BMC Premiums on Housing Society Redevelopment

By Nayan Dedhia, MD – Toughcons Nirman Pvt. Ltd. As Redevelopment Consultants, today we come across several proposals for redevelopment and Only 1 Proposal out of 50 Proposals seems Feasible for Redevelopment. When we studied the reason behind it, it was observed that there were several reason why these proposals were not feasible. The major reason was Government / MCGM Share in Revenue: -30%-40% charged by way of various premiums charged by MCGM/MHADA. -2%-3% by way of stamp duty on DA & PAAA -7-8% by way of GST due to GST charged on construction, professional fees & sales brokerage whose ITC benefits also not available. -12% by way of Stamp Duty/ Registration & GST (without the benefit of ITC.) on sales 1% by way of LUC Tax and Miscellaneous Taxes. As per above, government alone charging 50%-60% by way of Taxes & Premiums. Thus by charging such huge premiums / Taxes, the question comes to mind whether the Government really has an agenda to provide affordable housing and house for all by 2022. Thus out of 100% revenue, only 40-50% is left for society members, construction costs, professionals fees, sales & marketing costs, finance cost, etc. Following are the revenues generated by the Government in the redevelopment project. Govt is charging approx 50%-60% and even after bearing the costs and completing the project if any profit remains, then it is also subject to further Income Tax. And without understanding this fact, the Society, Media, Housing Activists, Court etc. all blame only the Developers. Why such premiums/taxes/ charges are higher? Because BMC/Government wants revenue from Real Estate. BMC doesn’t want to compromise on revenue from Building Proposal. But who will explain to them, that due to the exorbitant pricing, if no proposals or fewer proposals come to them then how they will generate the required revenue in the first place? Is it possible that just by increasing premiums without any proposals, they will generate revenue? Hence, there are few things that we would like to know is that; a. Who is deciding the premiums at MCGM? b. Do they take a case study of any project to analyse the various impacts these premiums make on various sizes and types of projects? c. Do they check the feasibility of such various projects to understand what premiums should be charged? If they do it, they will realise that majority of residential projects, despite allowing TDR Loading, plots falling on 9 meters or 12 meters road will be 20% to 40% costlier than their current market price. (For eg. If the market price is Rs.20,000/- per sq.ft. then the landing cost is approx. Rs. 24000/- to Rs. 28000/- per sq.ft.) Since 2011, Fungible area was introduced in lieu of Balcony, Flower bed and elevation features. So this 35% fungible area of tenants’ area has to be added in their proposed carpet area and cannot be transferred or used in Sale Area thus making projects more unviable because of following issues of the plots described as follows: Why these projects are not feasible? There are various projects with different problems, few of them are as follows: Prior to 2010, BMC used to allow 10% Balcony and free Otla, which later on society members included it in their carpet area. Due to this today, in any project already 13-15% more BUA is used in any residential project. For the purpose of infrastructure development, MCGM has taken plot from the society and allowed them to construct it over and above the base FSI of 1 at that time. Due to such road setback FSI, today such plots’ FSI seems over consumed. As per existing policy, BMC does not allow additional FSI over and above existing FSI. MCGM says once benefit taken cannot be claimed again. But originally plot belonged to the society. So why can’t they take benefit again over and above the cap of new FSI, if they opt for redevelopment. iii. Many projects fall near railway boundary, metro rail, highway, Nalla, funnel zone and such projects full FSI cannot be consumed and thus making it unviable. iv. Several projects are smaller plots or odd in their shapes. Such project has various planning constraints and hence due to it, parking costs and BMC premiums increases compare to other plots. Thus making such projects un viable. v. Various plots were developed earlier as per layout and hence BUA of such buildings is 30%-40% more than their existing plot area. In such layouts, common RG & internal roads were developed differently and the plot owner did not transfer its rights to the respective societies. Hence these projects also are not feasible today. vi. As per new DCPR, Society plots falling on Road-width less than 6 meters are not allowed TDR, hence redevelopment is not possible for such type of buildings. vii. In MHADA, plots which are more than 4000 sq.mtrs and falls on 18 meters road, they are compelled to share the area with MHADA, thus making it unviable. viii. Also there are various societies on Collector Lands. If such societies opt to go for redevelopment they have to pay 10%-25% of land RRR for converting to freehold. Apart from above if there have been transfers by way of sale, then collector permission has to be taken and several costs are involved for the same. ix. As per figures declared in assembly, 5800 PROJECTS ARE STALLED IN Mumbai. That means 7%-8% population of Mumbai are homeless. In such projects, Developers have invested a lot of funds in these projects. Costs increased in due course due to the delay of work because of various reasons such as Stay by High Court for Dumping Ground, Introduction of GST, RERA, delay in Implementation of New DCPR, etc. Due to increased costs, if project has to be taken over from current scenario, then it is not feasible for any developer. Govt has to come out with some special policy and bail out such projects. x. For Paghadi Buildings, new DCPR has come with 33(7a), where tenants are to be offered minimum 300 sq.ft. area but that is within the FSI cap, hence such projects are also not feasible for Landowner due to less FSI for sale. xi. There are many society buildings, where the old developer was supposed to hand over the flats to the ULC, but developer sold such flats in the open market. Today such society has to pay the compensation for it before opting conveyance and such costs add additional burden and thus these projects are unviable. There are various such redevelopment projects which are not feasible due to additional costs as these plots falls on Lease Hold Land, MMRDA, Estate Properties, etc. There are many such type of projects where we have also not come across and they are not feasible. Thus as per above, there are several projects which contribute approximately 50% of the society buildings. This is the scenario and still, the BMC says that it wants revenue. Revenue that will be generated at the cost of its citizens, whose buildings are vacated or getting dilapidated and project is not feasible as per the current market scenario. GOVT / RERA/ COURT cannot hold only the developers responsible for this. They have to accept the fact that it is the Govt./MCGM costs that have increased drastically and have disturbed this industry rather than the over- trading or over-commitment by the developer. Demonetisation & RERA are the only excuses for the slow-down of the industry but what has affected the industry more is the increased Govt/MCGM Costs and since 2010, sudden change of several policies overnight. Adding to above woe, the media is also spreading the false scenario of huge inventory available unsold and hence prices will fall up to 50%. Due to such news, market sentiment is getting worse and Govt. is not taking any steps to correct it. APPEAL TO THE GOVT / MCGM Mumbai Redevelopment Real Estate Industry Does Not Require Any Package Or Tax Sops. Only Required Is That Govt/MCGM Should Reduce Their Premiums / Taxes Drastically. Govt has to rethink on its premium / taxes and intervene immediately to take bold steps. If Premiums/Taxes Not Reduced Immediately, That Day Is Not Far When 50% Of The Population Living In Dilapidated Buildings Will Die Under Them Even Without Earthquake.

