MAINTENANCE CHARGES AND THE LAW ON PAYMENT OF INTEREST

MAINTENANCE CHARGES AND INTEREST

Real Estate (Regulation and Development) Act, 2016

1. Maintenance charges involve a contractual element between the buyer and the developer. It is included in the allotment letter, initially issued to the buyer after he has paid the booking amount.

2. Every housing society has some common areas and as per the Real Estate (Regulation and Development) Act, 2016 (“RERA”), the promoter or the builder is responsible for providing and maintaining essential services on reasonable maintenance charges to be paid by the residents. Once the society’s Resident Welfare Association (“RWA”) is formed, and the maintenance work is handed over to it, the builder can no longer charge for maintenance. RWA can then devise its own set of rules for maintenance charges.

3. On many occasions, builders hand over the flat’s possession without an Occupancy Certificate (“OC”) and start charging maintenance fees to the buyers even if the buyers do not stay in the house. However, Maharashtra Real Estate Regulatory Authority (“MahaRERA”) has ruled against builders asking them not to charge maintenance fees to those buildings which have not received an OC and to those buyers who do not take possession.

4. Provisions of RERA

According to RERA, the promoter or project developer is responsible for providing and maintaining essential and common services at a reasonable charge payable by the flat purchasers till the time the co-operative housing society or RWA is formed.

Section 11

Functions and duties of promoter

Section 19

Rights and Duties of Allottees

 

Section 11(4)(d) states that the 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. Section 19(6) states that every allottee, who has entered into an agreement for sale to take an apartment, plot or building as the case may be, under section 13[1], shall be responsible to make necessary payments in the manner and within the time as specified in the said agreement for sale and shall pay at the proper time and place, the share of the registration charges, municipal taxes, water and electricity charges, maintenance charges, ground rent, and other charges, if any.
Section 11(4)(g) state that the promoter shall be 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). Section 19(7) states that the allottee shall be liable to pay interest, at such rate as may be prescribed, for any delay in payment towards any amount or charges to be paid under sub-section (6).

 

Proviso to Section 11(4)(g) states provided that where any promoter fails to pay all or any of the outgoings collected by him from the allottees or any liability, mortgage loan and interest thereon before transferring the real estate project to such allottees, or the association of the allottees, as the case may be, the promoter shall continue to be liable, even after the transfer of the property, to pay such outgoings and penal charges, if any, to the authority or person to whom they are payable and be liable for the cost of any legal proceedings which may be taken therefor by such authority or person. Section 19(8) states that the obligations of the allottee under sub-section (6) and the liability towards interest under sub-section (7) may be reduced when mutually agreed to between the promoter and such allottee.

The Act provides for interest by way of penalty, however does not prescribe the percentage.

Maharashtra Ownership of Flats (Regulation of the Promotion, Construction, Sale, Management and Transfer) Act, 1963 (“MOFA”)

  1. While maintenance charges in an operational co-operative housing society are generally calculated as per the guidelines stated under MOFA, in case of under-construction projects, real estate developers often charge advance or up-front maintenance charges when allottees book the apartments, in some real estate projects, the builder commits to maintain the projects for a few years initially, and then the builder recovers a maintenance charge for this, payable by the purchaser/allottee either in lump-sum or in instalments.
  2. Section 6 of the Act provides that a promoter shall, while he is in possession and where he collects from persons who have taken over flats or are to take over flats sums for the payment of outgoings even thereafter, pay all outgoings (including ground rent, municipal or other local taxes, taxes on income, water-charges, electricity charges, revenue assessment, interest on any mortgage or other encumbrances, if any), until he transfers property to the persons taking over the flats, or to the organisation of any such persons, where any promoter fails to pay all or any of the outgoings collected by him from the persons who have taken over flats or are to take over flats, before transferring the property to the persons taking over the flats or to the organisation of any such persons, the promoter shall continue to be liable, even after the transfer of the property, to pay such outgoings and penal charges (if any) to the authority or person to whom they are payable and to be responsible for any legal proceedings which may be taken therefor by such authority or persons.
  3. Section 12 provides for the general liabilities of the flat taker and under Sub-section (1) states that every person who has executed an agreement to take a flat shall pay at the proper time and place the price, his proportionate share of the municipal taxes, water and electricity charges, ground rent (if any) and other public charges in accordance with his agreement with the promoter; and where a co-operative society or a company of persons taking the flats is to be constituted, co-operate in the formation of such society or company, as the case may be. It further states under Sub-section (2) that if any person who has executed an agreement to take a flat and who, without reasonable excuse, fails to comply with or contravenes sub-section (1) shall, on conviction, be punished with fine which may extend to two thousand rupees.
  1. The Act does not prescribe imposing any interest on delayed payment of the charges.

