Regulatory rules need more teeth to really protect homebuyers

The UP cabinet approved the Uttar Pradesh Construction, Ownership and Maintenance Amendment Act 2016 a few months ago, scrapping the unique provisions of homebuyer approvals for changes in housing projects and mandatory completion of housing projects within 24 months. Now with the UP RERA being approved, how effective will the two legislations be in protecting homebuyers in the state?

The UP RERA rules have to be read in conjunction with amendments to the Apartment Act – both being equally important public policies.

The UP Apartment Act 2010 is unique minus the amendments (of 2016). Apartments had to be delivered within two years (24 months) and buyers compensated for delays under Section 4(4) and 4(5). It had also specified that plans once sanctioned could not be changed, laying down jail terms for violations. Read along with RERA rules, UP would have perhaps been the safest place to invest in real estate. But these very sections have now been diluted, says S K Pal, a Supreme Court lawyer.

Changes in the Apartment Act means that agreements will now be signed with project deliveries promised within five to seven years (instead of two years previously) and penalties will be governed by RERA under which 18% interest will have to be paid in case a builder defaults. The advantage that UP could have had will now be diluted by the amendments in the UP Act 2016. The new RERA rules will only implement the state law – which has already been diluted, explains Pal.

What is the difference between the two public policies? The purpose of the UP Apartment Act is to ensure planned development of a project in UP between the three stakeholders – builder, buyer and the authority. All three have been made partners in the development process. It governs the development aspect of housing societies and stipulates guidelines/duties, obligations of the development authority, builder and the buyer

UP RERA intends to ¬facilitate enforcement of the contract between the builder and the buyer. It draws guidelines on how to format a builder-buyer agreement, how to enforce it and the penalties due if they are not complied with.

“It became necessary to enact RERA legislation because the builder community was not respecting the terms of agreement that it was entering into with homebuyers. Now this law will give more credence to a contract. If you sign a contract, you have to honour it. In that respect the document has been given more teeth,” says Pal.

Legal experts say that the earlier version of the Act – Uttar Pradesh Apartment (Promotion of Construction, Ownership and Maintenance) Act, 2010 – had stated that for an apartment “the completion certificate shall be obtained by promoter from the prescribed authority within the period of two years from the date of sale agreement.” But under the amended Uttar Pradesh Construction, Ownership and Maintenance Amendment Act 2016, there is no control or restriction over the completion time of a project and the changes a builder can make.

“Instead of the specified 24 months, a builder can take up to seven or eight years to complete the project. No assurance is required, everything is flexible. The amended Act states that once a completion certificate has been received by the builder, he cannot make any changes to a project. The inference one can draw from this is that a builder can make changes in the original project plan till he decides to apply for a completion certificate. “What this means is that in Uttar Pradesh there will be no sanctity for the original plan and that is a dangerous thing for buyers’ confidence,” say experts.

The amended Act replaces the word ‘intending purchaser’ with the word ‘allottee’. In place of the written agreement, it says the allotment letter is enough to establish the rights of the homebuyer. That is a positive move as it will help nullify the delay in signing the agreement to sale by developers, say real estate experts.

The amended Act also does away with the consent provision wherein permission of the homebuyers was required for making changes in the project.