Clearly Define the Rental Escalation Clause in Society Redevelopment Process

By Anuj Puri, Chairman Anarock

In most metros such as Mumbai, redevelopment of old residential buildings is a normal and desirable occurrence. Without redevelopment, there would be no new supply in the fully developed city centres. Also, redevelopment is necessary because every building has an inbuilt shelf-life, after which it becomes unsafe, unattractive to the market and difficult to maintain.

Even now, a number of housing societies in Mumbai are contemplating the redevelopment option. However, the stakeholders of these societies often lack the information they need to make an informed call on which developer to enlist, and what guidelines they should follow before making a commitment. Here is a brief reference guide on what to look and ask for:

 

Check the Handover Timelines

A developer undertaking the redevelopment of a residential building can legally start the construction process only after he obtains the Commencement Certificate (CC). However, there are a host of other permissions and approvals to be obtained prior to that, together referred to as Intimation of Disapproval (IOD) approvals.

While the society members and developers mutually decide on when to vacate for facilitating the construction, it should ideally be done after the IOD has been obtained. In fact, the developer would also be more comfortable with vacating members only after the IOD has been obtained, since this would minimize his outgoings on the rentals which he would have to pay to members towards meeting their alternative accommodation costs.

Check the Reimbursement Parameters

The housing society members of a project that is to be redeveloped are entitled to monthly rental payments from the developer undertaking the project. The extent and limit for these payments must be clearly outlined in the agreement drawn up between the members and developer. Usually, it will be equivalent to the applicable rental for a similar-sized apartment in or around the same locality. The developer must also reimburse members for the cost of packers and movers and minor interior alterations in the rented accommodation they occupy during the redevelopment process, as these are also counted as expenses incurred while relocating to a new accommodation.

Clearly Define the Rental Escalation Clause

In a city like Mumbai, there have been several cases where members’ backs have been put to the wall because of poorly-framed rental clauses. It is important for the rental escalation cost to be included in the agreement between a developer and the housing society members. Typically, rentals tend to rise by 10% every year, though this can vary depending on locations, category/type of buildings and some other aspects. Society members should do their due diligence on this subject and negotiate for rental escalation terms that best fit their location and building type.

Consider Increased Maintenance Costs Post Redevelopment

The maintenance costs for a project are bound to rise after it has been redeveloped, proportionate to the additional amenities that the developer has provided. These amenities would include but are not limited to recreational facilities, garden, swimming pool, gymnasium, covered parking, air-conditioned lobby, open areas, etc. The housing society members need to calculate and assess the financial implications, keeping in mind the interests of all members. Depending upon the average financial capacity and everyone’s common interests, members should ask the developer to only provide amenities that everyone has agreed on. Often, developers offer maintenance-free periods to members, wherein the developer is willing to bear the maintenance charges which would otherwise have been borne by the society members. In the case of such an arrangement, the society should ask the developer to deposit this amount in a separate account prior to giving him permission to sell the surplus flats in the newly redeveloped building.

Ensure .g/;a Strong Delay Clause In The Agreement

The terms and conditions in the agreement between a developer and the housing society must clearly capture all the details regarding the construction time-frame. The developer should be asked to specifically mention the date by which he would be handing over the completed structure to the society members. The applicable penalties that the developer incurs if a delay occurs should also be mentioned. The penalties could be in the form of termination of contract, wherein the society members pay a pre-decided amount on a pro-rata basis according to the status of construction progress. Else, the developer may be liable to compensate the society members in cash or otherwise as a fine for delay.

To summarize, the redevelopment agreement between a housing society and a developer must incorporate maximum clarity over the roles and responsibilities of each involved party.

 

 

Maharashtra to establish Appellate Tribunal for Society Redevelopment issues

By Maharashtra Bureau

Government of Maharashtra has indicated that there will be an Appellate Tribunal for society redevelopment matters where most of the redevelopment matters are stuck for want of various issues including majority and minority issue.

Often redevelopment process is stuck in legal battle as majority wants to go for the redevelopment but stuck because of various loop whole in the legal frame work.

A subject expert Appellate Tribunal shall be established to fast track the process of redevelopment and various aspects of it.

Minister for State Housing Mr Jitendra Ahwad had told the news persons that Cabinet has cleared the proposal of establishing Appellate Tribunal for redevelopment matters.

The Appellate Tribunal shall have jurisdiction for entire state of Maharashtra and matters pertaining to redevelopment decided by lower courts and registrar offices.

Development agreement vis-a-vis construction contract for Redevelopment of societies

By K.K. Ramani, Advocate (from his book…)
Development agreements, broadly speaking, are agreements between the owners of land/building and the developers to construct/reconstruct large building complexes. The agreements are of the nature of joint venture between the two in which the owner contributes his share by way of the development rights existing on the land and allows the developers to load TDR FSI by procuring DRCs and use the same as per D.C. Regulations. Apart from procuring DRCs the developers also contribute by way of cost o be incurred in construction and construction related activities, manage the construction work and carry out all activities necessary and incidental to such work. The two collaborators to the agreement are generally compensated by a sharing arrangement in which the product, i.e. the constructed space is distributed between the two.
The arrangement is a variant of the contract agreement in as much as the person undertaking the actual construction work is compensated not in terms of fixed agreed monetary consideration but in terms of allotment of some FSI which he is entitled to construct on his own, hold it as is own and dispose it in the manner suited to him subject to the terms and conditions stipulated in the development agreement. It is similar to the contract arrangement in so far as it relates to constructed area to be handed over to the owner except for the difference that the consideration is received by the developer not in money but in term of constructed area and/or use of some percentage of TDR entitlement which can be loaded on the property of the owner.
The arrangement can also be distinguished from a joint venture arrangement in so far as the two parties join together not to earn profit arising therefrom but to share the fruits in terms of the space constructed as a result of such activities. There is no profit worked out from the venture as such. The two parties arrive at their respective profit on the basis of their contribution and the benefit derived as a result of the agreement.
Another distinguishing feature of development agreement is the fact that the property viz. The land/ building continues to remain the property of the owner in the property card. What is given to the developer is the right of development to exploit the percentage of development potential of the area to be kept by him as free sale area which he is entitled to dispose of and make profit therefrom. This was clearly stated by the Bombay High Court in Chaturbhuj Dwarkanath Kapadia Vs. CIT 260 ITR 491 when it observed that “the object of entering into a development agreement is to enable a professional builder/contractor to make profits by completing the building and selling the flats at a profit. The aim of these professional contractors is only to make profits by completing the building and, therefore, no interest in the land stands created in their favour under such agreements”. Such agreements are only a mode of remunerating the builder for his services of constructing the building as stated in Gurinder Developers Vs. Kurla Konkan Niwas Co-operative Housing Society (2000) 3 Mah Lj 131