Maharashtra Apartment Ownership Act, 1970 and Rules, 1972

1. Section 2(f) defines common areas and facilities and Section 2(g) defines common areas and facilities which covers maintenance charges.

2. Further, Section 10 provides that the common profits of the property shall be distributed among, and the common expenses shall be charged to, the apartment owners according to the percentage of the undivided interest in the common areas and facilities.

3. Section 19 states that all sums assessed by the Association of Apartment Owners but unpaid for the share of the common expenses chargeable to any apartment shall constitute a charge on such apartment prior to all other charges except, only (i) charge, if any, on the apartment for payment of Government and municipal taxes, and (ii) all sums unpaid on a first mortgage of the apartment.

4. Rule 40 (Maintenance and Repair) prescribes as follows:

(1) Every owner must perform promptly, all maintenance and repair work within his own unit, which if omitted would affect the Condominium in entirety or in a part belonging to other owners, being expressly responsible for the damages and liabilities that his failure to do so may endanger.

(2) All the repairs of internal installations of the unit such as water, light, gas, power, sewage, telephones, air conditioners, sanitary installations, doors, windows, lamps and all other accessories belonging to the unit area shall be at the expense of the apartment owner concerned.

(3) An owner shall reimburse the Association for any expenditures incurred in repairing or replacing any common area and facility damaged through his fault.

5. There is no provision of application of interest on delayed payment mentioned in the Act or the Rules. However, if the bye-laws of the condominium specify a certain percentage on delayed payments by way of penalty, then it shall be applicable.

Model Bye-Laws of Co-operative Housing Society

Chapter VIII of the Model Bye-Laws for Co-operative Societies in Maharashtra (by virtue of Maharashtra Co-operative Societies Act, 1960 and the Rules laid thereunder) deals with levy of charges by the society.

1. Bye-Law No. 67: Composition of the Charges of the Society

The contribution to be collected from the members of the society towards outgoings and establishment of its funds, referred to in these bye-laws as ‘charges’ may be in relation to the following:

(iv) Contribution to Repairs and Maintenance Fund

(ix) Interest on the defaulted charges

2. Bye-Law No. 70: Payment of the Society’s Charges

The Secretary of the Society, shall prepare bill/demand notice in respect of the charges of the society payable by members on the basis of the bye-law no. 69 (a) and issue the same to all the members on or before the date fixed by the Committee in that behalf. Every member of the Society shall pay the amount mentioned in the bill/ demand notice in full within such period as may fixed by the Committee.

3. Bye-Law No. 72: Interest on defaulted charges

A member shall be required to pay simple interest at such rate as is fixed by the general body of the society at its meeting, subject to the maximum of 21 percent per annum, on the charges of the Society, from the date the amount was delayed till its payment not paid by the member within the period as prescribed under bye-law no. 70.

GENERAL LAW ON IMPOSITION OF INTEREST FOR DELAYED PAYMENTS

1. General Principles on Imposing Interest

Parties to a contract have the discretion to decide on the interest rate as there is no statutory interest rate specified under Indian Contract Act, 1872. However, there is a statutory limitation on the rate of interest payable in a civil litigation for non-payment of dues relating to commercial transactions. This is capped at the rate of interest agreed in a contract, and in the absence of the same the rate at which moneys are lent or advanced by scheduled commercial banks in India for commercial transactions. Further, the courts are also statutorily empowered to relieve a party to a contract from paying exorbitant interest where the courts are of the view that the rate of interest is excessive or the transaction is proven to be substantially unfair.

