The Real Estate Regulatory Act (RERA) enacted in 2016 brought about numerous provisional changes to real estate sector in the country, addressing various concerns that were raised by stakeholders namely buyers and developers. Aspects such as transparency, standardization of practices, onus on developers and investors were key areas that the legislation addressed. The Article also highlights the development of the UP RERA and in terms of state specific changes that it has brought forth to ensure compliance with the respective legislation.
Real estate is one of the world’s most recognized sectors. It comprises four primary sub-sectors, which namely are; housing, retail, hospitality, and commercial. Growth in this sector has been well-complemented by the growth in the corporate environment as well as the emerging demand for commercial office space, and urban and semi-urban accommodations. The construction industry ranks third among the 14 major sectors in terms of direct, indirect, and induced effects in all sectors of the economy.
In India, the sector is deemed as the second highest employer generator, after the agriculture sector. Further, it is expected that this sector will incur more investments from non-resident Indians (NRI’s) both on a short term and long term basis. According tonational reports, the Indian real estate sector has seen healthy growth from the beginning of 2022 and this momentum is set to stand still or escalate in the coming months.
The growth registered in Q3 2021 is reported to be likely to continue, with the year hopefully ending on a certain positive. In the said quarter, residential sales witnessed an upward trajectory,increasing by 65% on a sequential basis. A regime of low interest rates, along with duty waivers (in some states), realistic property pricing as well as attractive offers leading to an affordable synergy would be beneficial to the industry.
In the past year, thereal estate index has seen a rise of 75% and is now the second-best performing sector in the entire index, namely the Nifty50. The sector has not only made a comeback but is expected to grow further in the year to come, bolstered by historically low loan rates along with temporary stamp cuts.
In 2016, the Indian Parliament passed Act to safeguard the interest of both, homebuyers as well as real estate agents/developers. This Act came to be known asthe Real Estate (Regulation and Development) Act, 2016, (hereinafter “RERA” or “the Act”). Aiming to promote investments and ensure transparent transactions, the Act was passed with a vision to clean the mess in the real estate industry and to ensure that no stakeholder faces any losses.
The Real Estate Bill was passed by the Rajya Sabha on March 10, 2016, following which, approval was received from the Lok Sabha on March 15, 2016. The legislation came into force on May 1, 2016. It is pertinent to note that, 59 out of its 92 sections were notified on May 1, 2016, the remaining provisions came into force on May 1, 2017. The legislation made it mandatory for state governments to notify their own rules framed under the Central Act.
For a very long time, buyers had been complaining that transactions in the sector were irregular and leaned in favor of the developers. Introduction of RERA aimed to create a more equitable and fair transaction between the seller and the buyer of properties, especially in the primary market. The Act, it is hoped, would aide in making real estate purchases simpler, by bringing in better accountability and transparency. It will give the Indian real estate industry its first regulator. Each state and union territory shall form its own regulator and frame the rules that will govern the functioning of the regulator.
1.1 Objectives of the RERA
The Act was brought in with certain specified objectives that can be summed up as follows:
a. “To protect the interest of the allottees and ensure their responsibility”;
b. “To maintain transparency and reduce the chances of fraud”;
c. “To implement Pan-India standardization and bring about professionalism”;
d. “To enhance the flow of correct information between the home buyers and the sellers”;
e. “To impose greater responsibilities on both the builders and the investors”;
f. “To enhance the reliability of the sector and thereby increase confidence amongst the investors”.
1.2 Uttar Pradesh Real Estate [Regulation and Development] Rules, 2016
Uttar Pradesh, being the state with the largest population in the country, has the most detailedRERA Act provisions. In the last 5 years, the state of Uttar Pradesh has seen massive investment and development in the real estate sector. Cities like Greater Noida, Noida, and Lucknow have been constantly growing in infrastructure and size. People from all over the country are keen on investing their hard-earned money in these cities and buying their dream houses or plots in the same. The UP RERA has become the first bench across the country tohave disposed of the maximum number of cases for real estate concerns in the last four years, which was made possible by the great effectiveness of the UP RERA Act. The objective of the Act was to settle cases and seek relief for customers at the earliest; the UP RERA has done a great job in this respect. During recent years, various marked changes have been brought about in the sector and which also helped in streamlining real estate transactions. This is how it has been a major regulation as far as the rights of homebuyers are concerned. Further, it has provided protection to buyers in the wake of delayed delivery of projects. Now, homebuyers can be assured that a RERA-registered project will be safe, and their investments are not misused.
2. RERA Act and its Provisions that one must know!
The RERA has provisions that one needs to know to be a safe homebuyer or stakeholder in this industry.
