In a bid to create more consumer friendly, transparent and accountable real estate sector, Real Estate (Regulation and Development) Act, 2016 (“Act”) was passed by the central government. The deadline for the state government to implement provisions of the Act was October 31st 2016.
Some states and union territories were able to adhere to the stipulated deadlines. However major players in the real estate sector viz. Karnataka and Maharashtra have missed the deadline. After a long wait Housing Department of the Maharashtra government finally published the draft Maharashtra Real Estate (Regulation and Development) (Registration of Real Estate Projects, Registration of Real Estate Agents, Rates of Interest and Disclosures on Website) Rules, 2016 (“Maharashtra Rules”) on December 8th 2016.
These Maharashtra Rules have received some mixed signals. On when hand,Maharashtra Rules list out several compliances which a Promoter has to follow. On the other it dilutes several provisions of the Act and its major objective- consumer protection.
Here is the highlight of some of the important provisions of the Maharashtra Rules:
a. As per the Act, the Promoter must declare that 70% of the amount raised from Allottees will be deposited into a separate account in a scheduled bank to cover the construction cost of the Project and land cost. The said amount must be used only for construction of that Project and the land cost. This amount can be withdrawn by the Promoter only after it is certified by an engineer, an architect and a chartered accountant in practice that the withdrawal is in proportion to the percentage of completion of the Project.
The Maharashtra Rules further clarify that the aforementioned certificates shall be submitted by the Promoter to the scheduled bank operating the escrow/separate account. Since the certificates are to be deposited with the scheduled banks operating the escrow/separate accounts, prior to withdrawal by the Promoters, it is implied that the banks are expected to carry out due diligence w.r.t. proportion of such withdrawal.
b. The Maharashtra further lists down the responsibilities of the architect, engineer andthe chartered account:
i. The Project architect to certify the percentage of completion of construction work of each of the building / wing of the Project;
ii. Engineer to certify for the actual cost incurred on the construction work of each of the building / wing of the Project;
iii. Chartered Accountant for the cost incurred on construction cost and the land cost.
C. The Maharashtra Rules have also defined what would construe as land cost and construction cost by specifying that
i. “land cost” shall include;
ii. “construction cost” shall include all such costs, incurred by the Promoter, towards the on-site and off-site expenditure for the development of the Project including payment of taxes, fees, charges, premiums, interest etc. to any competent authority or statutory authority of the Central or State Government under any laws or rules or regulations of the time being in force including principal sums and interest, paid or payable to any financial institutions including scheduled banks or non-banking financial companies etc. or money-lenders for the Project.
d. The totalestimated cost of the Project multiplied by such proportion (70%) shall determine the maximum amountwhich can be withdrawn by the Promoter from the escrow/ separate account. ThePromoter shall berequired to follow the aforesaid procedure at the time of every withdrawal from the escrow / separateaccount till occupation certificate in respect of the project is obtained. On receipt of occupationcertificate in respect of the Project the entire balance amount lying in the escrow/ separate accountcan be withdrawn by the Promoter.
The Maharashtra Rules are a mix of biter and sweet for the consumers. So at this time, all we hope is that the state government takes into consideration all the suggestions from the public when it revisits the draft to formalise the final rules.
Definition of the capitalised terms used herein above, as per Section 2 of the Act:
i. a person who constructs or causes to be constructed an independent building or a building consisting of apartments, or converts an existing building or a part thereof into apartments, for the purpose of selling all or some of the apartments to other persons and includes his assignees; or
ii. a 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; or
iii. any development authority or any other public body in respect of allottees of—
for the purpose of selling all or some of the apartments or plots; or
Explanation.—For the purposes of this clause, where the person who constructs or converts a building into apartments or develops a plot for sale and the persons who sells apartments or plots are different persons, both of them shall be deemed to be the promoters and shall be jointly liable as such for the functions and responsibilities specified, under this Act or the rules and regulations made thereunder;
Juhilata S. Puntambekar is a Manager,Corporate Legal Group, ICICI Bank Limited, Pune.
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