In a fix
Residential buildings supposed to go in for redevelopment are often stalled for years, putting those who lived there in a quandary
Here are a few questions with reference to this…
With redevelopment being the new buzzword in Mumbai’s real estate landscape, residents of old buildings await a windfall if their buildings go in for redevelopment. With the promise of coming back to a bigger home, it is a win-win situation for all. Or, so it seems.
Unfortunately, numerous residential buildings first taken up for redevelopment, are stalled for months and sometimes for years as the developer fails to live up to his promise of delivering the new building in time.
Here, expert Ameet Mehta answers questions on what residents need to watch out for and what recourse they have if the developer backtracks on the promised redevelopment and how they can safeguard themselves against delays.
A building is going in for redevelopment and people have been promised flats in the redeveloped building. They need to vacate and are told they can come back to the same building, once it is redeveloped. Is it important to take a time frame from the builder?
It is extremely important to take a time frame from Builder. Either take a bar chart from the developer or take a slab wise time frame from developer. It is a must that the development agreement should cover the project time frame and schedule of the entire project. If the project is delayed beyond the stipulated project schedule then a termination clause or encashment of bank guarantee should be exercised to protect the interest of members.
Roughly, what would the time frame be like? What should it be – two years, three years, eight years?
The normal duration of a project is anywhere between 24 months and 36 months depending upon the size of the project. There could be an additional six months’ extension given to developer in case of genuine delays. These delays are for various reasons such as unavailability of materials, design changes, changes in government policies etc. The extension of the time schedule shall be recorded in writing by both the parties — i.e. the society and developer.
How can one hold a builder to his promise?
A society / members can hold the builder to his promise by mentioning a termination clause in the development agreement. They can also have a bank guarantee clause which can be used as a ‘positive tool’ to ensure that the Builder does not default in the project schedule. Certain riders should be incorporated in Development Agreement so that builders adhere to their promise.
Is the builder supposed to pay the residents (rent) for the entire time that the old building is being redeveloped?
Yes. The builder is supposed to pay the rent to residents of the old building, which is being redeveloped. The terms should be such that the rent is payable till possession of all members takes place and or Occupation Certificate (commonly called as OC) is received. The terms can be agreed upon and incorporated in Development Agreement. The rent amount may vary from location to location. The general figures of rent vary anywhere between Rs 40 and Rs 120 (per square foot) depending upon geographical location within city. The same can be derived also from Ready Reckoner rates.
One often hears that after initial negotiations, once certain residents have shifted out, the project gets stalled for some reason or another. What can one do in such a case? Why do projects get stalled?
It is important first to understand why the project has been stalled. There are four major reasons why a project may get stalled.
>> Changes in Government Policies due to which there is little confusion in getting project approvals
>> Unavailability of Materials which means serious scarcity
>> Force Majeure which means acts which are beyond anyone’s control
>> Financial crunch on the builders’ side.
Now each of them have a different implication.
>> Changes in government policy could be a genuine reason for delay and hence members and builders should work out a re-schedule from time to time and take updates from concerned government departments.
>> In case of unavailability of materials, both the parties i.e builders and members of the proposed, old redeveloped building should see whether an alternate material can be used to complete the project or should the material be brought from outside the state. Both parties can sit together and work out the financial implications.
>> In case of force majeure, a wait and watch situation should be adopted.
>> As regards to builders’ financial crunch, members of the society should shortlist developers after carefully studying their Profit and Loss statement and balance sheet of their company for a minimum period of three years. A project report is always prepared much before the project execution starts. Hence, it is advisable that financial strength of developers should be checked much before handing over the project to them.
What if half the building residents have shifted out as redevelopment was proposed? Should one continue to stay in the building or shift out?
It is advisable that members go with majority for a simple reason that every member requires a new home and additional space. Efforts should be taken by the Society Committee to address genuine grievances of members. If members have genuine grievances, the same should be addressed much before vacating the premises. However, every negotiation should be time bound. Time is of essence in every redevelopment project irrespective of whether the negotiations are with Society Committee or builder. There are instances where eviction has taken place in a short time. There are instances where even dissenting members in minority have won the matter in courts.
What if the builder offers one a choice — sell the old flat, take the money and do not come back to the building. Should one take that offer or wait to come back to a better, redeveloped building?
This choice clearly depends upon member’s personal interest. If the builder is offering a lucrative offer to quit on outright sale, members can encash its present value and shift to another geographical location of their own choice. In case the builder is offering better amenities, it is a good choice since you shall be staying among your known people in a better amenity space around. It is very important to check whether infrastructure around you is to your satisfaction or not. The market, railway station, mall, cinema house, metro rail, proximity to highways, police station, gardens, jogging track... may play a vital role in deciding whether you should go for an outright sale or come back to the redeveloped building.
