter shall be responsible for providing and maintaining the essential services, on reasonable charges, till the taking over of the maintenance of the project by the association of the allottees.
To execute conveyance in favour of allottees and their association
Promoter shall execute a registered Conveyance Deed of the apartment, plot or building, as the case may be, in favour of the allottee along with the undivided proportionate title in the common areas to the association of allottees or competent authority, as the case may be, as provided under section 17 of this Act.
Pay all outgoings till transfer of physical possession
The promoter shall Pay all outgoings until he transfers the physical possession of the real estate project to the allottee or the associations of allottees, as the case may be, which he has collected from the allottees, for the payment of outgoings (including land cost, ground rent, municipal or other local taxes, charges for water or electricity, maintenance charges, including mortgage loan and interest on mortgages or other encumbrances and such other liabilities payable to competent authorities, banks and financial institutions, which are related to the project).
Moreover, if the promoter fails to discharge any other obligations imposed on him under the proposed legislation or the rules or regulations made thereunder, he shall be liable to pay such compensation to the allottees, in the manner as provided under the proposed legislation.

VIII. Real Estate Agents

As per the Act, Real Estate Agent means any person:

Who negotiates or acts on behalf of one person in a transaction of transfer of his plot, apartment or building, as the case may be, in a real estate project:
1. By way of sale, with another person or
2. Transfer of plot, apartment or building, as the case may be, of any other person to him and
Receives remuneration or fees or any other charges for his services whether as commission or otherwise and
Includes a person who introduces, through any medium, prospective buyers and sellers to each other for negotiation for sale or purchase of plot, apartment or building, as the case may be, and
Includes property dealers, brokers, middlemen by whatever name called.

The Real Estate Agents play a significant role in Real Estate transactions by being the link or acting as middlemen between the promoter and the allottee. They not only bring both the parties together but also induce the prospective buyer to buy the plot, apartment or building by informing about or making representations of the promoter and his project.

The Act prohibits real estate agents from facilitating any sale or purchase of plots/apartments in projects without obtaining registration with the RERA. Moreover, the agents are, inter-alia, required to facilitate access of project information to consumers at the time of booking and refrain from making false statements, misleading representations and indulging in unfair trade practices.

IX. Standard format of Agreement for Sale

The Act provides that a specified form of agreement for sale between promoters and consumers may be prescribed. This will help in preventing inclusion of biased provisions in it and thereby protect the interest of the allottees. Consumers have also been granted the right to seek relief from unilateral termination of such agreements by promoters without cause. The Agreement for Sale shall contain the following details:

Specify the particulars of development of the project including the construction of building and apartments, along with specifications and internal development works and external development works,
The dates and the manner by which payments towards the cost of the apartment, plot or building, as the case may be, are to be made by the allottees and
The date on which the possession of the apartment, plot or building is to be handed over.
The rates of interest payable by the promoter to the allottee and the allottee to the promoter in case of default, and
Such other particulars, as may be prescribed.

X. Rights and Duties of Allottees

This Act is a comprehensive legislation which regulates the activities of all stakeholders namely, the promoters, the agents and the allottees. The allottee being one of the parties to the transaction is bound by the terms and conditions of the Agreement for Sale executed in accordance with the Act. The Chapter IV of the Act lays down the rights and duties of the allottee vis-à-vis the promoter and which are to be enforced by the Regulatory Authority.

Rights of the Allottees

To obtain information in relation to the promoter and the real estate project.
To know stage-wise time schedule of completion of the project and in relation to various services as agreed to be provided by the promoter to the allottee in accordance with the terms and conditions of the Agreement for Sale.
To claim possession once the project is completed by the promoter. Also, the Association of Allottees can claim possession of common areas.
To claim refund along with interest at prescribed rate and compensation as provided under the Act in the event the Promoter fails to comply with or due to non-completion of the project as per the terms of Agreement for Sale or due to discontinuance of his business as a developer on account of suspension or revocation of his registration under the provisions of this Act or the rules or regulations made thereunder.
To obtain documents and plans, including that of common areas, after handing over the physical possession of the apartment or plot or building as the case may be, by the promoter.

Duties of allottees

To make payments as per the Agreement for Sale.
To pay interest at prescribed rate in case of delay in payments as specified in (a) above.
To participate towards formation of society/association.
To take physical possession of the apartment, plot or building as the case may be, within a period of two months of the occupancy certificate issued for the said apartment, plot or building, as the case may be.
To participate in registration of Conveyance Deed.
Penal consequences in case of failure.

XI. Central Advisory Council

The Central Government may, by notification, establish with effect from such date as it may specify in such notification, a Council to be known as the Central Advisory Council. The functions of the Central Advisory Council shall be to advise and recommend the Central Government:

On all matters concerning the implementation this Act;
On major questions of policy;
Towards protection of consumer interest;
To foster the growth and development of the real estate sector;
On any other matter as may be assigned to it by the Central Government.

The Central Government may specify the rules to give effect to the recommendations of the Central Advisory Council on matters as provided above.

XII. Real Estate Appellate Tribunal/ Appellate procedure

As mentioned earlier, the appropriate Government shall, within a period of one year from the date of coming into force of this Act, by notification, establish an Appellate Tribunal to be known as the — (name of the State/Union Territory) Real Estate Appellate Tribunal.

