Legal Provisions Under RERA & FAQs On Maintenance Charges: Part II

Legal Provisions Under RERA & FAQs On Maintenance Charges: Part II

The Real Estate (Regulation and Development) Act, 2016 (RERA) makes it compulsory under Section (4)(d), for the developer to be responsible for providing and maintaining the essential services, on reasonable charges, till it is taken over by the association of the allottees.On possession, the builder makes the buyer enter into a maintenance agreement clearly specifying the actual amount and the frequency. RERA has asked the builders to mandatorily specify the maintenance charges in the agreement so that it does not come as a shock to the buyers. Later, the society association can work it out and charge the buyer’s maintenance costs accordingly. After possession, the payment of maintenance charges is the buyer’s responsibility. Until a tenant has been found for the property, the owner has to pay the maintenance charges. Later, the tenant can pay the maintenance charges, given it is mentioned in the owner and tenant agreement.

Points to keep in mind: 

  1. Till the formation of RWA, the promoter is responsible to take care of the maintenance of the society and thereby collect them from the homebuyers. After that, RWA can charge such charges as per its own rules.
  2. They are generally included in the allotment letter, initially issued to the buyer after the booking amount has been paid.
  3. The RERA Act, 2016, has ensured that the residents don’t have to pay any ad-hoc charges as per the own will of the builder.
  4. It should be properly disclosed by the builder at the time of booking, non-disclosure of such charges can hurt the residents on a later stage.
  5. Many State Governments have provided clear guidelines about the maximum amount of maintenance charges that can be charged by the builder through a proper contractual arrangement.
  6. Not all the societies have the same structure of charging them it varies accordingly. Sometimes it is calculated on the basis of the area of the flat.
  7. The frequency of collection of maintenance charges depends on the builder. He may ask for 12 months, 24 months, in advance at the time of possession.
  8. As per the recent circular of the Finance Ministry, the flat owners have to pay GST @ 18% if their monthly contribution to RWA exceeds Rs. 7500.

Today the increase in the demand of the residential and commercial property has given birth to a number of builders and developers who offer or promise special features to attract prospective allottees. The same has also developed a long ending fight between the homebuyers and the builders with respect to the unfair practices used by the builders and the delay in handling over the possession the allottees in which case the ultimate sufferer is the allottee who suffers mentally as well as financially. It’s always better to have a fair idea of the maintenance charges at the time of booking an apartment as they are recurring monthly charges.

FAQs: 

  1. Are maintenance charges compulsory?

Yes. Maintenance charges are compulsory in every new apartment. It is an integral part of the contract between the builder and the buyer.  After the buyer pays the booking amount for the apartment, the builder issues an allotment letter by mentioning the maintenance charge. Though the exact amount is not revealed, the builder can help the buyer with an average estimate of the maintenance charge if asked when discussing a potential purchase. The homebuyer can insist the builder to tell average estimate of the maintenance charges if not informed by the builder.

  1. How do I calculate the maintenance charges? 

The structure of the maintenance charge differs from one society to another. The maintenance charges range anywhere between Rs.2 to Rs.25 or even higher depending on the city and locality At the time of possession, the builder may ask you to pay the maintenance charge for 12 or 24 months or till the society is handed over to the RWA. After the RWA takes charge of the society, it decides whether to collect the maintenance charge on a monthly or annual basis. Housekeeping and cleaning, maintaining common areas, usage of equipment and other charges are included in the maintenance. An additional charge for repairing services and upkeep of common facilities like lights in the lobby areas and lift maintenance are divided equally between each flat. While electricity and water charges depend on per flat consumption.

  1. Is maintenance charges same in residential and commercial projects?

No. Generally maintenance charge is higher in commercial properties than residential ones. These maintenance costs can be related to any cost of managing and maintaining the commercial property.