Redevelopment process of Old Buildings

By Legal Bureau

REDEVELOPMENT OF OLD BUILDINGS

Introduction

Shelter is a basic human need, which has become a major challenge in a country, which is fast urbanizing. Maharashtra is one of the most urbanized states in the country. Whereas nationally 27% of the population was in the urban areas, in Maharashtra, the figure was 42% (Census 2001). Housing in urban areas assumes much greater significance, as it relates not only to basic shelter needs but also provides a facility to the citizens to access services and be part of the development process. Housing implies not only construction of bricks and mortar; it includes the supporting infrastructure, access to transport and employment opportunities.

Meaning

Redevelopment refers to the process of reconstruction of the residential/commercial premises by demolition of the existing structure and construction of a new structure. This is done by utilizing the potential of the land by exploiting additional TDR, FSI as specified under the Development Control Regulations of Municipal Corporation of Greater Mumbai (MCGM).

Types of Redevelopment

Redevelopment of old dilapidated building
Redevelopment of Old Mhada Colony

Why Redevelopment is required
For Existing Owners
Though they are in dire need of extensive repairs, societies are starved of necessary funds required to carry them out. On the one hand, they do not have the resources and expertise to handle the repairs on their own and on the other, the families of the members have expanded and they need larger space to accommodate themselves.
Drawbacks of old buildings:
Lack of services such as security, cleaning, and to operate pumps.
Absence of common facilities like gymnasium and a society office.
Unavailability of proper playing area for children in the compound.
· Perennial leakage in the structure and also in the overhead or ground floor water tanks.
· Unavailability of elevators causing suffering to heart patients and the elderly.
· Absence of a proper entrance lobby.
· Room sizes being too small.
· Interior planning of rooms being unsatisfactory.
· Lack of attached toilets in bedrooms.
· Plumbing/electrical lines lying open
· Size of toilets being too small
· Low resale value due to poor condition of the building

For Builders/Developers
Builders/Developers opting for purchasing land and developing the same, incur huge stamp duty cost on transfer of land. Instead redevelopment of old building reduces stamp duty to a significant extent. For this they enter into development Agreement with Society. Entering into such development agreement does not vest any title of the land in the favor of developer, but merely authorizes the developer to develop the land.
The builder approaches the owner of the land and, instead of buying the land and paying a large amount towards the purchase; he enters into an agreement with the owner for permission to develop the land on the owner’s behalf.   In other words, in a case of development, the builder constructs the buildings at his cost, retains some flats for himself to be sold in the open market, gives a few flats to the landowner and also pays him some monetary consideration. The developer carries out this development work in the capacity of a constituted attorney of the owner and not on his own behalf.
Later, these flats are sold by the developer in the open market and from such sale, he makes a profit. The rate of stamp duty in respect of development agreement being much less than that payable on outright purchase, there’s a significant saving in stamp duty cost. Later, when the building is actually conveyed to a co-operative society or a company, the landowner and builder become party to the conveyance deed on which the stamp duty is payable and the same is also registered.

Procedure for redevelopment of an immovable property.
The consent of the society members must be obtained during society meetings. On or before the execution of the agreement, the society should hand over to the developers, the copy of the conveyance deed in respect of the society’s property, along with certified copies of the property register card, index II, latest electricity bill, water bill, municipal tax bill, N.A. tax bill in respect of the society’s property and also, the copy of the registration certificate of society under the Maharashtra Cooperative Societies Act, 1960.
The list of members with their choice of new flats and parking, area entitlement among others as agreed upon in the new building should be prepared.  The terms about the provision of temporary alternate accommodation to the members during the construction period should also be made clear in the agreement.
Challenges
Inability to assemble all members of the society at a single point of time, as some of the members may not be available. Some flats may be mortgaged to a bank or a financial institution
Some of the members may be interested in purchase of new flats at a discounted rate in the new building.
The title may not be clear, i.e. conveyance deed of the land and structure is not executed in favor of the society.
Anxiety in the minds of the members about possible delay in completion of the project after they have vacated their old flats.
The old documents of the members may not be traceable
Lack of unity amongst the members
The tax issues regarding redevelopment are not clear to the society.
Very high prices are expected on sale of old flats in the case of certain members who are not interested in staying in the new building.
Corpus amount takes a long time to be fixed by the society.
The decision as to which member will get what type of parking takes a very long time.

Government Role.

The redevelopment under DCR 33(7) and 33(9) will continue, it is proposed to introduce the cluster or precinct development approach and to incentivise the same.

CLUSTER APPROACH
The Cluster Redevelopment Approach has successfully transformed the cities of Hong Kong, Singapore and Shanghai. It is proposed to adopt a similar approach for Urban Renewal in Maharashtra State. For the redevelopment of old buildings, it is proposed to undertake cluster development as strategy for expediting and to bring about planned development. In order to promote cluster redevelopment, it is proposed to give higher FSI to large cluster redevelopment. The main objectives of the cluster approach will be as follows :-
a) To transform the fractured development in to cohesive urban unit as laid down in Development Plan.
b) To provide modern accommodation and social services which raise living standards and reduce disparities amongst different sections of population.
c) To provide an environment which permits the residents of such areas to live fuller and richer lives free of physical and social stress that are generally associated with haphazard urban development.
d) To facilitate development and proper maintenance of infrastructure facilities such as sewerage / storm water drainage /DP Roads which cannot be developed because of the present haphazard Development
e) To generate maximum number of surplus tenements for rehabilitation of the occupiers who are on Master List of MHADA. The fact that MHADA will play the nodal role in the cluster approach and shall be a signatory to all the agreements will provide greater acceptability and credibility amongst the tenants and landlords.

