Redevelopment of Housing Society’s building: How to get down into task?

[This article elucidates on various types of problems to be encountered by the Society’s members in redevelopment of their building, procedures to be adapted for selecting a reliable builder/developer for the redevelopment project, and important conditions to be included while entering into a redevelopment agreement with the builder.]

The redevelopment works best when a society is in dire need of extensive repairs but is starved of the necessary funds for it. Any building that is over 25 years old can go for redevelopment once it is declared as dilapidated by a Government architect. Under the Maharashtra Apartment Ownership Act (MAOA) with a minimum of 51% of members’ consent, a Society’s dilapidated building can be reconstructed. Under the provisions of Development Control Rules, it has become easy for developers to get buildings declared dilapidated even when they are not really so. Given the strong politician-builder nexus in a city like Mumbai, it is not difficult to get a building declared dilapidated by a government architect. If society entrusts the redevelopment contract to them, developers offer extra flat areas with pre-established benefits and a given amount of corpus fund, to the existing flat owners in a newly constructed earthquake resistance structure which increases the life expectancy of the building. The selected builder constructs a new building as per approvals obtained from the Municipal authorities and delivers new flats to the Society members free of cost with some additional benefits like extra falt area as per the contract. The builder makes a profit in the project by utilizing balance plot potential by constructing additional flats and selling them to new buyers.

Societies that want to go for the self-redevelopment of their building may click ‘Self-Redevelopment project’ to know the process, benefits, and drawbacks.

However, there are several things to keep in mind while dealing with the redevelopment of a building, especially for flat owners in a CHS. The first and foremost thing you have to remember is that without conveyance of property in its name a society cannot redevelop the building. Even for using additional FSI or for carrying major repairs, Municipal authorities will insist on NOC from the Landowner of the building.

Conveyance is a transfer of the title deed of land and building by the promoter/landowner in favour of housing society by execution of conveyance deed and recording the ownership of the society in the property card as well as revenue records so that the legal rights and the title of the land and building transferred in the name of the society. However, it is the common experience of housing societies that many builders do not transfer the title of the property (ownership of the property) to the co-operative housing society because of several benefits explained in our article “Why conveyance of property is important”. If you look at the bye-laws of a housing society, you may find that the main objective of a CHS is to obtain the conveyance from the landowner/developer in its name. Thus, members and the managing committee of the society should be more serious about the conveyance of the property in the name of the society, to protect the interest of flat owners.

How to find a proper builder/developer for a redevelopment project?

The builder whom the society selected should be transparent, reliable, and trustworthy. The most recommended way to choose a builder is to go by the tendering system. The society should prepare a comparative chart of proposals received from at least 3 builders and select a builder after checking the merit, reputation, technical capability, experience, and financial status, quality of construction and successful completion of projects, etc. The Society’s members can visit the various redevelopment projects completed by the developers. Before the site visit, the letter of acceptance given by the cooperative society (where the site visit is proposed) should be insisted. The developer must be asked to give the details of his offer to the cooperative societies where he has undertaken redevelopment work earlier with the information like date of the offer, area constructed date of acceptance offer, date of receipt of IOD (intimation of disapproval (IOD) is necessary for the builder to demolish the building), Date of receipt of occupation certificate, Date of receipt of the building completion certificate, Income Tax return of developer and his partners, directors of the developer company. Society members may also visit the RERA website to find out about the projects completed by the named builder, and the information about complaints against such builders from the flat owners about the irregularities in the constructions, etc.

Problems encountered by the Society’s members in redevelopment projects:

The redevelopment of a building can take place if 51 percent of the members of the Society tender their consent for the same. Nevertheless, it is a problematic process with a lot of uncertainties and every possible dispute and the redevelopment project can get held up if caught in the middle of various complications.

It usually takes the builder at least 18 to 24 months to complete a project with an extended grace period of six months in case of any adverse eventuality. However, seeing the intricacies included in the Mumbai real estate market, redevelopment of buildings can be considered very difficult. It may be further delayed due to changed regulations in respect of FSI, Court orders staying, Non-performing Developers, etc. Further, the defective title of the property or boundaries and area of the plot on which old building stands, do not match with city survey maps or town planning maps would take quite some time and huge efforts to sort out such types of mess. At the time of vacating the existing premises, paving way for the construction of the new building, all the occupants have to give consent and vacate as per the resolution passed in the general body meeting. In case, any members refuse to do so the society or the builder may have to move to the competent court for vacating such members. The changed regulations, Court orders, stays, Non-performing Developers, etc. may also create problems for Societies and their members. All these things would delay the completion of the project. There are other specific challenges they may be at hand or not, if the developer does not enter DA, lingers time limit of three months after selection, or the developers abandon construction midway, or sudden shortage or unavailability of any construction material, non-availability of construction workers in situations like Carona pandemic. Besides, challenging local site conditions like low water tables or surrounding buildings requiring silence like hospitals or educational institutes, no conveyance, height restriction, etc may cause an unimaginable delay in completing the project. Not addressing internal conflict/misconception about carpet area, no strategy, no focus, wrong priorities, and inferior tender document and bidding process, incorrect criteria for selecting developer, no due diligence while selecting a developer, etc may become disastrous to the society and its members.

