Flat owners know thy rights… before going in for redevelopment

If you reside in an old building, located in a prime area, it is likely builders have come up with a flood of offers to redevelop your society. Redevelopment is usually seen in metro cities and developing tier-II cities, where demand for real estate is high and supply doesn’t match demand.

Though all properties can be redeveloped, the incentive limit against the floor space index (FSI) varies across cities and locations. For instance, the FSI offered in the Bandra area in Mumbai is 1.33. In other words, on redevelopment, against a 1,000-sq ft flat, the occupant would get a 1,330-sq ft flat.

Developers offer incentives to occupants in the form of added facilities, extra flat area, compensation, etc. If the society is in a coastal regulation zone (CRZ), members might not get a good deal, as the builder might not be able to use the extra FSI, owing to certain restrictions. This reduces the chances for the builder to make profit on the deal. Therefore, when the society decides to opt for redevelopment, it should be cautious in striking a deal with a developer.

Experts say there are many ways in which a developer could dupe customers. A fraudulent builder might demolish the building, without building another. Also, he might redevelop the property but not abide by the design/layout of the building. Some might not even pay rent to occupants or give a smaller area than what was promised.

When can a property be redeveloped?
Redevelopment can take place only if 75 per cent of the flat owners in a society agree to it. Redevelopment is feasible in case a society is in dire need of repairs but doesn’t have enough funds for it.

Documents required
A society needs to have a society registration certificate, an original building plan, a sale deed, a copy of resolution, an agreement and a title certificate. The society would also need a property card and an NA (non-agricultural) order. Hiring a project management consultant (PMC) could ensure a smooth redevelopment process and avoid last-minute hitches.

Procedure
The society needs a special committee to draw an outline of the redevelopment of the building and present it to other society members. This committee would also take various decisions, including that on selecting a PMC.

Role & appointment of a PMC
Anshuman Jagtap, advocate at Hariani & Co, says an architect can be appointed as a PMC. “A PMC should have the expertise to extract the best deal from a builder. He should support the occupants from the beginning of the project to its end,” he says. After a PMC is appointed, he should file a report that has the suggestions and recommendations of society members. Some PMCs charge a fee – either a flat fee or stage-wise payments. The PMC has to ensure documents such as the society’s maintenance bills, property tax papers, agreements, municipal papers, etc, are in place. After this, he can invite tenders from reputed builders.

Selecting a developer
Tenders from builders should be opened in the presence of the PMC and members of the committee. At least five bids have to be shortlisted. “A developer should be selected, based on his credentials, merits, reputation, experience and the added benefits he offers,” says Anil Harish, advocate, DM Harish & Co. An authorised officer and a registrar, along with at least 75 per cent of the members, should be present to finalise a developer.

Essentials of a good agreement
The society would also need an advocate to draft the agreement carefully. Since the occupants are betting their asset (the current structure would be demolished), it is important the builder compensates them well, abides by the law, and fulfils the demands stated in the agreement. Therefore, the agreement should be comprehensive to ensure the occupants don’t suffer financial losses in case the builder fails to complete the project.

Security deposit: “The developer should give a security deposit to the members; this should be equal to the construction cost of rebuilding the society, according to the new design,” says Sandip Vimadalal, advocate and solicitor.

Bank guarantee: As a precautionary step, the developer is expected to give a bank guarantee of at least 20 per cent of the project cost. The money would be used in case the developer fails to complete the project on time.

Transfer of development rights (TDR): The society has to ensure the developer purchases the additional TDR and loads it on the society. “Members should ensure this before vacating their house because if the TDR rules change after vacating, the builder might not be able to give the extra flat area he had promised,” says Vimadalal.

Corpus fund: Society members should opt for the corpus fund, as this money is usually used to pay municipal taxes after the property is redeveloped. This is because, taxes would increase after the property is redeveloped, and investing funds from this corpus can be a good idea.

Alternative accommodation: Society members should be given an alternate accommodation, preferably in the same area. Or, the developer should agree to pay the person’s monthly rent. Builders should provide advance payments for a year to members for rents (in the new accommodation). Whereas, for the next year, they should provide post-dated cheques.

Cost of shifting: Society members are entitled to seek the cost of shifting from the builder. The cost would include the amount members have to pay to shift to an alternative accommodation and back to the redeveloped society.

Facilities promised: These would include all the facilities and amenities the developer has promised to society members. The carpet or useable area the developer has agreed to provide after the redevelopment should be clearly mentioned in the agreement.

When to vacate the flat
Society members should agree to vacate their homes only after the builder has secured the necessary legal approvals and permits (city-specific or eg: approvals from Brihanmumbai Municipal Corporation) to redevelop that space. It is important that the rights of an original occupant remain unchanged after the new building comes up.

“Don’t vacate the house until the agreement is registered and it says exactly what the members had demanded,” says Vimadalal.

Members shouldn’t vacate the flat unless the developer issues an intimation of disapproval with the sanctioned plans and loads the TDR on the society. Also, ensure the security deposit and the bank guarantee are paid.

What if the project is delayed?
Ideally, redevelopment should be completed within two years; in exceptional cases, it could stretch to three years. If there is a delay, the developer has to pay extra rent, owing to the inconvenience caused to members of the society. If the developer turns out to be a fraud, the society agreement would come of use. Also, the PMC and the appointed lawyer would help approach court. However, these processes are time-taking.

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