JOINT VENTURE FOR REDEVELOPMENT PROJECTS
Till date, the Repairs & Reconstruction Board of MHADA has been able to undertake redevelopment of old and dilapidated buildings under DCR 33(9) Few Other old and dilapidated buildings have been reconstructed through private developers under DCR 33(7). In order to accelerate the redevelopment of old and dilapidated buildings, it is proposed to encourage redevelopment projects through joint ventures in which MHADA along with the tenants, landlords and private developers, if necessary, will come together for undertaking redevelopment of Cluster. Detailed guidelines for this scheme shall be issued by the Urban Development Department separately.

ADOPTION OF EARLIER REPORTS

The problem of Urban Renewal and of old and dilapidated buildings and the need to bring together tenants and landlords is a concern not only for Mumbai and its suburban areas but, also for other cities of Maharashtra State. This problem has been studied in detail and recommendations of Sukhthankar Committee and Afzulpurkar Committee have been accepted by
Government. It is now proposed to extend the applicability of these two reports to all Municipal Areas of Maharashtra. The concerned Municipal Corporation or Council will adopt and
implement the principles enunciated in these reports with suitable local modifications. This will be monitored by the Urban Development Department.

Conclusion

There are constraints on the availability of open land within the city limits coupled with fast growing demand for houses and shortage of housing stock. On the other hand that there are thousands of ageing buildings which are dilapidated and have reached a stage where it is not possible to carry out structural repairs and rehabilitation as the same are not economically viable. The redevelopment of old building has become a necessity since the problem of old and dilapidated buildings in the city of Mumbai grows more acute with each passing year and with each passing monsoon more and more building becomes dangerous and unfit for habitation. Many of these buildings are so run down that they are unrepairable and the only solution is to put them down totally and to reconstruct them.

Scheme which involves adequate and due compensation to the landlord and the tenants/members and to the developer duly is an ideal Redevelopment scheme. This needs faster procedural clearance from Government.

Procedure for Self Redevelopment of housing societies in Maharashtra

By Dr Sanjay Chaturvedi, LLB, PhD

Builders are not finding viable projects offered by housing societies in Maharashtra, are going in for self redevelopment. Due to slow down in market and new DCR where the redevelopment is not viable in Mumbai, housing societies in Maharashtra are going in for self redevelopment.

Developing a residential project is not a joke. It requires 56 NOCs from local self government but also having jurisdiction of Maharashtra Co-operative Societies Act 1960 and further amendments. There are many other NOCs required besides BMC. Like for example CRZ clearance, Environment clearance, Traffic, Fire, Civil Aviation, defense and railway NOC if you fall under their jurisdictions.

First step: Society must know its potential FSI, fungible FSI and total FSI consumed till date. This is first step because society first should determine that they want redevelopment and reconstruction for themselves or there is sale elements in it. If society wants to redevelop its premises then there is no question of RERA registration. But if society wants to sell some of new flats in its redeveloped project and it is more than 8 units or 500 sq mtrs or more then it has to register it in Maha RERA.

The society must have conveyance its name. While applying for new plan, IOA and CC to BMC, society must be owner of the land on which redevelopment is proposed. If the land belongs to MHADA, Collector, any statutory authority, Pugree, or any ostensible ownership like trust etc then NOC from such owner is must for redevelopment.

Second Step: Society must convene extra ordinary meeting under section 79A of Maharashtra Co-operative Society Act 1960 and notify the Registrar office who will send his representative to conduct the EAGM of the society. Due and clear notice of the meeting must be given to all members and associate members. For procedure under 79A, please read my article on the subject.

The question arises that should society appoint a Project Management Consultant (PMC) compulsory? There is no such statutory compulsion to appoint PMC for redevelopment. Neither for self redevelopment nor for builder redeveloping it. PMC, in my opinion is nothing but cordinator between legal aid, architect and structural engineer. PMC, eat away profit of builder as it ask from builder huge compensation besides a hefty fees from society.

Society should appoint its own advocate and architect who gives honest and fair opinion to society on various aspects of redevelopment. It requires huge documentation and agreements hence vetting from a good advocate is always desirable. Any extra area which is not included in the development agreement will attract stamp duty, income tax later on so it is advisable to first vet the legal documents.

Third Step: Get the approval of 50% of the members of the society who have attended the meeting. The meeting should have proper quorum and 50% of them must approve the redevelopment. Mind you, society is the owner of your premises and since you hold a share in it hence you are eligible to occupy one of its units/ flats.

It is advisable to register the all documents which are executed by the society. An Advocate shall give advise to the society on various aspects including when society wants to sell its flats in the open market to fund the redevelopment.

Fourth Step: Find the proper team. Society must appoint own advocate, chartered accountant and Architect to help the process of redevelopment. Role of Chartered accountant will be to find the financier, if society wants to take loan for redevelopment, if self funded then maintaining accounts for redevelopment process and certifying for statutory needs like RERA , income tax and GST.

Fifth Step: Finding contractors under tender system. Many builders are also lending their names to society for Development Model (DM). The builder manage entire process, take loan on society’s behalf, construct it for society and sell for society while just keeping 20% profit margin on entire sale. In this process, the entire statutory requirements, procuring NOC and permissions, observing contractors and sale depends on builder. Builder work like PMC for society. But when society don’t want builder and want to do it self, then society’s architect will prepare tender and scrutinize for society and finalize contractor. Supervise the construction work and vet the contractor’s bills to be cleared time to time.

Sixth Step: While construction work is going on and before that, architect shall get the new building plan approved from BMC/ Municipal Corporation, fulfill all the compliance and make society pay premiums/ permission fees if any. Advocate shall register the project at RERA if there is any sale portion. Chartered Accountant shall keep and record all financial transaction and certify as and when required under GST, RERA and Income Tax.

Seventh Step: Getting Occupation Certificate and Building completion certificate from Authorities, NOCs from various authorities, handing over new premises to members and new purchasers, inducting them into society as members and issue them new share certificates, closing accounts, filing Form 4 to RERA, filimng forms with registrar for co-operative societies.

Eight Step: Update in income tax, file GST returns, Audit accounts and pass in AGM.