2.1 Formation of Regulatory Authority
Before 2016, India did not have a particular regulating authority to regulate and overlook the functioning of the real estate sector; however, after the enactment of the RERA Act, it has become mandatory for every state and UTs to have a real estate regulatory authority, which has led to the protection of stakeholders, helped in the keeping of a record at a designated repository, and the initiation of a speedy redressal system. It has been made compulsory by the authority to dispose of the complaint applicationswithin the period of 60 days. Moreover, any time extension would be given only if there’s a written explanation and reason given for the same.
2.2 Mandatory Registration
According to the Central Act, it is essential for every real estate project, where the total area exceeds 500 sq. mt. or more than 8 apartments are to be constructed, to be registered at their respective State’s RERA. The projects that do not have their Completion Certificate (CC) or Occupancy Certificate (OC) are also required to comply with the same. And these projects need to file their registrationwithin the period of 30 days. Once the registration is done, the promoter/developer needs to post all the valid/required documents on the official website of RERA. Upon failure to comply with this, the promoters/developers will be penalized with 10% of the total cost of the project or imprisonment of up to 3 years.
2.3 Title Representation
The Act has made it essential for the promoters to make awarranty, stating their rights on the title and interest on the land. Furthermore, in the case of any defect found in the title, this warranty may be used by the buyer against the developer/promoter.
2.4 Uniform Sale Agreement
The Act has laid down a model sale agreement which has to be followed by every developer/promoter when entering into a sale agreement with buyers. Before promoters used to make agreements that could cover their defaults and the liability would eventually fall upon buyers. However, the standard sale agreement has now helped buyers enter into safe transactions.
2.5 Section 3
This section states that no promoter shall sell, advertise, market or book any plot of land or flat without registering the project with the Real Estate Regulatory Authority.
2.6 Section 6
In this section, it is stated that registration granted under Section 5 of the Act by the Authority may beextended upon an application made by the promoter – however, this would only be permitted on the ground of Force Majeure, and the Authority, under reasonable circumstances, based on facts for each case, may extend the registration granted to a project for any such time that it considers necessary, not exceeding more than a year.
2.7 Section 11
This Section deals with thefunctions and duties of the promoter wherein it places a mandate upon the promoter to update the registration details of the project. It also makes it mandatory for the promoters/developers to be quarterly up-to-date on the number of plots or flats booked (as the case may be) or on the status of the project and other such information.
2.8 Section 13
According to this section, the promotershall not accept more than 10% of the cost of the property from the buyer as an advance amount without entering into a sale of agreement.
Moreover, the third clause states that in case of any structural defect or any other defect in the quality, and the same being brought to the notice of the promoter within a period of five years by the allottee from the date of handing over possession, it shall be the duty of the promoter to rectify such defects without further charge,within 30 days.
2.9 Section 18
The section states that the compensation and return of the amount in cases where the promoter is unable to complete the project or is unable to give the possession on time, the buyer/allottee may seek interest from him for the same. It further states that in a situation where the promoter fails to discharge obligations imposed on him under this Act, as per the terms and conditions of the agreement for sale, he shall be liable to pay such compensation.
2.10 Section 31
The section enables the aggrieved person to file a complaint application under the authority or to the adjudicating officer for any sort of violation or contravention of the provisions of the Act. Herein the aggrieved person can be an association of allottees or any voluntary consumer association.
2.11 Section 35
If the authority considers it expedient to do so, on a complaint or suo moto, then under Section 35, it may order the promoter, allottee, or real estate agent to furnish any information that it seeks, either in writing or recording.
2.12 Section 44
This section allows the buyer/allottee to file the application of appeal in the appellate tribunal within 60 days of the date of the order/direction passed by the RERA authority. However, if the tribunal finds that there had been a delay in the filing of such an application, and that delay was due to a reasonable reason, it may also entertain the appeal after the expiry of 60 days.
The section further states that the appeal filed under Section 44 shall be endeavored within the period of 60 days from the date of receipt of such an appeal. It shall also compel the authority to record in writing if it fails to dispose of the appeal within the said period.
2.13 Section 59-68
This series of sections deals with penalties in different circumstances. While Section 63 deals with penalties upon promoters for failure to comply with the orders of the Authority, Section 64 deals with the same for failure to comply with orders of the Appellate Tribunal by the promoter.
3. Recent Supreme Court Judgement
In November 2021, the Hon’ble SC pronounced its judgment in the case ofNewtech Promoters and Developers v. State of U.P and Others which has been deemed to be one of the landmark verdicts in the real estate sector. The Supreme Court provided clarity on certain aspects of the RERA – this will prove to be life-saving, as far as the Homebuyers are concerned.
Some of the important issues that were raised in front of the Honorable Court were:
a. “Whether the RERA is retrospective or retroactive in its operation?”
b. “Whether the regulatory authority has jurisdiction to direct the return or refund of the amount to the allottee under Sections 12, 14, 18, and 19 of the RERA, or that jurisdiction is exclusively vested with the adjudicating officer under Section 71 of the same?”
c. “Whether Section 81 of the Act allows the authority to delegate its powers to a single member of the authority to hear complaints filed under Section 31 of the Act? ‘
d. “Whether the authority has the power to issue recovery certificates for the recovery of the principal amount under Section 40(1) of the Act?”
