Applicability

The applicability of the Act has been extended to commercial and residential real estate (including plotted development). Further, ongoing projects that have not received Completion Certificates have also been brought under the purview of the Act and such projects will need to be registered with the Regulator within three months. The Act will not be applicable to renovation, repair or redevelopment projects that will not involve marketing, advertising, selling & new allotment.

All the residential projects admeasuring 500 sq mtrs. or more than 8 apartments have to be registered with the authority; thereby ensuring that even the small projects by local promoters are brought under the ambit of the Act.

Separate Project Account

The Act makes it mandatory to the promoters to deposit 70 percent of the customer advances or project funds into a separate dedicated project account so that these funds are utilized for acquisition of land as well construction of the related project. The withdrawals from the account need to be certified by the project engineer, architect and chartered accountants and these accounts are to be audited every financial year and copy of the same needs to be submitted to the authority. This mechanism ensures that the customer advances are not diverted towards other project development and the promoters do not delay the project on account of lack of funds. In case of non-compliance, the Act has stipulated strong financial penalties, including promoters to compensate buyers for incorrect statement with full re-run of the property cost with interest as well as freezing of project account.

Complete Disclosure of Project Details

In order to strengthen the buyer’s point of view, a larger emphasis has been laid on the transparency factor in the Act. The promoter is required to mandatorily register existing as well as new project with the authority before launching or advertising it (separate registration for different phases of the same project). In addition to the registration, the promoter is required to provide ‘full and true’ disclosure in terms of details of projects undertaken in the last 5 years with timelines and reasons for delay, copy of approvals and commencement certificates, sanctioned plans and layout, schedule of development works, proforma of the allotment letter, agreement for sale and conveyance deed, land title and construction insurance, carpet areas and the number of apartments booked. The promoter is also required to disclose names and addresses of real estate agents, contractors, architects, and structural engineers to bring greater transparency to all realty projects and protect buyers’ interests.

In order to safeguard buyers from delay, the Act specifies that the promoter is required to provide a declaration supported by an affidavit stating that he has legal title to the land; that the land is free of all encumbrances; that the timelines will be adhered and that 70 percent of the customer advances will be deposited in the project account. The Act has made the promoter equally liable for the delay in handing over the project, thereby safeguarding interest of the buyers. The Act states that if there are any delays in project, then the promoter will be liable to pay the prescribed interest/damages. 

Carpet Area

The Act has made it mandatory to sell the apartments only on carpet-area basis and has put a stop on the current practice of selling on built-up and super built-up area basis. The Act specifies that in case of more than 5 percent decrease in the carpet area, promoter has to refund pro-rated amount to the buyer; however in case of increase in the carpet area, the buyer does not have to pay any additional amount to the promoter.

Addition and Alternations

Generally it is observed that promoters undertake additions or alterations to the project without informing the buyers. In order to protect the buyers from this practice, the Act has spelled certain guidelines wherein in case of minor changes in design or structure, the same has to be authorized by the architect or engineer and has to be informed to the allottees. In case of major changes in design or structure, the same has to be approved by all the allottees, who will be affected by the said change. In case of any other changes, consent of 2/3rd allottees is required.

Offences and Penalties

• In case of non-registration of project with the authority, the promoter will have pay up to 10 percent of the project cost and in case of continued default; the promoter can face imprisonment of 3 years.
• In case of non-registration of real estate agent, the penalty will be Rs. 10,000 per day up to 5 percent of the property cost.
• In case of the promoter giving false information in the application for registration, there will be penalty up to 5 percent of the estimated project cost.
• Non-compliance of any provision of the Act will attract penalty up to 5 percent of the estimated project cost for the promoter and penalty up to 5 percent of the property cost for the agent.
• Non-compliance with the order of the authority will attract penalty up to 5 percent of the estimated project cost for the promoter and penalty up to 5 percent of the property cost for the agent as well as allottee.
• Non-compliance with the order of the Appellate Tribunal will attract penalty up to 10 percent of the estimated project cost for the promoter or imprisonment upto a period of three years and penalty of up to 10 percent of the property cost or imprisonment of a period of one year for the agent as well as allottee.

Redressal Mechanism

The Act stipulates that the appropriate government should establish the Real Estate Appellate Tribunal by May 01, 2018. Adjudicating officers, Real Estate Authorities and Appellate Tribunals shall dispose off complaints within 60 days. In case, the promoter approaches the Tribunal, then the appeal will be heard only after he deposits 30 percent of the penalty amount or such higher percentage as may be determined.

Other Provisions

• Discrimination in sale of properties on any grounds will also not be entertained under the new rules.
• Promoter shall not transfer or assign his majority rights and liabilities in respect of a project to a third party without obtaining prior consent from 2/3rd allottees and the authority.
• In case the promoter fails to give possession in accordance with the agreed terms or due to revocation of registration, then he will be liable to return the received amount with prescribed interest. Generally, it will be State Bank of India's highest marginal cost of lending rate plus 2 percent.
• Any structural defect or any other defect in workmanship, quality or provision of services or any other obligations of the promoter as per the agreement for sale, brought to notice of the promoter within 5 years from possession, have to be rectified within 30 days free of charge by the promoter.
• Maximum advance/application fee that can be received by the promoter, prior to executing a written agreement for sale is 10 percent of the cost of the apartment.
• It has been made mandatory to set-up an allottees association within three months of the allotment of major units/properties so that the residents can manage common facilities.