There are still some areas left which I have to cover it in my next article on pre-requisites of high rise in Mumbai. Keep in touch.

Members’ Right in Redevelopment Scheme

By Legal Bureau

In any Redevelopment project of Co-op. Hsg. Society buildings, the role of Member of the Society is extremely important in his/her individual and collective capacity. Besides his/her individual rights as Member in the Society, the active participation of each of the individual member is very much essential to make Redevelopment scheme successful in all respects and for this achievement every member has to contribute, sacrifice and bear hardship to some extent.

In the interest and benefit of every member who is either involved or going to be involved in the Redevelopment schemes, following are some of the tips and suggestions in respect to their participation, duties, responsibilities and liabilities thereof :-

Duties & Obligations of Member in Redevelopment scheme :-

In Redevelopment schemes each of the Members has to discharge certain duties and obligations in the following matters as detailed below :-

1) State Government Enactment :- Every member should go through the entire text of the enactment of State Government in connection with Redevelopment of Society buildings wherein role of every agency connected thereto is specified which will give fair idea of their duties, responsibilities and liabilities. Full text of this enactment is already incorporated in Chapter No. 11 of this book in the public interest.

2) Appointment of Developer :- Every member should ensure that the Managing Committee and Office Bearers of the Society has strictly followed the procedures as laid down in the aforesaid enactment in respect to appointment of Architect, Developer, Project Consultant & other professionals including their scope of work, responsibilities and liabilities thereof.

3) Development Agreement :- Every member should carefully read the contents of the draft redevelopment agreement to be executed between the Society and the Developer specifically the terms and condition according to which the scheme is prepared, before the execution of final document. He / She should ask for certain explanation and or information on the points which needs further clarity, from the Developer and or from the component agencies through the Society Management.

4) Approvals & Clearances :- Every member should ensure that the Developer has obtained required approvals, clearances and permissions from Municipal Corporation and or from concerned planning Authorities in respect to proposed redevelopment scheme and attested copies of these documents are kept by the Managing Committee in Society’s permanent Records for inspection of members.

5) Payments of Taxes and Charges :- It is obligatory for every member that he/she should pay up-to-date Property Taxes, Water & Electrical Charges, Maintenance etc. in respect to their existing premises, till the redevelopment scheme is actually commenced. It should be ensured that necessary Clause is incorporated in the Redevelopment agreement to fix up the liability as to who will pay aforesaid payments during the course of construction till the completion of the scheme.

6) Shifting to Transit Accommodation :- Once all the terms and conditions of Redevelopment scheme are approved by the General Body of the Society as regards Transit Accommodation, Additional area if any, Corpus Fund, Special Incentive Benefits offered to the members, and requisite clearances and permissions for the redevelopment are obtained by the Developer, and provision of Transit accommodation are made, the Member has to vacate their premises and handover its vacant and peaceful possession to the Developer, and to shift to the transit accommodation provided on agreed terms and conditions strictly within the time limit decided thereof.

7) Taking over possession of new Premises :- As soon as the work of building is completed in all respects and Occupancy permission is granted by the Corporation, every Member should inspect the new premises thoroughly and ensure that all the amenities, facilities, additional area and Corpus Fund offered is provided by the Developer and the same is in conformity with provisions of Redevelopment agreement. It is obligatory for the Member that after verification of the aforesaid facts he/she should shift back and take the vacant possession of the new premises within time limit agreed to avoid inconvenience to other members and simultaneously he/she should have to handover vacant and peaceful possession of Transit accommodation back to the Developer.

Self Re-Development of Housing Societies

By Legal Bureau

SELF DEVELOPMENT OF SOCIETY BUILDINGS:

01.   Majority of the residential buildings, in Mumbai, are literally above 50 years old.  Some are literally dilapidated and some are in dire need for large scale repairs.  Wherein in both such eventualities, very large sums of money is needed to redevelop such buildings.  Further in such Society’s Balance Sheet, there are hardly any funds accumulated over these 50 odd years, for Major repairs, thus forcing the society residents to continue living in such dilapidated and structurally weak buildings.

a)       Due to monetary reasons, the residents have to redevelop their buildings either through a Builder /Developer .OR.  consider the self-redevelopment of their buildings themselves, with the help of experienced and relevant Professional Consultants of the field, which includes Civil Consultants, Financial Consultants and Institutions, Legal Consultants and so on ….

b)       With appropriate guidance, patience, trust and mutual understanding, the Society can consider for “Self Re-Development” of their buildings, which in turn translates into substantial savings and earnings for the Society Members, in terms of permanent “Corpus Fund” in the Balance Sheet, of such Societies, which again in turn translate in lowering down maintenance bills of the members.

c)        Self-Redevelopment of Society buildings can be conducted easily & successfully, with proper planning and strategy, after keeping confidence and by taking help of experienced and relevant Professional Consultants of the field.

d)       Redevelopment has become further necessary and inevitable, due to BMC directions on Structural  Safety and repairs of 30+ year old buildings and discretionary authority available with BMC, to vacate dilapidated buildings.

 

RE-DEVELOPMENT THRU BUILDERS /DEVELOPERS:

02.  Typically most societies prefer to Redevelop their buildings thru Builders, after weak negotiations and still very weak agreements with the Builders.

a)      These leads to mismanagement

b)      Allegations of Corrupt practices and underhand dealings

c)      Builders take liberty and change Building development Plans, for their vested interests

d)      Original members remain at the mercy of Builders for completing their Building.

e)      Builders tend to usurp and sell common spaces

BENEFITS OF “SELF-REDEVELOPMENT” PROCEDURE:

03.  The Housing Society’s may consider various benefits that can be derived from “Self Redevelopment” procedures.

a)      Building Plans will not be changed, without ALL “individual” members consent

b)      Corpus Fund can be accumulated at more than 2 times vis-a-vis builders offers

c)      Building will be designed & developed by the members themselves and in their presence, without any hindrances

d)      Members may use their discretion to develop their residential buildings into residential cum commercial buildings, which has its own advantages, in terms of money and facilities.

e)      With the advent of latest Directions by the Coop. Dept., the members may use their discretion to install Mobile Towers, Advertisement Hoardings, Solar Systems, Wind-Mills, Club House, STP, Swimming Pools and other facilities and amenities, which translates into more in-house amenities.