  1. Can developers ask for maintenance charges before handing over the property to the homebuyer?

No. The builder will be responsible for maintenance charges till he hands over the possession to the homebuyer. Once the possession is delivered, society can charge such charges as per its own rules.

  1. Is GST applicable on maintenance charges?

Yes. Flat owners also have to pay GST at 18%, if their monthly contribution to the residents’ welfare association exceeds Rs 7,500, as per the Finance Ministry’s orders.

Written by- Ankur Saha, Head- Legal, VOICE 

CONFLICT BETWEEN THE PROVISIONS OF INSOLVENCY AND BANKRUPTCY CODE, 2016 AND REAL ESTATE (REGULATION AND DEVELOPMENT) ACT, 2016

CONFLICT BETWEEN THE PROVISIONS OF INSOLVENCY AND BANKRUPTCY CODE, 2016 AND REAL ESTATE (REGULATION AND DEVELOPMENT) ACT, 2016

In recent years, multiple laws have been enacted to consolidate the various sectors and functioning of the country’s economy. Examples include Insolvency and Bankruptcy Code, 2016, Real Estate (Regulation and Development) Act, 2016 (RERA), and Goods and Services Tax Act, 2017. Quite inevitably, some provisions of the different laws are not in sync and may create a situation of conflict.

Consider Insolvency and Bankruptcy Code (IBC) and Real Estate (Regulation and Development) Act, or RERA. Both enacted in 2016, these appear to be overlapping when it comes to resolving the interests of homebuyers. Both IBC and RERA have provisions where the probability for conflict in their operations is very high. IBC allows companies to file insolvency proceedings so that they can provide relief to the debtors or creditors. On the other hand, RERA was implemented with the sole motive of getting justice for aggrieved homebuyers and penalizing builders or developers if the project is delayed. Undoubtedly, some questions remain unanswered, such as whether these two laws contradict each other and in case of the developer defaulting, whether the homebuyer should approach RERA or IBC.

The two laws enacted in 2016 appear to be overlapping against each other when it comes to resolving interest of home-buyers. Both the IBC and RERA have provisions which are conflicting. IBC allows companies to file their insolvency proceedings and on the other hand RERA was implemented with the sole motive to bring the justice to the aggrieved home-buyers and penalize the builders or developers if the project is delayed. Seeing this from home-buyers perspective, still some questions remain unanswered like are these two laws contradicting each other and in case of default from developers side, the homebuyer should approach RERA or IBC.

If we compare the provisions of these two Acts simultaneously, scope for confusion prevails as for both RERA and IBC, the law states that it will prevail over other laws. Section 238 of IBC provides that in case of inconsistencies between any law and IBC, IBC would prevail. Similarly, Section 89 of RERA provides that in case of inconsistencies between any law and RERA, RERA would prevail.

Lately, in the Amrapali case, the Supreme Court held that financial creditors/secured creditors cannot take over homes belonging to the homebuyers. In other words, the Supreme Court upheld the rights of homebuyers ahead of the creditors. This amply shows the fundamental contradiction between IBC and RERA, while IBC is trying to give primacy to the creditors and RERA is trying to protect the interest of consumers.

The fundamental contradiction between these two may drag cases to judicial and legal forums. In light of the recent legislation of Bankruptcy Act, RERA may not create separate provisions to deal with bankruptcy. The best way to stay true to the purpose of RERA is to align with the provisions of the Insolvency Act.

While there is potential conflict between the IBC and RERA provisions, it cannot be denied that the implementation of RERA is the need of the hour as it will restore the faith of homebuyers and in the long run it will help the real estate market become organised and stable. At the same time, the IBC provisions are equally important to secure the interests of creditors. The central government should address the matter in such a way that the interests of creditors as well as homebuyers are protected.

Suggestion from Consumer VOICE:

It is recommended that builders should maintain Fixed Deposit account for the money collected from homebuyers so it can be used for that particular project. By doing so, the company will not go insolvent and this will also lessen the scope of conflict between IBC and RERA.