Introduction
Section 6 of The Real Estate (Regulation and Development) Act, 2016 (hereinafter referred to as the “Act”) allows for the extension of registration of a real estate project originally granted under Section 3 of the Act by way of an application by the Promoter made on the grounds of force majeure provided that there is no default on the side of the promoter. Force Majeure is when an act of God i.e., floods, earthquakes, tsunamis, cyclones, or even a pandemic. More light has been brought upon the Force Majeure clause after the covid-19 pandemic unfolded in 2019. Invoking the Force Majeure clause has expanded the nature of reliefs that the aggrieved parties can seek for under different laws such as contracts, real estate law, company law, labour law, etc. When an Act of God occurs, it drastically affects the real estate sector, for example, the occurrence of a flood gives rise to the possibility of construction materials going to waste or continuous heavy rains lead to the construction activities in a real estate project being put on a hold. Therefore, a clause that allows for extension of the end date in the project registration certificate on the ground of force majeure protects the promoter from unprecedented losses that are caused by acts of God.
Background
The most evident case of force majeure is the prevailing covid-19 pandemic. The covid 19 pandemic led to a global economic break down caused by the nationwide lockdown which came into effect from March 2020. Reverse migration of labourer’s to their native places and break in supply chains resulted in lack of construction material and the delay in construction activities of real estate projects across the country.
During this time Ministry of Housing and Urban Affairs issued an advisory regarding extension of registration of real estate projects and extending timelines of all statutory compliances due to force majeure under the provisions of the Act. Subsequently, Maha-RERA had revised project registration validity by 6 months and Karnataka RERA by 9 months. Accordingly, the time limit for compliances under Section which were due at any time was extended till the expiry of force majeure period.
Another instance of force majeure event under section 6 of the Act was the Chennai floods of 2015 which turned out to be of some benefit to promoters. The real estate sector was one of the worst hit businesses then. Besides wastage of hundreds of tonnes of building materials such as cement and sand at construction sites and losses due to inordinate project delays, developers also lost their prevailing sales momentum.
Can a force majeure clause be invoked due to COVID-19?
During the covid-19 pandemic, the Ministry of Finance, GOI, issued an internal office memorandum dated February, 2020 addressing the central government ministries and departments stating that the global pandemic outbreak should be considered as a case of natural calamity and that Force Majeure clauses can be invoked under given circumstances upon having followed due procedure.
Essential Features of Section 6
- Registration of a real estate project may be extended on the grounds of Force Majeure by the Authority.
- The application for extension of registration is to be made along with the fees by the promoter.
- The definition of Force Majeure includes war, flood, drought, fire, cyclone, earthquake or any other calamity caused by nature.
- Extension of registration can be granted for a maximum of one year.
- Application is to be made along with necessary documentation demonstrating the latest progress status of the development works in the project on the basis of which registration is granted.
Extracts from the Rules of various states in India regarding the extension of registrations of project:
a. Maharashtra
The application for extension of Real Estate Project must be accompanied with a fee calculated on the area of land proposed to be developed at the rate of Rs.10/- per square meter (Fee must be a minimum of Rs.10,000 only and a maximum of Rs.10 Lakhs).
b. Telangana / Puducherry
The application must be accompanied with a fee that is half of the amount of registration fees.
c. Andhra Pradesh / Uttar Pradesh
The application must be accompanied with a fee that is twice that of the registration fees.
d. Goa
The application is to be accompanied with the fee calculated on the area of land proposed to be developed at the rate of Rs. 10 per square meter. (Fee must be a minimum of Rs. 50,000 and a maximum of Rs. 10 Lakhs.)
In all the above-mentioned states the application for extension of registration with the respective fee must also include an explanatory note setting out the grounds and reasons for the delay in the completion of the real estate project and the need for the extension, along with documents supporting such grounds.
Case Laws
Baljeet Singh v/s M/s. Omaxe Chandigarh Extension Developers Pvt. Ltd.
The facts of the case in brief:
- The Complainants booked an independent floor in the project of the Opposite Party namely Celestia Royal Chandigarh.
- The possession of the residential houses was to be delivered on or before 27.07.2018 i.e., within a period of 24 months from the date of execution of allotment letter dated 28.07. 2016. Opposite Party failed to do so.
- The complainants have filed the instant consumer complaint alleging that the aforesaid acts amount to deficiency in service and unfair trade practice on the part of the Opposite Party
- In this case the respondent counsel stated that the Government of India realizing the difficulties being faced by the real estate sector issued an advisory dated 13.05.2020, for extension of registration of real estate projects due to ‘Force Majeure’ under the provisions of the Real Estate Act, 2016.
- Ministry of Housing & Urban Affairs, Government of India, directed the Real Estate Regulatory Authorities of each States & Union Territories to issue suitable orders to extend the registration or extended completion date automatically by 6 months due to the outbreak of COVID-19 which is adversely affecting regular development of real estate projects.
- However, the Commission did not find much substance in the plea for the reason that according to the formal agreement signed between the parties the possession of the unit was to be delivered on or before 27.07.2018 i.e., within a period of 24 months from the date of execution of allotment letter/ agreement. Concededly, COVID-19 Pandemic had virtually crept into the world only by February, 2020 which is beyond the expected date of handing over of possession of the unit i.e., 27.01.2019. Thus, it is proved that the Opposite Party is definitely deficient in rendering proper services to the Complainants as it failed to hand over the possession of the unit on the expected date even after receiving a huge amount from the Complainants.
In this case the plea of section 6 would be valid if the date of delivering the possession of the unit was after the covid 19 pandemic entered India. Therefore, the court ruled against the developers.
Conclusion
Section 6 of the Real Estate Regulation and Development Act, 2016 is an essential one as in the absence of this section, promoters and developers would be drastically affected by the acts of God i.e., natural calamities like flood, fire, cyclones, pandemics, etc. In these cases, the real estate sector is often the worst affected business as it faces a drastic slowdown is sales momentum, aggrieved homebuyers due to delay in possession, wastage of construction material, etc. In situations like these, the developers will need to face the consequence of the calamities which could be huge financial losses, legal action from allottees, etc.
During this difficult time, we can see how section 6 of the Act plays an important role by acting as a blanket to protect not only the developers but also the homebuyers from loss and from facing legal action.
This blog is written by Trisha Prabu, an intern of Smriti Legal LLP.
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