f)       BMC “Occupancy Certificate” will not be a problem, since the members will develop the buildings, ONLY as per approved plans.

g)      Building will be developed on time schedule, unlike the builders who usually delays the project for his own vested interests.

h)     Free Sale Flats, can be purchased by the original members, on costing basis

i)        Free Sale Flats, can be sold and restricted to certain categories

j)        Issue of Free Parking spaces can be solved

k)      Common Spaces cannot be sold and under-hand dealings can be avoided.

l)        Merging (amalgamation) of Two flats is possible, at Building Planning stage.

m)   Buildings can be completed before schedule, thus saving Rent for members

SOME DISADVANTAGES OF “SELF-REDEVELOPMENT” PROCEES:

04.  Like all other difficulties in life, Self-Redevelopment also has some lacunas:

a)      Needs Time, Inclination, Money & Energy (T.I.M.E.)

b)      Needs “24 x 7 x 365” Professional Back-up. However this is not a major issue due to the availability of Professional Consultants, atleast in Mumbai.

c)      Issue of Finance, for Construction Cost for Self-Redevelopment.

d)      Since Self-Redevelopment is not practiced widely, Society members are highly apprehensive in terms of loss of self-confidence, trust and mutual understanding.

 

CORPUS FUND:

05.   Typically in Redevelopment thru Builders, the Society members are paid some money in terms of “displacement fund alias Corpus Fund”

a)      Sometimes this Corpus Fund is given to the Society, which the Society may secure it in its Balance Sheet, for appropriate investment, for purposes of earning Interest.

b)      Sometimes this Corpus Fund is given to individual members.

c)      In terms of SELF-Redevelopment, the criteria of Corpus Fund can be generated from Sale of the Free-Saleable Flats,  which would be constructed over and above the number of flats for its original members /residents.

d)      With prior & appropriate mutual understanding and trust, the original members may mutually decide to appropriate such Corpus Fund, generated thru Self-Redevelopment process, for mutual benefit of the Society.

 

RENT CHARGES:

06.  Typically in Redevelopment process thru Builders, the Society members are paid “Rent” money for alternate accommodation till the Redeveloped flats are duly taken over by the original members.

a)            In terms of SELF-Redevelopment, the criteria of “Rent” money for alternate accommodation till the Redeveloped flats are duly taken over, is a major issue, which needs to be decided with appropriate mutual understanding and trust.

b)            However this Rent Charges, can be adjusted subsequently from the accumulated Corpus Funds, generated from Free-Sale Flats

 

EXTRA AREA:

07.   Members may mutually decide to avail the percentage of extra area and the area of Free-Sale Flats,  since this can be turned into Society’s advantage, in terms of Corpus Funds generated from Free-Sale Flats.

 

SHIFTING /LOGISTIC CHARGES:

08.  Typically in Redevelopment thru Builders, the Society members are paid “Shifting /Transportation” money to the alternate accommodation till the Redeveloped flats are duly taken over by the original members.

a)      In terms of SELF-Redevelopment, the criteria of “Shifting /Transportation” money for alternate accommodation till the Redeveloped flats are duly taken over, is a major issue, which needs to be decided with appropriate mutual understanding and trust.

b)      However this Shifting /Transportation  Charges, can be adjusted subsequently from the accumulated Corpus Funds, from Free-Sale Flats

 

STAMP DUTY & REGISTRATION FEES:

09.  Typically in Redevelopment process thru Builders, the builders pay the Stamp Duty and Registration Fees, for the new Flat Agreement of the original members, subject to various parameters.

a)             In terms of SELF-Redevelopment, the criteria of “Stamp Duty and Registration Fees” money for the new Flat Agreement of the original members, is a major issue, which needs to be decided with appropriate mutual understanding and trust.

b)            However this Stamp Duty and Registration Fees, can be adjusted subsequently from the accumulated Corpus Funds, from Free-Sale Flats.

 

OCCUPANCY CERTIFICATE (OC):

10.  Typically in Redevelopment thru Builders, the builder takes adequate liberties to conduct several lapses (illegalities), consequent to which the BMC does not grant “Occupation Certificate (OC) “, which in turn means double the rate of water-charges for all residents of the building.

a)         These lapses (illegalities), can be easily avoided and stopped, when the building is developed on “Self Re-Development” basis.

b)         An “Occupation Certificate (OC) ” also means higher Sale-Value of the Flats and easy Bank-Loans for buildings granted with Occupancy Certificate.

 

COSTING OF REDEVELOPING BUILDINGS:

11.  The typical cost of construction is approximately between 1200/- to 2200/- per CARPET square feet (depending on location and luxuries being provided).    This “includes” charges for Development permission from BMC, all Professional Consultants fees and other incidentals.

a)       The “Free-Saleable Area” is sold by the builder,  approx. between 10,000/- to 25,000 per CARPET square feet (depending on location and luxuries being provided).

b)       The tentative earning the Builder earns out of each Carpet square feet is approximately 7000/- to 20,000/- per CARPET square feet (depending on location and luxuries being provided).

c)        This also means that to construct ONE Flat of approximately 1000 square feet (carpet area), the all-inclusive construction cost is approximately Twenty (20 Lakh rupees) in Mumbai Suburban area, which includes all costing’s.  This is possible if the Conveyance of the plot of Land, is in the name of the Society.

d)       The above translates into Construction Cost of approx. Twenty (20 Crore rupees) in Mumbai Suburban area, for constructing 100 flats of approx. 1000 square feet each (carpet area).

e)        Presuming that out of 100 Flats, 50 flats are to be given to original members, there remains 50 Flats for “Free Sale” (Free-Saleable Area), which can easily be sold for Two Crore each, thus translating to 100 Crores in terms of Sale-Price.

f)         Presuming further that cost of construction of 20 Crores is reduced from the 100 Crores received from “Free Sale” by the Society, there still remains approx. 80 Crores of Gross Profit.

g)       The above in turn translates into huge Corpus Fund to the Society, when in terms of Self-Redevelopment of their own buildings.

h)       The above also means that if the Redevelopment is conducted by Builders, the Society would not earn /save the huge potential of Corpus Fund and translating the interest received on such Corpus Fund, into reducing their own Society maintenance charges.

 

GOVERNMENT POLICY:

12.   As a Public spirited legislature, AND in the larger interest of the residents of old /dilapidated buildings, the Maharashtra State Govt., would do well to consider to grant “Conveyance” of the Society plot in the name of the Society, by legal default, via a special ordinance, atleast to those Residential Societies which are over Forty years old.