The Hon’ble Delhi High Court, in Devendra Kumar Jain v. Polar Forgings and Tools Ltd. (1995 84 CompCas 766 Delhi), held that even in absence of an agreement between the parties as to the rate of interest, the Court can determine the reasonable rate of interest, and to avoid multiplicity of proceedings, also calculate its quantum.

Indian Contract Act, 1872

When a contract has been broken, if a sum is named in the contract as the amount be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.

Explanation: A stipulation for increased interest from the date of default may be a stipulation by way of penalty.

Example under the Act: A gives B a bond for the repayment of Rs. 1, 000 with interest at 12 per cent at the end of six months, with a stipulation that, in case of default, interest shall be payable at the rate of 75 per cent from the date of default. This is stipulation by way of penalty, and B is only entitled to recover from A such compensation as the court considers reasonable.

The Civil Procedure Code, 1908

Section 34 of the Code provides for interest and states as follows:

Where and in so far as a decree is for the payment of money, the Court may, in the decree, order interest at such rate as the Court deems reasonable to be paid on the principal sum adjudged, from the date of the suit to the date of the decree, in addition to any interest adjudged on such principal sum for any period prior to the institution of the suit, with further interest at such rate not exceeding six per cent, per annum as the Court deems reasonable on such principal sum from the date of the decree to the date of payment, or to such earlier date as the Court thinks fit :

Provided that where the liability in relation to the sum so adjudged had arisen out of a commercial transaction, the rate of such further interest may exceed six per cent, per annum, but shall not exceed the contractual rate of interest or where there is no contractual rate, the rate at which moneys are lent or advanced by nationalised banks in relation to commercial transactions.

Explanation I: In this sub-section, “nationalised bank” means a corresponding new bank as defined in the Banking Companies (Acquisition and Transfer of Undertakings) Act 1970 (5 of 1970).

Explanation II: For the purposes of this section, a transaction is a commercial transaction, if it is connected with the industry, trade or business of the party incurring the liability.

The Interest Act, 1978

The Interest Act permits the Court to allow interest in certain circumstances, first, if a certain sum is payable by virtue of some written instrument at a certain time, from that time, or, secondly, if payable otherwise, from the time of a written demand with notice of the claim of interest.

It states that in any proceedings for the recovery of any debt or damages or in any proceedings in which a claim for interest in respect of any debt or damages already paid is made, the court may, if it thinks fit, allow interest to the person entitled to the debt or damages or to the person making such claim, as the case may be, at a rate not exceeding the current rate of interest.

“Current rate of interest” means the highest of the maximum rates at which interest may be paid on different classes of deposits (other than those maintained in savings account or those maintained by charitable or religious institutions) by different classes of scheduled banks in accordance with the directions given or issued to banking companies generally by the Reserve Bank of India under the Banking Regulation Act, 1949 (10 of 1949).

Section 3 of the Act clearly states that nothing in this Act shall empower the Court to award interest upon interest.

[1] No deposit or advance to be taken by promoter without first entering into agreement for sale.

Tags:

Author Bio

More Under Corporate Law

2 Comments

  1. A K Misra says:

    Thank you for this very informative article. However, I was wondering if there is any statutory provision/ prohibition or any case law regarding the levy of maintenance charges (by a RWA promoted by the builder itself !) in respect of a residential housing project where all the facilities (such as club house, approach road, etc.) promised by the builder in the buyer’s agreement have not been completed / not provided to flat buyers but possession has been handed over, after obtaining the OC? This is a case we are actually facing, and would be thankful for your guidance in pointing to the relevant statutory provisions / case laws.

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

October 2020
M T W T F S S
 1234
567891011
12131415161718
19202122232425
262728293031