Members of the society need to confirm that the developer purchases the additional TDR and loads it on the society for providing an extra flat area along with pre-established facilities to its existing members. This is because, if the TDR rules change after vacating the flats, the builder might not be able to give the extra flat area he had promised.  Further, flat owners should not vacate their existing flats till the developer obtains necessary legal approval and permits for the redevelopment of the building and the redevelopment agreement is registered.

Things to know before entering into a redevelopment agreement with the builders:

In view of the importance of a proper redevelopment contract, the society should appoint a competent lawyer to draft the redevelopment contract so as to circumvent malpractices from the builder/developer. The redevelopment agreement should mention the time of completion of the project, the size of the new houses. Corpus amount, Carpet area offered to every flat owner, alternative accommodations to the flat owners till the new flats are completed for occupation. The right of the developer should be as a licensee and not as an owner. The contract should clearly mention the obligations of the builder and the society members and the penalty or consequences of any breach of the contract by either of the parties including termination of the development contract. The amenities to be provided in the new building should be specified in detail. TDR purchased shall be in cooperative society’s name not in the builder’s name. The rights for additional FSI/TDR benefits available to the society should exclusively belong to the society. The number of car parking spaces to be retained for existing members of the cooperative society (stilt as well as open car parking) should be specified in the agreement. Many builders often twist and grossly violate the rules by unlawful planning and constructing additional areas that are beyond their entitlement. Therefore, there shall be clear mention in the agreement that the builder should not make any changes in the building plan without the written consent of the society’s architect. Society’s architect must certify with regard to the carpet area of each flat, specifically mentioning the area of niche, drying space, dry balcony, and amenities provided in detail in terms of the agreement (be specific in Sq Metr/sq feet terms). No application for condoning of parking space deficiency should be made by the developer without the society architect’s written consent. The builder shall provide a bar chart with regards to the phase at which construction activities would proceed. The society shall have the right to charge a penalty or terminate the Development Agreement if the builder violates one or more conditions of the agreement or does not complete construction on or before a specified date. The developer/builder should indemnify the cooperative society for all costs, expenses directly and/or indirectly connected with construction-related activities. There shall be a clause that the Income-tax liability on the entire redevelopment process and profit from sales of flats by the developer would be the liability of the developer. The amount to be collected towards transfer from new flat purchasers should be specified. Once the agreement is accepted in terms of area and corpus fund, it cannot be revised. The agreement must also contain the clauses regarding mode of reimbursement of monthly rent equivalent to the prevalent rate of rentals in the same vicinity, brokerage, and transportation charge that the flat owner has to incur while securing an alternate accommodation. The developer usually pays post-dated cheques towards rent payments, in such cases, if the advance rental cheque is dishonoured, the agreement shall have a clause that the society has the right to prevent the builder from either selling or allowing any new flat purchaser to occupy their respective flats. Six months is time to be given to existing members of the society to return back to their new flat and then only possession of flats sold by the developers will be given to the new flat purchasers. This is in view of new flat purchasers who at times do not behave properly with the managing committee members if they have already occupied the building before the original members occupy the flats. It is a usual practice that all societies insist on a bank guarantee of at least 20 per cent of the project cost from the developers. Further, the Society shall have a lien of around 10% till the builder obtains the building completion certificate.

Many of my readers have asked me about my opinion about which option is better for society whether to go for ‘self-redevelopment’ or selecting a builder to construct a new building who would obtain permission from the Municipal authorities for the construction of the new building and deliver new flats to the Society members free of cost with pre-established facilities along with some additional benefits like the extra flat area as per the contract. There are also queries about the advantages of amalgamation of multiple societies in the locality for the redevelopment of their buildings by a single developer who can build high-rise towers and offer flats with multiple facilities to the flat owners. The following post elaborates on the intricacies involved in each option of the redevelopment project.