Joint development agreement under MahaRERA from land owner prospective

1. Introduction

The Real Estate (Regulation and Development) Act, 2016 (‘RERA’) has been enacted to establish the Real Estate Regulatory Authority for regulation and promotion of the real estate sector and to ensure sale of plot, apartment, building, or sale of real estate project, in an efficient and transparent manner and to protect the interest of consumers in the real estate sector.

This articles aims at providing the basic understanding and additional compliance requirement which will be required to be complied by the land owner / developer of the real estate project under MahaRERA.

2. Framework of joint development agreement:

Under a Joint Development Agreement (‘JDA’), builder / developer enters into an agreement with land owner for developing building on his land. Land owner will transfer his development right in land to the builder / developer. As a consideration, builder / developer will allot certain apartments / units (in case of area sharing JDA) or certain percentage of gross revenue ( in case of revenue sharing agreement JDA) to land owner. For better understanding, framework arrangement is depicted below:

3. Definitions:

Section 2(zk)(ii) of RERA, promoter means, “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”

Further, the MahaRERA authority has clarified vide circular 12/2017 that, “a careful consideration of the aforesaid definition in the light of the true object and purpose of the said Act, leaves no manner of doubt that such individual/organization will be covered and clearly falls within the definition of the term ‘Promoter’”.

On careful, pursuance of the definition prescribed under the Act and clarification provided by the MahaRERA authority, it is clear that, land owner who enters into JDA with builder will also be considered as ‘Promoter’ for the purpose of RERA.

4. Additional compliance burden on land owner:

Since, land owner will be considered as a promoter (in case of JDA), the land owner will be required to comply with the following:

• As per the Section 4 of RERA, every promoter shall make an application to the authority for registration of the real estate project. Accordingly, in case of JDA, promoters will be required to obtain two registrations i.e. one registration for builder / developer and one registration for land owner.
• As per Section 4(2)(I)(D) of RERA, the land owner will be required to deposit 70% of the amount received from allottees to the RERA designated account. Further, he will be able to withdraw amount to the extent of work completed as certified in Form 3.
• He will be required to obtain certificate in Form 3 from Chartered Account at the time of withdrawal and / or for quarterly updation of data on RERA portal.
• He will be required to get his books of accounts audited (even though not liable to get it audited as per the Income Tax Act, 1961) within six months from the end of financial year and is also required to obtain certificate in Form 5 from a Chartered Account.
• The liability of land owner will be treated at par with the liabilities of the builder / developer (as per circular 12/2017. Accordingly, provisions of chapter III of RERA will be applicable to the landowner also. Summary of sections of chapter III are as under:

5. Queries which requires clarification from authorities

• Once land owner’s apartment / units are completed and he sells he’s portion of apartment / units after receipt of Part Occupancy Certificate (remaining building work is pending). In that case, will he be able to withdraw the entire sales proceeds of the ground floor or he will be able to withdraw only to the extent of percentage completion of the entire project as he is also a co-promoter of the project.
• After receipt of Part Occupancy Certificate (of his area share), whether land owner will be continue to be liable for the balance project.
• Certain relief should be available to the land owner in case of structural defects as the land owner is not constructing any building.