Beware – Owners of property – Purchaser of an apartment

Beware owners of huge property – Purchasers of apartment – Builders – Developers – Promoters – Before entering into any agreement in this connection you need to thoroughly analyse the pros-cons of the dealings otherwise you are sure to get duped!

Purchasers of immovable properties for the purpose of investment or for bonafide personal use have now practically ceased to exist especially in urban areas.

The initiative for sale or purchase is not now that of the owner of the property or of any bonafide purchaser. The initiative is generally that of a Third Person who is neither personally interested in the sale of the land nor in the purchase. Such a Third Person is now known as a Builder or a Developer.

He Agrees to purchase or induces the owner of the land to sell the land, constructs a building thereon with flats, sells the flats to different purchasers of flats and out of the purchase price of flats pays the price of the land, meets the cost of Construction and earns his own profit and thereafter, hands over the new property to a representative body of the flat purchasers and walks away.

With the Advent of a new system of dealings with the properties it also led to several abuses and irregularities to the people thereby involved (such as) owners of the

Land/Builders/Developers/Purchasers of Apartment etc.

Due to Public Complaints the Government had to take note of them and first came the Maharashtra Ownership Flats (Regulation of the Promotion of Construction,Sale,Management and Transfer) Act 1963 followed by Maharashtra Apartment Ownership Act, 1970.which first recognized the right to own a flat having right of transferability and heritability. Following Maharashtra State the flat ownership system has now spread to all other parts of India. Other States have also passed Acts more or less similar to the Acts passed by the Maharashtra Legislature. Some States are still governed under the existing Common Law relating to acquisition and transfer of property.

The State of Karnataka has two Acts namely:

Apartment Ownership Act 1972(Act No.17 of 1973)

Karnataka Ownership Flats (Regulation of the Promotion, Construction, Sale, Management and Transfer) Act which governs the Laws relating to Apartment Ownership.

WHAT IS A FLAT/APARTMENT :

According to the Act “FLAT” means a separate and self-contained set of premises used or intended to be used for residence or office or show room or shop or go down (and includes a garage), the premises forming part of a building. 

APARTMENT means a part of the property intended for any type of independent use, including one or more rooms or enclosed spaces located on one or more floors (or part or parts thereof) in a building, intended to be used for residential purposes and with a direct exit to a public street, road or highway or to a common area leading to such street, road or highway. An apartment is treated as an independent unit or a property by itself and is more easily transferable and heritable. It can be sold, mortgaged and leased by the owner without any restriction.

The Agreement the Builder enters into with the owner of the land is not a simple agreement for sale or purchase but is an Agreement which has come to be known as Development Agreement or Joint Development Agreement(JDA)

A Development Agreement contains Agreement for sale, contains provisions for obtaining such permission and the responsibility for which is generally taken over by the Developer. The Development agreement also contains a power to the developer to construct even before the sale is completed. The ultimate sale or transfer of the property is generally in favor of the flat/Apartment purchasers or their Organization and the Development Agreement contains provisions to that effect. The Joint Development Agreement is therefore a multi-pronged Agreement.

TYPES OF DEVELOPMENT AGREEMENT:

  • i) By outright purchasing the land, if it is freehold.
  • ii) By obtaining a lease of the land and if it is already a leasehold then by obtaining a sublease of the land.
  • iii)By entering into an Agreement only for carrying out the Development as agent of the owner or Promoter of a Co-Operative Society independently.
  • iv) By entering into an agreement for purchase or lease with Owner and simultaneously commencing development on the land.

Amongst above mentioned modes of developing the Land – the last one is very much common among the Developers.

In case of the first two mentioned modes, the developer after going through the formalities of investigation of title etc. completes the sale or lease by obtaining a deed of conveyance or lease in his favor and then develops the property in his own name and on his own

responsibility. But in such a case the developer has to incur the cost of stamp duty and registration when he purchases and again when the property is transferred, after development, to a Co-operative Housing Society or Company, the deed of conveyance or deed of assignment attracts Stamp Duty and Registration charges. To avoid this double expense, as well as to avoid heavy initial investment of capital a developer generally enters into an Agreement to purchase the property with a right to develop the same before it is transferred to a Co-Operative Housing Society.

The third category of development agreement is where only the development right is given to the developer by the owner himself or by a Promoter of proposed Co-operative Housing Society or Company who has entered into an agreement for purchase of the property with the owner thereof.

The fourth type namely an Agreement of Sale and Development and which is most common, consists of two parts, one is a regular agreement or sale of the property to the developer or his nominee including a Co-operative Housing Society or a Company and the other consists of an agreement whereby the owner that is the Vendor gives a right of development of the property including the right to construct building or buildings thereon on ownership flat basis and an independent right to the developer to sell the flats in his own right and ultimately to obtain a transfer in favor of the nominee of the developer who is usually a Cooperative housing Society or a Limited Company. The Second part of the Agreement contains all rights or powers given to the developer to carry out the development work and to sell flats and for that purpose to enter into agreements with the intending flat purchasers.

