Application of Real Estate Regulatory Authority Act Provisions to Rehabilitated Allottees of Flats

A burning issue for concern at present is the plight of various allottees of flats who have under an agreement been offered to be rehabilitated by the promoter/builder under various real estate development schemes.

At present many construction projects have been reportedly stuck with there being no progress in construction of buildings primarily due to insolvency of the builder/inability of the builder to take the project forward.

Many persons including elderly persons who have agreed to be rehabilitated by the builder/promoter under redevelopment schemes including cluster development have lost their homes and suffer a double blow of being deprived of their property and not receiving adequate compensation for the same.

In a recent case being Jay Thakural v. Rajen Dhruv¹, Mr Rajen Dhruv, before Maharashtra Real Estate Appellate Tribunal (the Tribunal) in Mumbai has held that Section 3(2)(c) of the Act², has specifically and expressly exempted the rehabilitation part of a redevelopment project from the requirement of registration under Real Estate (Regulation and Development) Act, 2016 (RERA)³ if it does not involve marketing, advertising, or selling. The Tribunal has further observed that an element of sale is central to the interrelation between allottee and promoter. The Tribunal has further held that until there is a sale or publicity or advertisement, etc., the said registration of rehabilitation project is not required.

The Tribunal held that, the element of sale or publicity or advertisement, etc., is completely non-existent in the transactions relating to the rehabilitation part of the project component between appellant and respondent of the captioned appeal. As such, advertisement, publicity or marketing, etc., are not required to be undertaken because no sale is contemplated under the rehabilitation part of such redevelopment projects. The Tribunal therefore concluded that the question of the agreement for sale is inconceivable in relation to the rehabilitation component of these projects and there is no sale/advertisement/marketing of the real estate.

It is respectfully submitted that the above decision of the Tribunal is erroneous due to the following reasons:

1 Rehabilitated person is a consumer under RERA.

The Preamble to the Real Estate (Regulation and Development) Act, 2016 (RERA) reads as under:

An Act to establish 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.

The purpose of RERA is to protect the interest of consumers in a real estate project. A rehabilitated person can be said to be a consumer in a real estate project.

2. Projects not requiring registration under Section 3(2)(c) exclude those which involve new allocation of apartments. In a redevelopment project involving rehabilitation necessarily new allotment of apartments is involved even to the rehabilitated person. The term allottee as defined under Section 2(d) of the RERA⁴ is not restricted to a person who buys the flat for monetary consideration. The said section is reproduced below:

2. (d) “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;

3. The agreement between the developer and the rehabilitated person can be said to be in the nature of a barter agreement where the rehabilitated person surrenders his present dwelling unit in exchange for a property to-be constructed in the future. The term “sale” used in RERA may not be used in the restricted sense to include sale for monetary consideration. Thus, for the purposes of RERA barter agreement can be regarded as a sale. In fact, goods and services tax is levied upon the apartments handed over to the owners including rehabilitated persons.

4. The transaction of rehabilitation agreement definitely involves some marketing on behalf of the developer/builder by way of communicating with the rehabilitated persons by way of giving offers, etc. Support is drawn from the following:

(a) The term “marketing” has been defined by the American Marketing Association as under: Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.”

(b) The Black’s Law Dictionary defines the term marketing as: “The act or process of promoting and selling, leasing, or licensing products or services. The part of a business concerned with meeting customer’s needs. The area or study concerned with the promoting and selling of products and services.”

5. The term real estate project as defined under Section 2(zn) means,

2. (zn) … the development of a building or a building consisting of apartments, or converting an existing building or a part thereof into apartments, or the development of land into plots or apartments, as the case may be, for the purpose of selling all or some of the said apartments or plots or buildings, as the case may be, and includes the common areas, the development works, all improvements and structures thereon, and all easement, rights and appurtenances belonging thereto;

The term development is defined under Section 2(s) to include redevelopment and therefore since a part of the overall building or land being developed into apartments is being sold even the rehabilitated portion requires registration.

6. The RERA Act does not consider split up of a project into a rehabilitated portion and saleable portion as a separate project. The whole project is to be treated as one project. This itself is noted by the Tribunal in para 9 of the order where it is stated that: “The second type of redevelopment projects are where projects, normally have two components, namely, rehabilitation component and sale component.”

Therefore, rehabilitated portion of a project would also be considered as a project requiring registration under RERA.

7. Even if it is accepted that prior registration is not possible in the case of rehabilitated portion before the final agreement with the members of the individual flats in the building/cluster as the case may be still Section 4 of the RERA⁵ which requires registration by a promotor would make it mandatory for a promoter to obtain registration under RERA. The term promotor is defined under Section 2(zk) to include a person who constructs a building for selling all or some of the apartments therein. Therefore, once rehabilitated portion is part of a project its registration is required and consequences for violations under the Act follow.