Redevelopment of Housing Societies in Mumbai

RedevelopmentIs there is a need to renovate your building because it is in a very bad shape and need major repairs? Is the society having enough funds for such renovation? Is there any guarantee that the building will have good life after major repairs? If the answer is no, in such a situation, the better option is to think about redevelopment

In case of re-development, the builder demolishes the existing building and constructs new and bigger building using the Transferable Development Right (TDR), existing Floor space index (FSI) and Fungible FSI. The existing members of the Society are provided flats (usually with additional FSI) in the new building. Further, the existing members are provided temporary alternate accommodation from the time the building is vacated until possession is given of the flat in the new building. The builder also agrees to contribute towards the corpus of the Society on behalf of the existing members. The entire cost of demolition, construction and temporary alternate accommodation is borne by the Developer.

In the entire transaction, the Builder retains some flats for himself. Later, these flats are sold by the developer in the open market and from such sale, he makes a profit.

Since majority of the buildings in Mumbai have become old, the subject of redevelopment has now assumed great significance.

With a view to ensure transparency in societies seeking to undertake redevelopment projects, the State Co-operative Department has issued guidelines dated 3rd January 2009 for societies to follow under section 79 (A) of the Maharashtra Co-operatives Act, 1960. The directive issued be termed as “Directive for Redevelopment of Building of Co-operative Housing Society” and should be followed strictly by the societies.

Amongst other things, the said circular requires the presence of Registrar in the special general body meeting for approving the bid of the successful bidder being a Developer out of those selected by committee of the Society. The entire proceedings have to be video-recorded.

The selected Developer is required to give a bank guarantee equivalent to 20% of the total project cost to show his financial strength, and proof that he will not throw away the project midway. Further, the builder should mention the time-line of completing the redevelopment project of the Society which will not exceed more than two years and in exceptional cases, three years. Once the agreement is accepted in terms of area and corpus fund, it cannot be revised.

Therefore, to proceed with the process of redevelopment, it is important to seek advice of a lawyer who’s well versed with the provisions of the Bombay Stamp Act 1958, the Maharashtra Co-operative Societies Act 1963 and the Income Tax Act 1961.

The society might face complications in redevelopment if following things are not considered.

  • There might be some stubborn members who just refuse to attend the meetings and then raise issues if any decisions is taken which is not in their favor.
  • Sometimes the title of Society is not clear, since Conveyance Deed of the land and structure is not executed in favor of the society after it was formed.
  • Inheritance issue or dispute between the family members of existing members
  • Corpus amount has taken a long time to be fixed by the society
  • And many more

Further, along with other documents, the Society is required to execute Development Agreement with the Builder (which is merely authorizing developer to develop the land). The Development Agreement is required to be appropriately stamped and registered with the Sub-Registrar of Assurances.

When drafting a Development Agreement, some of the important points and clauses of a development agreement are:

  • The Society, the developers and preferably all the members (where there are few members) should be parties to this agreement. (Before such execution, care must be taken that the member of the Managing Committee signing on behalf of the Society have submitted to the Society, an Indemnity Bond in Form M-20 on a Stamp required under Section 73(1AB) and Rule 58A of the Maharashtra Cooperative Societies Act 1960.)
  • There should be particulars of the existing flats with carpet area of the flats occupied by each of the member of the buildings. Further the Agreement, should be a list of members with their choice of new flats with carpet area and car parking entitlement.
  • The area of the plot as per the ‘property register card’ should be mentioned.
  • The total estimated FSI area that can be constructed by utilizing TDR on the plot should be mentioned.
  • The area of the plot as per the ‘property register card’ should be mentioned.
  • The development agreement should list out the broad specifications and amenities to be provided for the flats in the new building on the plot owned by the society.
  • Tentative date for vacating the flats in the old building by the members, which shall be linked with the plans being approved by the concerned authority.
  • The number of open car parking space, stilt car parking and closed parking which will be given to the members in the new building should be mentioned in the development agreement.
  • Clarification for new flat purchaser who intends to be a member of the society with respect to the entrance fee and share allotment money as well as a sum as approved by the society towards the sinking fund of the society.
  • The time period for completion of the new building on the plot owned by the society shall be defined in the development agreement. In the event the developers fail to complete the entire work within the stipulated period, a penalty clause can be mentioned in the agreement.
  • It should be specified in the development agreement that from the date of taking complete vacant possession of the existing structure till the date of receipt of occupation certificate in respect of the new building and till such time that the builder intimates the members to take possession of their respective flats, the developers shall bear and pay all municipal rates, taxes and other payments required to be paid to the concerned authorities.

Above mentioned are some of the important points relating to redevelopment of old buildings by cooperative societies. Any decision in this matter should be taken with great care or else it could lead to a possible dispute or litigation.

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Posted in Lawyer, Mumbai, Property.