Information pertaining to Redevelopment of Society
SOME BASIC INFORMATION ONE MUST POSSESS WHILE THINKING ABOUT REDEVELOPMENT
(Compiled by Dayanand Nene, President, Grahak Hakka Parishad)
The subject of redevelopment has now assumed great significance because in Mumbai and surroundings as majority of the buildings owned by co-operative societies are quite old and in a neglected state.
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, members are not ready to contribute the money required for conducting the repairs.
Drawbacks of old buildings:
• Lack of proper services such as security, cleaning, and to operate pumps. (Relevant to Saket as the expanse/area of the society is too large)
• Absence of common facilities like gymnasium and a well maintained Club House. ( Partially relevant to Saket)
• Unavailability of proper playing area for children in the compound.
( Not relevant to Saket)
• Perennial leakage in the structure and also in the overhead or ground floor water tanks. ( Very much relevant to Saket)
• Unavailability of elevators causing suffering to heart patients and the elderly. ( Not relevant, except for the fact that all our lifts will soon require modernisation – at a cost.)
• Absence of a proper entrance lobby. (Not relevant)
• Room sizes being too small. (Relative..)
• Interior planning of rooms being unsatisfactory. (Partially relevant – no ventilation in Saket)
• Lack of attached toilets in bedrooms. (Not relevant)
• Plumbing/electrical lines lying open (Not relevant – but these lines definitely do need an overhaul)
• Size of toilets being too small (Relevant)
• Low resale value due to poor condition of the building (Relevant)
In case of redevelopment of old buildings, builders approach societies that either have some open plot of land or are willing to demolish the old structures to reconstruct new buildings.
Where such a development is possible, builders normally agree to pay some consideration to the society for its permission to construct a building on the open plot of land or to construct a new, bigger building using the Transferable Development Right (TDR), Floor space index (FSI) after demolishing the existing structure, and by providing alternate residential flats to members till the new building is constructed.
What is redevelopment ?
To understand this one should first understand the term ‘develop’.
The dictionary defines the term ‘develop’ as to ‘realize potentialities of land, especially by converting it for residential or industrial purposes’.
Redevelopment, therefore, 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 the concerned Municipal Corporations.
In order to correctly proceed with the process of redevelopment, it is important to take the 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.
In any process of redevelopment, one must be aware about the documentation required and also understand the tax implications on redevelopment of immovable property.
One of the contracts, that needs to be entered into by concerned parties in case of redevelopment, is the 'development agreement'.
While doing so one needs to ensure that appropriate stamp duty is paid and that registration is done.
Before understanding the procedure of redevelopment, let’s first learn more about the ‘development agreement’.
Developers who are not keen on purchasing land and developing the same as that would involve huge stamp duty cost on transfer of land, came up with a novel idea - that of entering into a development agreement.
This would reduce stamp duty to a significant extent.
Note that entering into a development agreement does not vest any title of the land in the 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 land owner 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 land owner and builder become party to the conveyance deed on which the stamp duty is payable and the same is also registered.
In order to get any property redeveloped, the society should have a valid conveyance deed of land and building in its favour. Some of the benefits of obtaining a conveyance are as under: -
• Acquiring marketable title
• Permission for reconstruction can be taken by the society
• Construction of additional floors by the use of TDR FSI can be done.
At this juncture it is important to understand that as per the law; only properties that have got conveyance deed from the builder or the earlier land owner can proceed to get the property redeveloped.
In the absence of a valid conveyance deed, the society will not be able to get the approval of plans from the municipal corporation and in that case most of these societies have to revert back to the builder to get the property redeveloped.
Majority of builders fail / purposely do not convey the title to a co-operative society after having constructed flats on a plot of land.
In fact, over 70 % of the co-operative housing societies, formed in Mumbai in the last twenty years, do not have the land conveyed in their favour.
The outcome of this failure to grant conveyance deed is that the builder or the earlier owner still remains the owner of the property.
This results in a situation where these societies have only possessory rights and not the ownership over the land, depriving them of the additional TDR FSI that is the main driving force for entering into such agreements.
Let us now understand the procedure and documentation required at the time of redevelopment of an immovable property.
Before commencing re-development, the following steps are required to be taken:-
• 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.
• In case the societies do not have the conveyance done in their favour, but are in dire need of major repairs / redevelopment, then they have to revert back to the builder – and in this case, all benefits arising out of the redevelopment shall go to the builder.
Some of the problems which the society may face in case of redevelopment are:
• 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 favour 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.
• The decision as to which member will get what type of parking takes a very long time.
Above mentioned are some of the important points relating to redevelopment of old buildings by cooperative societies.
The subject is exhaustive – but I have only detailed here points which every member must know about the subject.
Other important issues like the Development Agreement have not been touched here as they are of no relevance to the common member as of now.
Since the laws on the subject of redevelopment are yet to be fully developed, any decision in this matter should be taken with great care or else it could lead to a possible dispute or litigation.