Is it dangerous for residents to live in a half-empty building?
Though it may not be so dangerous if half the building / surrounding is empty but it is not at all to your advantage. Issues such as municipal water, electricity connection, drainage, BMC garbage collections etc may keep on hampering your requirements on and off. There is also a security aspect with neighbours not around, which may give members a sense of insecurity. Also one can imagine the state of the building. The builder has started removing doors and windows of vacated flats and slowly dismantling the building, barring a few common amenities. The building may no longer be livable.
We see many in this predicament in the city. Is this an unfortunate but common occurrence? People waiting for years for the project to start and then come back to the building?
It is quite common that dissenting members may have their view points, which are often not heard by either builder or society committee. However, as pointed out earlier, all dissenting members should be given a stipulated time to get their grievances addressed by Managing Committee / builder. In a specific time frame, all such issues should be discussed and addressed by either side to each other’s satisfaction. All correspondences should strictly be in writing after the discussions are complete.
Paperwork is quite important in all redevelopment projects. Such paperwork plays an important role in courts as well. If the majority of flat holders have vacated their homes, courts may view them with sympathy since such flat holders are away from their old homes waiting for years to come back to their new home with new surroundings and amenities. Many times the builder has also to play a vital role in bridging the gap between dissenting members and the Managing Committee.
Are there any warning signs one has to look out for when the builder offers you and your building a redevelopment offer?
It is important that the following criteria be considered for selecting a developer before confirming them as your prospective builder/developer.
Evaluation of a developer is most important stage before selecting one for redevelopment. The Managing Committee and Redevelopment Committee should properly evaluate and place the criteria for selection. The most important question in the minds of residents and committee
is what should be the criteria for selection?
Below are a few important criteria before you select a builder / developer for redevelopment which is also warning sign to avoid pitfalls. It should be noted that preferably one should try to get offer from atleast three developers so that a correct evaluation is done and a fair estimate is made to understand the best developer for the society/plot.
The Criteria is divided into two parts:
A) Pre-qualification for being eligible to receive tenders.
B) Post receipt of offer, their financial proposal.
The criteria for pre-qualification to be considered are as under:
>> Past performance, which includes projects completed and projects in hand.
>> Certified balance sheet of the past three years.
>> Certified Profit and Loss Statement of the last three years.
>> PAN Number of builder
>> Registration of the company / firm (Certificate of Incorporation).
>> Whether returns were filed or not.
>> Manpower of the company, including a list of the Board of Directors and Top Management.
>> Any Tie-ups with Foreign firms
>> Annual Report, if any
>> ISO 9000 certificate (if any) and List of references.
>> Banker’s certificate for Solvency and Financial support.
>> VAT Registration & Sales Tax Registration numbers
>> Current ongoing litigations
>> Plant and Machinery available and proposed to be deployed
>> Names of Authorised signatories
Post receipt of offers from Developers, the following points should be taken into consideration to arrive at a decision for selecting a Developer:
>> Corpus fund offered
>> Basis of Saleable area
a)Ratio of Carpet to Saleable area (Shops)
b)Ratio of Carpet to Saleable area (Commercial)
c)Ratio of Carpet to Saleable area (Flats)
>> Comparison of amenities offered
>> List of Employees and Statement of Deployment of Senior Engineering personnel and supporting tech. & Admn. staff: Month-wise strength
>> Organogram of employees for the Project (Who will report to whom)
>> Saleable rate assumed by Developer
>> Total Number of flats vis-à-vis parking’s assumed (Stilt, Open, Mechanical)
>> Whether the Developer proposes to have a Rehab building
>> Selling rate of Stilt, Open, Mechanical parking proposed
>> Total construction cost assumed including the cost of infrastructure per sq ft of the construction area.
>> Cost of TDR assumed per sq ft and FSI consumption plan
>> Deposit, Brokerage, Rentals and One time relocation charges for Temporary accommodation to be deposited in an escrow account
>> Total carpet area offered free of cost
>> Total fungible area offered at cost for new members
>> Provide free elevation area by way of dry balcony, niches, Indian seating, Flower beds, Duct areas, Balconies, Storages if any, etc.
>> Bar chart whereby project time lines are decided
>> Plan and schedule to apply for IOD/ Building proposal
>> Procurement and Materials plan
>> Housekeeping Procedures to be followed
>> QA/QC/Safety procedures to be followed
>> Terms of Bank Guarantees
>> Terms of Power of Attorney
The Development Agreement should be very well drafted with builder, to avoid litigations.