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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.

Though they are in dire need of extensive repairs, societies are starved of necessary funds required to carry them out. On the one hand, they do not have the resources and expertise to handle the repairs on their own and on the other, the families of the members have expanded and they need larger space to accommodate themselves.

Drawbacks of old buildings:

·     Lack of services such as security, cleaning, and to operate pumps.

·     Absence of common facilities like gymnasium and a society office.

·   Unavailability of proper playing area for children in the compound.

·     Perennial leakage in the structure and also in the overhead or ground floor water tanks.

·     Unavailability of elevators causing suffering to heart patients and the elderly.

·       Absence of a proper entrance lobby .

·     Room sizes being too small.

·     Interior planning of rooms being unsatisfactory.

·     Lack of attached toilets in bedrooms.

·     Plumbing/electrical lines lying open

·     Size of   toilets being too small

·     Low resale value due to poor condition of   the building

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.

Before we discuss what is redevelopment,   let us first define the   term 'develop'. The dictionary defines the   term 'develop' as to 'realise potentialities of land,   especially by converting it for residential or industrial purposes'. Redevelopment, therefore, refers to the process of reconstruction of the residential/commercial premises by demolition of the existing structure and construction of a new structure. This is done by utilizing the potential of the land by exploiting additional TDR, FSI as specified under the Development Control Regulations of Municipal Corporation of Greater Mumbai (MCGM).

In order to correctly 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, one must be aware about the documentation required and also understand the tax implications on redevelopment of   immovable property. One of the contracts, that needs to be entered into by concerned parties in case of redevelopment, is the 'development agreement'. While doing so one needs to ensure that appropriate stamp duty is paid and that registration is done.    

Before understanding the procedure of redevelopment,   let's first learn more about the 'development agreement'. Many years ago,   developers who were not keen on   purchasing land and developing the same since that would involve huge stamp duty cost on transfer of land,   came up with a novel idea - that of entering into a development agreemen. This would reduce stamp duty to a significant extent. Note that entering into a development agreement does not vest any title of the land in the developer, but merely authorizes the developer to develop the land.

The builder approaches the owner of the land and, instead of buying the land and paying a large amount towards the purchase; he enters into an agreement with the owner for permission to develop the land on the owner's behalf.     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, gives a few flats to the land owner and also pays him some monetary consideration. The developer carries out this development work in the capacity of a constituted attorney of the owner and not on his own behalf.

Later, these flats are sold by the developer in the open market and from such sale, he makes a profit. The rate of stamp duty in respect of development agreement being much less than that payable on outright purchase, there's a significant saving in stamp duty cost. Later, when the building is actually conveyed to a co-operative society or a company, the land owner and builder become party to the conveyance deed on which the stamp duty is payable and the same is also registered.

In order to get any property redeveloped, the society should have a valid conveyance deed of land and building in its favour. Some of the benefits of obtaining a conveyance are as under: -

·   Acquiring marketable title

·   Permission for reconstruction can be taken by the society

·   Construction of additional floors by the use of TDR FSI can be done.

At this juncture it is important to reiterate that only properties that have got conveyance deed from the builder or the earlier land owner can proceed to get the property redeveloped.   However, in the absence of a valid conveyance deed, the society will not be able to get the approval of plans from the municipal corporation.

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 favour. 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 possessory 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   commencing re-development, 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.

·  The 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.   The terms about the provision of temporary alternate accommodation to the members during the construction period should also be made clear in the agreement.

Some of the complications which the society may face in case of redevelopment are:

·  Inability to assemble all members of the society at a single point of time, as some of the members may not be available. Some flats may be mortgaged to a bank or a financial institution

·  Some of the members may be interested in purchase of new flats at a discounted rate in the new building.

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

·  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 may not be traceable

·  Lack of unity amongst the members

·  The tax issues regarding redevelopment are not clear to the society.

·  Very high prices are expected on sale of old flats in the case of certain members who are not interested in staying in the new building.

·  Corpus amount takes a long time to be fixed by the society.

·  The decision as to which member will get what type of parking takes a very long time.

There can be different arrangements under which, a project involving the use of TDR FSI can be developed jointly. Some common arrangements are:

·  An existing building is demolished and the existing FSI is developed for the use of the owner. The builder uses additional TDR FSI - the cost of which is to be borne by the developer alone and constructs the new building.

·  In case the existing building is tenanted, the tenants are compensated for the inconvenience caused either by providing temporary alternate accommodation during the period of construction or by monetary compensation for vacating the premises.   In some cases, they are given ownership rights in place of tenancy rights.

·  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.

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.

·  A brief history of how the conveyance deed was given to the society should be given in the redevelopment agreement.

·  The registration number of the cooperative society under the Maharashtra Co-operative Societies Act, 1960, should be mentioned in the agreement.

·  The particulars of the existing flats with carpet area of the flats occupied by each of the member in the said buildings should be noted in the development agreement.

·  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 said plot should be mentioned.

·  The carpet area, including the additional area, which will be made available to the members in the new building, should be stated in the agreement.   The schedule of payment of the total consideration should be specified in the development agreement.

·  The tentative date for vacating the flats in the old building by the members should be     mentioned in the agreement, 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 alongwith the name of the village, taluka, final plot number, CTS number, area of the plot and municipal ward number.

Above mentioned are some of the important points relating to redevelopment of old buildings by 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.

The author, Sunil Ramani, is a Lawyer. He may be reached at skramani@laws4india.com