This may be specially considered in view of the vast amount of Stamp Duty and Registration fees that will be accumulated by the Govt., due to registration of the new redeveloped flats.

 

CONCLUSION:

IF THERE IS A WILL, THERE IS A SURE WAY:  MEANS YOUR WAY.

Special General Body Meeting not needed to pass Redevelopment Resolution

By Advocate K K Ramani.

IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL
APPELLATE JURISDICTION

WRIT PETITION NO. 10285 OF 2009

Harsha Co­op. Housing Society Ltd. & Ors. .. Petitioners

Vs.
Kishandas S. Rajpal & Ors. .. Respondents

Mr. A. S. S. Murthy i/b Mr. A. P. Steenson i/b A. P. Steenson & Associates
for the Petitioners. Mr. N. N. Bhadarshete for Respondent Nos.1 & 2. Mr. R.
M. Patne AGP for Respondent No.3.

CORAM : MRS. R. S. DALVI, J. DATE

The petitioners are the co­operative society, several of its members and

the developers of the society premises. The respondents are father and son

who constitute one member of the society (respondent). The society passed

a resolution for development of its premises on 26.08.2008. This resolution

came to be passed pursuant a notice of that meeting given on 20.08.2008

which in turn came to be given in view of letter signed by 7 out of 12

members of the society setting out 8 issues relating to proper functioning of

the society which was required to be attended by the Chairman.

One of the matters on the Agenda of the Meeting mentioned in the

notice of the meeting was the “repair request all the members”. This was

inter alia discussed at the meeting. The resolution of the society shows that

the society building was in dilapidated condition and “beyond repairs”. The

members took a decision for the “redevelopment of the society building”. In

the said meeting the members discussed various offers of various developers

and builders such as Mohini Sheltors, Mayfair, sheth, Capital Square,

Radhakishan Construction. The members discussed various offers and

directed the committee members to investigate about short­listed developers

and take steps for redevelopment of the society.

It was contended by the respondent that passing of such a resolution is

illegal because under bye­ law No.97 the Special General Body Meeting

could not transact any business other than what was mentioned in the notice

A dispute therefore came to be filed for declaration that the resolution

was illegal and for grant of injunction restraining the society from acting

upon it. The injunction was refused by the Co­operative Court and granted

by the Co­operative Appellate Court, Mumbai.

It is contended on behalf of the respondents that since the agenda

was “repair” of the building premises, “redevelopment” of the premises and

granting the contract to Mohini Sheltors as developers of the society

building was outside the purview of the bye­law No.97.

A reading of the letters received by the Managing Committee setting

out the issues to be discussed, the notice of the meeting for that purpose and

the actual meeting held to discuss the issues which inter alia was the repair

of the society premises cannot show that the decision of the members upon

deliberation of the meeting that the society premises was beyond repairs and

must be redeveloped after investigation of the short listed developers is

outside the purview of the bye­law No.97.

For each of the specific steps to be taken in ultimately deciding the

repairs/redevelopment of the society building and premises, separate matters

on the agenda need not be shown and separate meetings need not be held.

The petitioner society is a small housing society consisting of 12

members. 11 out of those members have consistently agreed for

redevelopment since the meeting held on 26.08.2008. In that meeting they

required the investigation of the short­listed developers only. Pursuant to the

wishes of the members, are short listed developer was deemed fit to develop

It is not disputed that the society building premises is dilapidated. Yet

the respondents did not agree with the redevelopment of the society

premises by the short­listed developer. That, of course, was his privilege and

choice. However, since he was in an absolute minority, the wishes of the

society members in an absolute majority was required to be exceeded to.

10. It is argued on his behalf that by Government Notification issued under

Section 79­A of the Maharashtra Co­operative Societies Act (the Act), a

registered architect on the panel of the Government was to be selected and

the procedure as shown therein required to be complied which is not done

and which vitiated decision of the society.

11. The reliance upon the Government Notification is itself misplaced.

When the members of the co­operative housing society which, under law of

co­operation, decides by a majority of 11:1 members that the society

premises be developed in a particular fashion by a particular developer, it

would be contrary to principles of democracy by which the society is

governed, for the sole dissenting member to interfere and require a

procedure, not required by the majority of the members to be followed

which would only consume time and be

Government Resolution would be required to be followed by the society

where the members are unable to come to any decision by a resolution of

12. The petitioners’ society having been injuncted from carrying out the

wishes of its members for the redevelopment of its society by the impugned

injunction order sought to hold a fresh election for its new managing

committee. The new committee came to be appointed by a fresh election on

25.09.2009. The new managing committee gave a new notice to hold a

Special General Meeting of the society on 30.10.2009. The respondent was

given notice. Members at that meeting agreed with the earlier decision.

Consequently the impugned order became infructuous. Nevertheless the

impugned order is challenged.

13. The respondent as a member would have a right to appear at the

meeting. Consequently though it was stated that he was given notice of the

meeting but failed to appear, the Court directed the society and all the

members once again meet and consider the aspect of the redevelopment of

the society premises on 7th March, 2010. It was mentioned to the Court that

the respondent had three other offers which were far superior and hence it

was considered in the fitness of things to reconsider of all these offers

14. The society meeting has been held yesterday. The respondent as well as

other members have attended. Four offers including the offer of Mohini

Sheltors together with certain amendments have been considered. The

respondents have produced a columnar statement of the four offers.

15. It is contended on behalf of the respondent that, a look at the columnar

statement shows that all of the respondent’s three offers are better than that

16. The columnar statement shows that all the three developers have

offered to construct only the residential premises of the society whereas

Mohini Sheltors has offered to construct commercial and residential

premises. It need hardly be stated that the commercial premises on the

ground floor of the building would itself enure for the benefit of the

17. The absolute advantage shown by way of absolute figure is in clause 8

of the columnar statement in which one of the offers of the respondent

shows the corpus which will be created at the rate of 7,500 per square foot

of the carpet area of the members. Advocate on behalf of the respondent

mentioned that the respondent would obtain Rs.23.33 lacs and the entire

society would obtain Rs.2.80 crores by that offer. To see the bonafides of

the offer, the respondent was directed to call upon his offerer to deposit

Rs.2.80 crores in the Court. Advocate on behalf of the respondent stated that

no such deposit can be made.

