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KEY ISSUES IN SOCIETY REDEVELOPMENT

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By  CA. Tarun Ghia and Advocate Pradnya Vairale


Redevelopment is one of the most happening things in the city of Mumbai and its suburban areas.  The dilapidated as well as some of the moderately aged buildings entitled for incentive  floor space index or  transferable development rights contemplate redevelopment either because repair of the property  is not a viable option and/or because they would like to take benefit of the incentive schemes with reference to floor space index. Although, redevelopment results into  material benefits in the form of monetary gains,  enhanced areas in  new  flats,  better amenities, higher floors etc. but at the same time there are sufferings also during the course of  and after the redevelopment in the form of  shifting to temporary accommodation,  higher property taxes and maintenance charges, lesser open space and parking space, lift charges, very high degree of uncertainty in terms of timely execution of the  project  etc. depending upon    structure of the scheme of redevelopment.



As a co-operative housing or premises society initiates the process of redevelopment of its property, the first legal requirement it needs to fulfill in terms of the relevant circular of the department of co-operation is the appointment of a project management consultant (PMC). The PMC should be knowledgeable on all legal and construction aspects of the redevelopment and should be aware of the redevelopment business so that he applies his knowledge and imagination to various stages of redevelopment in a manner that the society gets the best of the terms without compromising with safety aspects.  The ability of the PMC may not be judged by his publicity and marketing skills but interaction with him by the society on  key issues should bring out the depth and clarity of the PMC. The pmc comprising professionals may not indulge into doorstep meetings and canvassing. On vital aspects, uprightness of the pmc can save the society from  entering into vulnerable documents. As a true professional, role of the pmc should be that of consultancy and guidance and ultimate decision making may be left to the society.

The first task of the pmc would be to prepare feasibility report in respect of the subject property  taking into consideration the areas of the existing flats, available floor space index, development      plan of the area, set back area, if any,    documents of title, market rates of the new flats in the area, applicable incentive schemes  under the development control regulations etc. Along with  the feasibility of the property  with reference to redevelopment and expected benefits, at the instance of the society, the pmc may also verify that the house of the society is in order with reference to society records and registers including the  minutes of the meetings. Issues arising out of  encumbrances on flats should also be analysed to ensure hassle free redevelopment.


If the conveyance deed in favour of the society has not been executed, that will be one of the prime tasks before the pmc. The amended Maharashtra Ownership Flats (Regulation of the promotion of construction, sale, management and transfer Act, 1963,  popularly known as “MOFA” along with the  amended rules thereunder,  inter alia provide for expeditious and easy procedure for conveyance in favour of the society. Once a housing entity has been legally formed, it is entitled to conveyance and  non payment of stamp duty by a few members should not come in the way of conveyance on consideration of spirit of  the amended beneficial provisions and  in view of the fact that under the pre-amended provisions we have court decisions directing promoters to convey property in favour  of a housing entity without going into details of stamp duty and registration of individual flats.  It would be wrong to conceive that for obtaining deemed conveyance certificate,  documents like building plans, commencement certificate, occupation certificate, completion certificate, property cards, would be required to be furnished by the society.  Such a view seems grossly misplaced as such requirements would be directly in contradiction to letter and spirit  of amended provisions.

 

Whether the offers from developers are sought by invitation or by expression of their interests or by tender system, the best of financial terms including corpus fund, larger area flats for each member, hardship compensation, rental compensation at prevailing market rate with due increment in case of rental market going up, best of amenities, strict legal terms in documentation, flexibility on the part of the developer to meet peculiar needs of the society and its members should be some of the prominent criteria for selection of developer.

The documents should be drafted primarily in consideration of applicable laws including MOFA,1963,MCS Act,1960,Transfer of Property Act,1882 and other laws and regulations concerning developments and constructions, bye laws of the society. The drafting of the documents of redevelopment would  include  letter of intent, memorandum of understanding in some cases, development agreement, power of attorney, bank guarantee, TDR purchase documentation and individual agreements. Structure of the redevelopment scheme should be member oriented  so that rights of individual members over the property get better recognized and the income tax benefits available to the individual assessee can be  availed of. The tax litigations in respect of redevelopments have reached to the high court. If the high court upholds the view that the development agreements in respect of transferable development rights are covered by the theory of no cost no capital gains, then there may not be a cause of concern. But in a possible adverse decision by the high court that such a transaction is  taxable, in that case,  recognition of individual property rights  of the members would go a long way in bringing the tax liability to nil or negligible level.  Recognition of the property rights of the individual members would better protect their property rights and would provide double buffer from tax angle.


Drafting of iron-clad documents is the single most important aspect in any redevelopment and the society and its individual members should be assured that as far as redevelopment documentation is concerned, any member can compare the same with that of any other society and the member  himself will be able to satisfy that documentation is the safest and takes care of every interest of the individual member as well as the interests of the society apart from taking care of the safety of committee members.

It would be in the interests of the members of the society, the society as well as the developer to have efficient PMC because an efficient PMC may entail some more outflow for the developer, but he will be carry through the redevelopment process successfully. Redevelopment entails good amount of suspicion  in the minds of some. Non transparent and inefficient approach of a PMC can create and increase suspicion on the part of some members.  
A  learned PMC will also be able to guide the society that highest proposal may not be always he best proposal and ultimately viable proposal will benefit all genuinely.

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