- Issued in Public Interest by Grahak Hakka Parishad.
(Compiled by Dayanand Nene, President, Grahak Hakka Parishad)
The subject of redevelopment has now assumed great significance because in Mumbai and surroundings as majority of the buildings owned by co-operative societies are quite old and in a neglected state.
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, members are not ready to contribute the money required for conducting the repairs.
Drawbacks of old buildings:
• Lack of proper services such as security, cleaning, and to operate pumps. (Relevant to Saket as the expanse/area of the society is too large)
• Absence of common facilities like gymnasium and a well maintained Club House. ( Partially relevant to Saket)
• Unavailability of proper playing area for children in the compound.
( Not relevant to Saket)
• Perennial leakage in the structure and also in the overhead or ground floor water tanks. ( Very much relevant to Saket)
• Unavailability of elevators causing suffering to heart patients and the elderly. ( Not relevant, except for the fact that all our lifts will soon require modernisation – at a cost.)
• Absence of a proper entrance lobby. (Not relevant)
• Room sizes being too small. (Relative..)
• Interior planning of rooms being unsatisfactory. (Partially relevant – no ventilation in Saket)
• Lack of attached toilets in bedrooms. (Not relevant)
• Plumbing/electrical lines lying open (Not relevant – but these lines definitely do need an overhaul)
• Size of toilets being too small (Relevant)
• Low resale value due to poor condition of the building (Relevant)
In case of redevelopment of old buildings, builders approach societies that either have some open plot of land or are willing to demolish the old structures to reconstruct new buildings.
Where such a development is possible, builders normally agree to pay some consideration to the society for its permission to construct a building on the open plot of land or to construct a new, bigger building using the Transferable Development Right (TDR), Floor space index (FSI) after demolishing the existing structure, and by providing alternate residential flats to members till the new building is constructed.
What is redevelopment ?
To understand this one should first understand the term ‘develop’.
The dictionary defines the term ‘develop’ as to ‘realize potentialities of land, especially by converting it for residential or industrial purposes’.
Redevelopment, therefore, 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 the concerned Municipal Corporations.
In order to correctly proceed with the process of redevelopment, it is important to take the 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.
In any process of redevelopment, one must be aware about the documentation required and also understand the tax implications on redevelopment of immovable property.
One of the contracts, that needs to be entered into by concerned parties in case of redevelopment, is the 'development agreement'.
While doing so one needs to ensure that appropriate stamp duty is paid and that registration is done.
Before understanding the procedure of redevelopment, let’s first learn more about the ‘development agreement’.
Developers who are not keen on purchasing land and developing the same as that would involve huge stamp duty cost on transfer of land, came up with a novel idea - that of entering into a development agreement.
This would reduce stamp duty to a significant extent.
Note that entering into a development agreement does not vest any title of the land in the 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 land owner 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 land owner and builder become party to the conveyance deed on which the stamp duty is payable and the same is also registered.
In order to get any property redeveloped, the society should have a valid conveyance deed of land and building in its favour. Some of the benefits of obtaining a conveyance are as under: -
• Acquiring marketable title
• Permission for reconstruction can be taken by the society
• Construction of additional floors by the use of TDR FSI can be done.
At this juncture it is important to understand that as per the law; only properties that have got conveyance deed from the builder or the earlier land owner can proceed to get the property redeveloped.
In the absence of a valid conveyance deed, the society will not be able to get the approval of plans from the municipal corporation and in that case most of these societies have to revert back to the builder to get the property redeveloped.
Majority of builders fail / purposely do not convey the title to a co-operative society after having constructed flats on a plot of land.
In fact, over 70 % of the co-operative housing societies, formed in Mumbai in the last twenty years, do not have the land conveyed in their favour.
The outcome of this failure to grant conveyance deed is that the builder or the earlier owner still remains the owner of the property.
This results in a situation where these societies have only possessory rights and not the ownership over the land, depriving them of the additional TDR FSI that is the main driving force for entering into such agreements.
Let us now understand the procedure and documentation required at the time of redevelopment of an immovable property.
Before commencing re-development, the following steps are required to be taken:-
• 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.
• In case the societies do not have the conveyance done in their favour, but are in dire need of major repairs / redevelopment, then they have to revert back to the builder – and in this case, all benefits arising out of the redevelopment shall go to the builder.
Some of the problems which the society may face in case of redevelopment are:
• 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 favour 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.
• The decision as to which member will get what type of parking takes a very long time.
Above mentioned are some of the important points relating to redevelopment of old buildings by cooperative societies.
The subject is exhaustive – but I have only detailed here points which every member must know about the subject.
Other important issues like the Development Agreement have not been touched here as they are of no relevance to the common member as of now.
Since the laws on the subject of redevelopment are yet to be fully developed, any decision in this matter should be taken with great care or else it could lead to a possible dispute or litigation.
- Issued in Public Interest by Grahak Hakka Parishad.
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