The court observed that the clear and definite language of the statute is retroactive in nature. It had been carefully enacted to ensure that the interest of consumers in the real estate industry is protected. Sections 13, 18(1), and 19(4) are allbeneficial provisions for safeguarding the pecuniary interest of the consumers/allottees. Therefore, we can say that it negates the contention of the promoters regarding the contractual terms having an overriding effect over the retrospective applicability of the Act.
In its observations, the Supreme Court held that it is clear from the scheme of the Act that the power of adjudication has been given to both – the Regulatory Authority and Adjudicating Officer. Although the Act specifies the distinct terms like ‘refund’, ‘penalty’, ‘interest’, and ‘compensation’, the combined reading ofSections 18 and19 clearly indicate that when it comes to refunding of the amount, and interest on refund amount, or directing payment of interest for delayed delivery of possession, or penalty and interest thereon, the Regulatory Authority has the power of to examine and determine the outcome of the complaint. And it is underSections 12, 14, 18, and 19, where the Adjudicating officer has the power to determine the relief sought by the complainant, evident upon reading Sections 71 and 72 under the Act. If the adjudication under Sections 12, 14, 18, and 19 other than compensation as envisaged, is extended to the Adjudicating officer, that might expand the ambit and scope of the powers and functions of the adjudicating officer under Section 71, and that would be againstthe mandate of the Act of 2016.
The court in its observation held that underSection 81 of the RERA Act 2016, the Authority is empowered by the general or special power to delegate its power to any member of the authority, subjected to the conditions prescribed in the Act. The court was of the opinion that all the other powers exercised by the Authority could be delegated to any of its members for the speedy disposal of complaints, through the general or special order. In this particular case, under Section 31,the power to decide the case was delegated to a single member of the Authority.
It was stated by the Hon’ble court that there is a certain kind of inconsistency in the powers of the Regulatory Authority regarding the refund of the amount received by the promoter, and Section 18 and Section 40(1), by which such refunds can be referred to. While balancing the construction of the purpose of the Act, as the right of recovery is allowed inSection 40(1) of the Act, keeping in mind the intention of the parliament to provide for a speedy recovery of the amount invested by the allottee, along with the interest brought upon himself thereon, is self-explanatory. However, if Section 40(1) is strictly construed, and it is understood to mean that only the penalty and interest on the principal amount are recoverable as the amount overdue of land revenue,it would defeat the basic purpose of the Act.
Before the RERA Act was brought into force, there had been no binding obligations on the real estate developers to deliver the property to owners or buyers in time. Therefore, the inconsiderable delay was witnessed, which observably had a negative effect on the financial status and mental status of the homebuyers. The land owners/allottee had to double pay, since they had to pay the rent for the places where they were already living along with the EMI for the tenure for the said plot, so as to abide by the Terms and conditions of the Sales Agreement, causing overburden. Moreover, after all this, there was still nobody to ask or enquire about the same to promoters/developers. However, since the RERA came into effect, approximately 60% of the allottees have preferred to initiate litigation and dispute resolution under their respective State RERA regulations, rather than taking up the matters to consumer forums or other courts for civil remedies.
The disposal rate and remedies delivered at RERA courts are speedier and more impactful as compared to the civil or consumer courts. The time period specified within the Act makes the purpose of the Act to dispose of the matter, more alive and practical, hence, saving the homebuyers a lot of mental and financial stress. Further, the success ratio of cases under the RERA is more result-oriented and expeditious, with concrete judgments being passed against the errant developers and builders.
It has been seen that ever since the enforcement of the RERA Act, the banks and financial institutions have stopped lending money to retail buyers under real estate projects that have not been registered or registration of which has been canceled by the State RERA Authorities. Now, both developers and builders are mandated to submit all proof and verified documents regarding their projects. In doing this, the Act has made transactions in the real estate industry more transparent and hassle-free for all the stakeholders. Earlier, the legislative regime had not been strong enough to hold the developer and the builder liable for the misconduct caused by them, as well as for not complying with the Terms & Conditions of the builder-buyer agreement. The making and execution of RERA have thus come to the rescue for people across the entire Real Estate sector and protected their interests in both financial and legal spheres.
The views and opinions expressed by the authors are personal.
About the Author
Ms. Pratima Singh is a Senior Legal Executive at Emaar India.
Managing Editor: Naman Anand
Editors-in-Chief: Jhalak Srivastava & Muskaan Singh
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Preferred Method of Citation
Pratima Singh, “An Overview of the Real Estate Regulatory Act with Special Emphasis on UP-RERA and Recent Supreme Court Judgement” (IJPIEL, 6 July 2022)