The appropriate Government may, if it deems necessary, establish one or more Benches of the Appellate Tribunal, for various jurisdictions, in the State or Union territory, as the case may be. Every Bench of the Appellate Tribunal shall consist of at least one Judicial Member and one Administrative to Technical Member. The appropriate Government of two or more States or Union Territories may, if it deems fit, establish one single Appellate Tribunal.

Any person aggrieved by any direction or decision or order made by the Authority or by an adjudicating officer under this Act may prefer an appeal (within 60 days of the passing of the Impugned Order) before the Appellate Tribunal having jurisdiction over the matter.

Provided that where a promoter files an appeal with the Appellate Tribunal, it shall not be entertained, without the promoter first having deposited with the Appellate Tribunal at least thirty per cent of the penalty, or such higher percentage as may be determined by the Appellate Tribunal, or the total amount to be paid to the allottee including interest and compensation imposed on him, if any, or with both, as the case may be, before the said appeal is heard. Moreover, the term “person” shall include the association of allottees or any voluntary consumer association registered under any law for the time being in force.

The Act also provides for composition of Appellate Tribunal, qualification for appointment of chairperson and members, their term of office and salary and allowances payable, removal of chairperson and members, etc.

The Appellate Tribunal shall have, for the purpose of discharging its functions under this Act, the same powers as are vested in a Civil Court under the Code of Civil Procedure, 1908.

Every order made by the Appellate Tribunal under this Act shall be executable by the Appellate Tribunal as a decree of Civil Court, and for this purpose, the Appellate Tribunal shall have all the powers of a Civil Court.

Right to legal representation

It is pertinent to note that before the RERA, Adjudicating Authority and Appellate Tribunal the party may either appear in person or authorise one or more Chartered Accountants or Company Secretaries or Cost Accountants or legal practitioners to present his or its case.

XIII. Appeal to High Court

Any person aggrieved by any decision or order of the Appellate Tribunal, may, file an appeal to the High Court, within a period of sixty days from the date of communication of the decision or order of the Appellate Tribunal, to him, on any one or more of the grounds specified in section 100 of the Code of Civil Procedure, 1908.

XIV. Penalties & Punishment

The Act, inter-alia, imposes monetary penalties on the promoter of up to 5% of the ‘estimated cost of the project’ (as determined by the RERA) for disclosure related defaults, and up to 10% for other defaults, along with a maximum imprisonment of 3 years. Allottees are liable to a fine of up to 10% of the apartment cost or imprisonment up to 1 year for non-compliance with orders of the Real Estate Appellate Tribunal.

XV. Repeal of Maharashtra Housing Regulation & Development Act

The Act expressly repeals the Maharashtra Housing (Regulation and Development) Act, 2012 (in short ‘MHRDA’). Section 56 of the said repealed Act provides that on and from the appointed day the Maharashtra Ownership of Flats Act, 1963 (in short ‘MOFA’) shall stand repealed. It is pertinent to note that the said section 56 was not brought into force before the repeal of the said MHRDA and therefore, the MOFA continues to remain in force in State of Maharashtra. If any provision of MOFA is inconsistent with any provision of this Act, then such provision of MOFA will not apply by virtue of section 89 of the Act. Moreover, with the provisions of MOFA which are consistent with the Act, they continue to remain in force.

XVI. Act to have overriding effect

The provisions of this Act, shall have effect notwithstanding anything inconsistent therewith contained in any other law for time being in force. However, Section 88 makes it clear that this Act shall be in addition to and not in derogation of any other law for the time being in force.

XVII. Difficulties faced in implementation of the Act/lacunae in the Act

Though the passing of the Act itself is a significant move, however, it does not holistically regulate the real estate sector and also fails to address some of the fundamental issues associated with it. Further, even if the Act is considered to be a comprehensive legislation yet hurdles will be faced in its implementation. A few deficiencies or limitations are highlighted below:

The mandatory requirement to deposit 70% of the project receivables i.e., sale proceeds in a separate account is good measure to protect the allottees interest but same will have an impact on the utilisation of project receivables and increase promoter’s reliance on institutional capital such as private equity or bank finance, which can be expensive. This could lead to an escalation in project costs, which may then be passed on to the consumers.

Further, the difficulty may arise as to who will ensure as to how much will be 70%? Under the Act, the burden or onus is on the promoter to inform. Moreover, how will cash transactions be accounted? The Accountants or architects or engineers being paid by the promoters, the probability of them making the reports suitable and convenient to the promoter or builder is very high. Also, this clause resulting in ring-fencing of the project receivables may also result in delays and disputes in withdrawal of amounts and in turn result in delays in completion of project and litigations may come up, jeopardising the construction projects.

Under the Act, all necessary approvals are required to be obtained prior to project launch, instead of certain specific approvals as previously required. This may delay project initiation and restrict supply of new properties.

The Act neither establishes a conclusive title system for land, nor addresses the issue of availability of housing stock across all income categories or the practice of using black money in real estate transactions.

XVIII. Conclusion

The Act is a standard-setting instrument for the real estate sector and performs the critical task of identifying and allocating risks associated with construction and development projects. The current approach of the Act is to uniformly regulate and promote different types and sizes of projects and its implementation will require significant capacity building at the state-level. The Act disrupts existing sector practices to raise efficiency of the real estate market and is likely to benefit all stakeholders by imposing financial and operational discipline, accountability and diligence.