A JOINT DEVELOPMENT AGREEMENT RAISES QUESTION AS TO THE RIGHTS AND OBLIGATION OF THE DEVELOPER/ THE OWNER / APARTMENT PURCHASERS / AND THE SOCIETY OR COMPANY FORMED BY THEM.

HERE INTERESTS OF ALL THE PARTIES ARE INVOLVED AND HAS TO BE PROTECTED PROPERLY.

HENCE IT IS ALWAYS PRUDENT TO HAVE A THOROUGH LEGAL GUIDANCE BEFORE ENTERING INTO ANY DEVELOPMENT VENTURE. BECAUSE VARIOUS ASPECTS FROM VARIOUS ANGLES HAS TO BE LOOKED INTO BEFORE ENTERING INTO A JOINT DEVELOPMENT AGREEMENT.

ESPECIALLY OWNERS OF THE PROPERTY SHOULD BE VERY CAREFUL BECAUSE NORMALLY THE BUILDERS WILL HAVE THERE OWN WAY OF APPROACHING AND INDUCING THE PROPERTY OWNERS AND DOING ALL THE FORMALITIES THEMSELVES – OWNERS JUST SIGNING IT. IN MANY A CASE THE OWNERS ARE DRAWN INTO UNNECESSARY CONFLICTS LATER DUE TO BAD AND DETRIMENTAL CLAUSES IN THE JDA. THE OWNERS AS WELL AS THE BUILDERS SHOULD TAKE PROPER LEGAL GUIDANCE BEFORE ENTERING INTO A JOINT DEVELOPMENT AGREEMENT.

Power of Attorney:

A Development Agreement is generally accompanied by a Power of Attorney executed by the owner in favor of the Developer. The Power of Attorney is required in spite of the provisions and powers given by the Development Agreement because it is required to be produced before several authorities for getting several things done. As the property stands in the name of the owner in all Government and Municipal records – to obtain permission and license from such authorities for example for getting the building plan sanctioned, permission to have Electricity & Water connection etc. etc. the Builder has to produce a Power of Attorney given to him by the Owner. Even the Power of Attorney should be carefully worded it should contain the relevant clauses which will protect interest of both the Builder as well as the Owner.

Both the Parties should pay special attention to each clauses it contains while signing the Power of Attorney in order to avoid any unpleasant consequences.

Before signing the JDA Parties should clearly understand the F.S.I.AND F.A.R.:

F.S.I. – is Floor Space Index and F.A.R. – is Floor Area Ratio

Both are synonymous terms used differently in different localities

It is the quotient obtained by dividing the total covered Area (Plinth Area) on all floors (excluding exempted Areas), by the Area of the Plot of the Land.

The Index however differs from town to town according to municipal authorities policy or rules. The F.S.I. indicates the availability of total constructed Area.

In calculating the Floor Space Area certain parts of the construction are excluded such as:

  • i) Basement or Cellar space under a building constructed on stilts and used as open parking space and Air conditioning plant rooms used as accessory for the
  • principal use.
  • ii) Electric cabin or sub station, watchman’s booth, pump house garage, shaft.
  • iii) some projections like open balconies, chajjas, a canopy.
  • iv) Staircase room or lift room on the top most storey,Chimneys,elevated tanks etc.

Parties need to to know this because The Consideration payable by the Developer to theOwner is calculated on the Market rate of the F.S.I. OR F.A.R. prevailing in thelocality LESS the Cost of Construction and other factors

Section 13 of Karnataka Apartment Ownership Act provides for Declaration,

Deeds of Apartments and copies of floor plans to be registered as follows:

  • Declaration and all amendments thereto and(*Declaration to submit the property mentioned- to the Provisions of the Karnataka Apartment Ownership Act 1972)
  • The Deed of Apartment in respect of each Apartment
  • The Floor Plans of the buildings showing the Layout,
  • Location – Apartment numbers – and dimensions of the Apartments, stating the – name of the Building or that if it has no name and bearing the Verified Statement of an Architect certifying that is is an accurate copy of portions ofthe plans of the building as filed with and approved by the Local Authority within whose jurisdiction the building is located.

Above documents shall be registered under the Registration Act 1908.

In all Registration Offices a Book and Deeds of Apartments under the Karnataka Apartment Ownership Act 1972 and index relating thereto shall be kept.

Purchasers of the Apartment:

The purchasers before purchasing Apartment should thoroughly inspect all the relevant documents mentioned above in order to know the marketable title/Total Area/ Plinth Area/Carpet Area/ Undivided interest/Common Area/Other Utilities and the Cost etc. etc. because under

Section 5(3) of KAO Act Any Person acquiring any Apartment of any Apartment owner shall be deemed to have notice of the Declaration and of the Deed of Apartment as from the date of its registration under this section.

Management of the Apartments:

Day to Day affairs of the Apartments in Karnataka shall be made by forming a Society under the Karnataka Co-Operative Societies Act, 1959. The Administration of every property shall be governed by bye laws, a true copy of which shall be annexed to the Declaration. No modification of or amendment to the bye-laws shall be valid, unless set forth in an amendment to the Declaration.

Courtesy:Authors of many books I have referred.

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