“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full and managed with reasonable care, it is the safest investment in the world.” — Franklin D. Roosevelt
Given the constant rush to purchase property, the veracity of this remark still holds true today. In this regard, the Real Estate (Regulation and Development) Act, 2016 has given rise to a single piece of legislation governing the rights and obligations of all the major participants in the real estate sector — a sector previously managed mostly by the local laws of each state.
A real estate regulator named The Real Estate (Regulation and Development) Act (RERA) was brought into force in the year 2016. It is an Act of the Parliament of India which seeks to protect home buyers as well as help boost investments in the real estate industry.
In India, RERA and the government's model code aim to create a more equitable and fair transaction between the seller and the buyer of properties, especially in the primary market. RERA, it is hoped, will make real estate purchase simpler by bringing in better accountability and transparency — provided that states do not dilute the provisions and the spirit of the central Act. RERA gives the Indian real estate industry its first regulator. The Real Estate Act makes it mandatory for each state and union territory to form its own regulator and frame the rules that will govern the functioning of that regulator.
It is considered one of the landmark pieces of legislation passed by the Government of India. Under the Act, state governments are required to notify their own rules on the basis of the model rules framed under the central Act. Henceforth, the Karnataka Real Estate (Regulation and Development) Rules, 2017 were brought into force on 11 July 2017.
RERA being a demanding topic, and presenting an opportunity for Chartered Accountants, it is crucial to have knowledge of it. We will be publishing a series of articles on this topic — stay tuned for regular updates.
There are many players under RERA, but the two important key players are the Allottee and the Promoter. In simple terms, an allottee is the buyer of a unit in a real estate project from the promoter, who is the seller. It is important to know who comes under the purview of allottee and promoter, in order to avoid the misuse of the various rights and benefits prescribed by the Act in favour of each.
Allottee
| Who | Included | Not included |
|---|---|---|
| A person to whom a plot, apartment or building… | …is directly or subsequently allotted, sold or transferred by the promoter. (Allotted and sold are different — allotment to a person under some arrangement is also an allottee.) | Does not include any person to whom property is given on rent. |
Knowledge check
- A person received an apartment under a re‑development arrangement without consideration — is that person also an allottee?Yes
- A person received an apartment from the landowners, who in turn had received such apartment from the developers as part of the land consideration — is that person also an allottee?Yes
- A person has been allotted an apartment by the landowners on rent, the landowners having received such apartment from the developers as part of the land consideration — is that person an allottee?No
Promoter
Three persons are deemed to be promoters as per the Act:
- Land owners — a landowner could be a person or a society in redevelopment.
- Developer / builder — any person causing the construction of a building or plots.
- Seller — a person who has received the flat under any arrangement in the project and is selling those flats.
Let us understand with a few examples
| Ex. | The arrangement | Who is the promoter |
|---|---|---|
| Ex. 1 | Landowner, developer and seller are all the same person. | Since there is only one person involved, that person is the promoter and is solely held liable for all the acts of a promoter as prescribed by the Act. |
| Ex. 2 | Landowner has given development rights to the developer. Developer and seller are the same. | Here the developer is the promoter. |
| Ex. 3 | Landowner is a society and has given development rights to the developer. Developer and seller are the same. | In this case both are promoters, but the landowner's liability as a promoter is limited and it is not responsible for the development acts. |
| Ex. 4 | Landowner and seller are the same. Developer is separate. | Both are promoters with distributed liability. The landowner is liable to give conveyance and also to refund money in the case of delayed possession or any other case; the developer is liable for causing construction, defect liability, society formation and so on. |
| Ex. 5 | Landowner, developer and seller are all different persons. | All are deemed to be promoters with distributed liability. The landowner is liable for conveyance, the developer for construction, defect liability and society formation, and the seller for refund of money along with interest. |
Note — conveyance: the legal process of transferring property from one owner to another.
Continue to Series II — carpet area, built‑up area and super built‑up area →
