Redevelopment of properties in Mumbai

During our last general body meeting, our secretary proposed that we renovate our building because it was in a very bad shape. All our pipes needed replacement, the walls of the building were cracking up, there was lack of cleanliness and security and our building was in dire need of major repairs. The society did not have enough funds and there was no guarantee that there would be no more repairs for next five years after these major repairs.

Instead of repairs, somebody suggested redevelopment.

The subject of redevelopment has now assumed great significance because in Mumbai, majority of the buildings owned by co-operative societies are quite old and in a neglected state.

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.

If we have to 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, we must be aware of documentations that are required and also we must understand the tax implications on redevelopment of immovable property.

One of the contracts, that there should be is 'development agreement' (which is merely authorizing developer to develop the land). While doing so we have to ensure that appropriate stamp duty is paid and that registration is done.
The builder approaches us, and we are the owners of the land and, instead of buying the land and paying a large amount towards the purchase; he enters into an agreement with us for permission to develop the land on our behalf for us.

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, and should also give a few flats to us plus pays us some monetary consideration. The developer will carry out this development work in the capacity of a constituted attorney that we, as owners, will appoint and not on his own behalf.

Later, these flats will be sold by the developer in the open market and from such sale, he makes a profit. He saves on stamp duty cost because the rate of stamp duty in respect of development agreement is much less than that payable on outright purchase. Later, when the building will actually be conveyed to a co-operative society or a company, we, as owners and builder become party to the conveyance deed on which the stamp duty is payable and the same is also registered.

It is important for a society to have a valid conveyance deed of land and building in its favor for it to be redeveloped and that includes acquiring marketable title, permission for reconstruction and construction of additional floors by use of TDR and FSI, or else, society may not get any approval of plan from Municipal Corporation.

But due to our ignorance, majority of builders fail to convey the title to a co-operative society after having constructed flats on a plot of land.
In fact, the greater majority of the co-operative housing societies, formed in Mumbai in the last twenty years, do not have the land conveyed in their favor. 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 possessor 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 we agree to re-development plan, 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.

There should be a 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.
A temporary alternate accommodation should be provided to the members during the construction period and should also be made clear in the agreement.

There will be complications which the society might face in case of redevelopment if following things were not considered.

They fail to assemble all members of the society at a single point of time during the meetings. (In my society, we have some stubborn members who just refuse to attend the meetings and then blow their top if any decisions that are taken are not in their favor.)

Sometimes the title may not be clear, i.e. conveyance deed of the land and structure is not executed in favor of the society.

There is 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 can not be traceable

There are some tax issues regarding redevelopment, which are not clear to the society.

Some members don’t wish to come back to the new building and ask for very high prices for sale of old flats or are more interested in purchasing a new flats at a discounted rate in new building.

Corpus amount has taken a long time to be fixed by the society.

As per old municipal laws, it was possible that the owner of building permitted TDR FSI to be loaded over the existing structure by way of additional floors for a consideration. This, however, is no longer permissible under the existing municipal laws.

We can, however, make some arrangements under which, a project involving the use of TDR FSI can be developed jointly.

We can allow our existing building to be demolished and the existing FSI can be developed for our use. The builder uses additional TDR FSI - the cost of which is to be borne by the developer alone and he constructs the new building.

When drafting a Development Agreement, some of the important points and clauses of a development agreement are:

The cooperative society, the developers and preferably all the members should be parties to this agreement.

There should be a brief history of how the conveyance deed was given to the society.
The registration number of the cooperative society under the Maharashtra Co-operative Societies Act, 1960, should be mentioned in the agreement.
There should be particulars of the existing flats with carpet area of the flats occupied by each of the member of the buildings.

The area of the plot as per the 'property register card' should be mentioned.
The total estimated FSI area that can be constructed by utilizing TDR on the plot should be mentioned.

The agreement should mention the carpet area, including the additional area, which will be made available to the members in the new building.

The schedule of payment of the total consideration should be specified in the development agreement.

There should be a mention of the tentative date for vacating the flats in the old building by the members, which shall be linked with the plans being approved by the concerned authority.

The number of open car parking space, stilt car parking and closed parking which will be given to the members in the new building should be mentioned in the development agreement.

Usually the developers obtain at their own costs the rights under the Development Right Certificate (DRC) in accordance with the provisions of the Development Control Regulations for Greater Bombay, 1991. Further, the developers get the building plans approved, obtain the commencement certificate and sanction of building plans from the MCGM and pay all the requisite deposits, fees and premiums to various authorities including the MCGM. It should be clarified in the development agreement that neither the Society nor the Members shall be expected to pay such types of expenses.

It must be clarified in the development agreement that each purchaser of a flat in the new building who intends to be a member of the society will be required to pay to the society the entrance fee and share allotment money as well as a sum as approved by the society towards the sinking fund of the society.

The time period for completion of the new building on the plot owned by the society shall be defined in the development agreement. In the event the developers fail to complete the entire work within the stipulated period, a penalty clause can be mentioned in the agreement.

It should be specified in the development agreement that from the date of taking complete vacant possession of the existing structure till the date of receipt of occupation certificate in respect of the new building and till such time that the builder intimates the members to take possession of their respective flats, the developers shall bear and pay all municipal rates, taxes and other payments required to be paid to the concerned authorities.

The agreement should also clarify that the society shall pay only the municipal rates, and other outgoing taxes till the vacant possession of the entire property is done (the plot and the existing structure) to the developers after receipt of full occupation certificate in respect of the new building.

The development agreement should list out the broad specifications and amenities to be provided for the flats in the new building on the plot owned by the society.
The development agreement should have a proper schedule of the property at the end of the agreement which should specify the location of the property along with the name of the suburb, final plot number, CTS number, area of the plot and municipal ward number.

Abovementioned are some of the important points relating to redevelopment of old buildings by cooperative societies. 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.

It is very important to understand the procedure properly before signing any papers. The building in my lane has a stay order due to some conflicts and misunderstanding between the society members and it stands in pitiful state since last five years. Till a proper agreement is not reached, the building can neither be redeveloped nor repaired and the members are forced to stay in these uncertain and unhealthy conditions for many, many years.