18. The other aspects of the offer in the columnar statement show

percentage amount which are not tangible to reconsider.

19. The members have decided once again by a majority of 10:2 to confirm

the offer of Mohini Sheltors. The Court is not, therefore, required to

interfere with the wishes of the majority of the members. The members do

not seek to act upon the resolution passed in the meeting dated 26.08.2008.

The impugned order has become infructuous. The injunction granted under

impugned order is set aside. The members have resolved to redevelop their

society building premises. The Court cannot interfere with such resolution.

The Writ Petition is disposed of with the above clarification as the

impugned order is infructuous.

respondent is taken on record.

No Capital Gain Tax On Society Redevelopment

By Legal Bureau

Kushal K. Bangia vs. ITO (ITAT Mumbai) – In principle, though the scope of “income” in s. 2(24) is very wide, a capital receipt is not chargeable to tax as income unless there is a specific provision to that effect. As the residential flat owned by the assessee in the society’s building was a capital asset in his hands, the compensation was a capital receipt.

The department’s argument that the cash compensation was a “share in profits earned by the developer” is not acceptable because it proceeds on the fallacy that the nature of payment in the hands of the payer determines the nature in the hands of the recipient. However, as the said receipt reduced the cost of acquisition of the new flat, it had to be taken into when computing the gains from a transfer thereof in the future

INCOME TAX APPELLATE TRIBUNAL, MUMBAI

I.T.A No.2349/ Mum/2011 Assessment year: 2007-08

Kushal K Bangia

Vs

Income Tax officer

Date of pronouncement : 31 .01.2012

ORDER

Per Pramod Kumar:

1. By way of this appeal, the assessee has called into question correctness of CIT(A)’s order dated 9th December, 2010, in the matter of assessment under section 143(3) of the Income tax Act, 1961, for the assessment year 2007-08 on the following grounds:

“1. The ld CIT(A) has erred in confirming the addition at Rs.11,75,000 received by the assessee as cash compensation. He has further erred in confirming the said addition to the income under the head income from other source. The reasons assigned by him doing the same are wrong and insufficient. Provisions of the act ought to have been properly construed and applied. Regard being had to the facts and the circumstances of the case, the said addition ought to have been deleted, being in the nature of capital receipt.

2. Without prejudice to ground No.1, and as an alternative ground of appeal, the ld CIT(A) has erred in confirming the addition of rs.11,75,000 received by the assessee as cash compensation under the head income from other sources, instead of long term capital gain. The reasons assigned by him doing the same are wrong and insufficient. Provisions of the act ought to have been properly construed and applied. Regard being had to the facts and the circumstances of the case, the said addition ought to have been assessed as capital gains.”

2. The issue in appeal lies in a narrow compass of undisputed facts. The assessee before us is an individual and he had received a sum of Rs.11,75,000 on account of what he now terms as, ‘cash compensation’. It is taxability of this amount of Rs.11,75,000 which is in dispute before us, and it is, therefore, necessary to understand the back ground in which this amount was received. The assessee was member of a housing society by the name of Vile Parle Ramesh CHS Ltd. This housing society, alongwith it’s members, entered into an agreement with a developer, and, under the said agreement, the developer was to demolish the residential building owned by the housing society, and reconstruct a new multistoried building by using the FSI arising out of the property, and by utilizing outside TDR under Development control Regulations. Under this arrangement, the assessee, as a member of the housing society, received a slightly larger flat in the new building, which had an additional area of 173 Sq. ft, a displacement compensation of Rs.6,12,000, which was computed @ Rs.34,000 p.m. for the period of construction of the new building, and an additional compensation of Rs.11,75,000. On these undisputed facts, the Assessing Officer was of the opinion that the cash compensation of Rs.11,75,000 is required to be treated as ‘casual income’, and, accordingly, taxable in the hands of the assessee. The Assessing Officer also brought to tax estimated value of additional area in the new flat, but since CIT(A) has deleted the same and revenue is stated to be not in appeal against the same, we are not really concerned with the same. Aggrieved, inter alia, by this addition of Rs.11,75,000 on account of cash compensation, assessee carried the matter in appeal before the CIT(A) but without any success. The assessee is in further appeal before us.

3. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position.

4. In our considered view, it is only elementary that the connotation of income howsoever wide and exhaustive, take into account only such capital receipts are specifically taxable under the provisions of the Income tax Act. Section 2(24)(vi) provides that income includes “any capital gains chargeable under section 45”, and, thus, it is clear that a capital receipt simplicitor cannot be taken as income. Hon’ble Supreme Court in the case of Padmraje R. Kardambande vs CIT (195 ITR 877) has observed that “..,, we hold that the amounts received by the assessee during the financial years in question have to be regarded as capital receipts, and, therefore, (emphasis supplied by us), are not income within meaning of section 2(24) of the Income tax Act….” This clearly implies, as is the settled legal position in our understanding, that a capital receipt in principle is outside the scope of income chargeable to tax and a receipt cannot be taxed as income unless it is in the nature of revenue receipt or is brought within the ambit of income by way of a specific provision in the Act. No matter how wide be the scope of income u/s.2(24) it cannot obliterate the distinction between capital receipt and revenue receipt. It is not even the case of the Assessing Officer that the compensation received by the assessee is in the revenue field, and rightly so because the residential flat owned by the assessee in society building is certainly a capital asset in the hands of the assessee and compensation is referable to the same. As held by Hon’ble Supreme Court, in the case of Dr. George Thomas K vs CIT(156 ITR 412), “the burden is on the revenue to establish that the receipt is of revenue nature” though “once the receipt is found to be of revenue character, whether it comes under exemption or not, it is for the assessee to establish”. The only defence put up by learned Departmental Representative is that cash compensation received by the assessee is nothing but his share in profits earned by the developer which are essentially revenue items in nature. This argument however proceeds on the fallacy that the nature of payment in the hands of payer also ends up determining it’s nature in the hands of the recipient. As observed by Hon’ble Supreme Court in the case of CIT vs. Kamal Behari Lal Singha (82 ITR 460), “it is now well settled that, in order to find out whether it is a capital receipt or revenue receipt, one has to see what it is in the hands of the receiver and not what it is in the hands of the payer”. The consideration for which the amount has been paid by the developer are, therefore, not really relevant in

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