WHAT IS REDEVELOPMENT AND WHY IS IT NEEDED?
With limited availability of open land parcels in Mumbai, major developers are now looking at venturing into the redevelopment space.
Dilapidated buildings on the verge of collapse are a grim reality for thousands of housing societies across Mumbai. Developers, as an incentive to owners of older buildings, offer additional area, money, and the promise of a new flat with better amenities.
But owners should keep a few things in mind before opting for redevelopment.
What is redevelopment and why is it needed?
Housing redevelopment refers to the process of reconstruction of a residential premise by demolition of the existing structure and construction of a new one as per approvals from the Municipal Corporation of Greater Mumbai (MCGM). It ideally works best when a society is in dire need of extensive repairs but is starved of the necessary funds for it.
Developers, on their part, are also on the lookout for properties with unused development rights where they can build a new and higher structure where the additional storeys can be sold for a tidy profit.
As per the terms of the agreement between the developer and the society in question, existing members of the society receive new flats in the reconstructed building of an area equal to or more than the area of their existing flats. But redevelopment can only take place if 75 percent of the members tender their consent.
Over 20,000 housing societies, 17,000 cessed buildings and over 3,000 Mhada (Maharashtra Housing and Area Development Authority) structures are waiting for redevelopment proposals.
The advantages of redevelopment over repair
With redevelopment, the members get a new building, more space and monetary benefits without spending any money from their own pockets. Shah says the developer can offer extra amenities like a gymnasium, a generous car park, and high-end security systems, among other things.
However, while redevelopment may be the latest buzz, citizens argue that developers often tear down old colonial mansions to build luxury towers for the rich. And more often than not, it is often haphazard and done without the consent of society members.
Any building that is over 25 years old can go for redevelopment once it is declared dilapidated by an Architect. Under the provisions of Development Control Rules, it has become easy for developers to get buildings declared dilapidated even when they are not really so. Given the strong politician-builder nexus in the city, it is not difficult to get a building declared dilapidated by a government architect.
The redevelopment process also causes inconvenience to the residents as they will have to look for alternative places to stay in while the builder demolishes the old building and constructs a new one. It usually takes the builder at least 18 to 24 months to complete a project with an extended grace period of six months in case of any adverse eventuality.
Follow the ground rules
1. Redevelopment is usually burdened with bitterness and complaints of high-handedness and corruption against the Managing Committee of the society, which is why society members should always appoint a lawyer before signing a contract with the builder.”Builder should be transparent, reliable and trustworthy. The most recommended way to choose a builder is to go by the tendering system,” said Shah.
The society should prepare a comparative chart and, after checking the merit, reputation, technical capability, experience, financial status, quality of construction and successful completion of projects, it should select the builder.
2. The contract should clearly mention the obligations of the builder and the society members and the penalty or consequences of any breach of the contract by either of the parties. Once the agreement is accepted in terms of area and corpus fund, it cannot be revised.
“If the carpet area, as documented in the agreement, is not given by the builder, the owner can claim appropriate compensation through a consumer court by filing a complaint against the builder under the counts of Breach of Trust, Cheating, Unfair Trade Practice and Deficiency in Service,” Shah said
3. The housing society should insist on a bank guarantee, which would take care of monetary compensation to ensure the project is not delayed or stopped midway. “The successful bidder has to give a bank guarantee equivalent to 20 percent of the total project cost,” according to redevelopmumbai.com.
The agreement should mention the time of completion of the project, the size of the new houses, the mode and nature of monetary compensation, if it’s a one-time payment, reimbursement of rent, or a mix of both.The developer also has to offers a monthly compensation in advance along with the brokerage and transportation charge that the tenant has to incur while securing an alternate accommodation, said Shah.
4. The monthly compensation should suitably be agreed upon, which is equivalent to the prevalent rate of rentals in the same vicinity. The developer usually pays post-dated cheques. In case this advance rental is dishonoured, the society has the right to prevent the builder from either selling or allowing any new flat purchaser to occupy their respective flats.
5. At the time of vacating the premises, all the members have to give consent and vacate as per the resolution passed in the general body meeting. In case, a member refuses to do so the society or the builder may move the competent court.
WHEN CAN A PROPERTY BE REDEVELOPED?
Redevelopment can take place only if 75 per cent of the flat owners in a society agree to it. Redevelopment is feasible in case a society is in dire need of repairs but doesn’t have enough funds for it.
A society needs to have a society registration certificate, an original building plan, a sale deed, a copy of resolution, an agreement and a title certificate. The society would also need a property card and an NA (non-agricultural) order. Hiring a project management consultant (PMC) could ensure a smooth redevelopment process and avoid last-minute hitches.
The society needs a special committee to draw an outline of the redevelopment of the building and present it to other society members. This committee would also take various decisions, including that on selecting a PMC.
Role & appointment of a PMC
An architect can be appointed as a PMC. “A PMC should have the expertise to extract the best deal from a builder. He should support the occupants from the beginning of the project to its end. After a PMC is appointed, he should file a report that has the suggestions and recommendations of society members. Some PMCs charge a fee – either a flat fee or stage-wise payments. The PMC has to ensure documents such as the society’s maintenance bills, property tax papers, agreements, municipal papers, etc, are in place. After this, he can invite tenders from reputed builders.
Selecting a developer
Tenders from builders should be opened in the presence of the PMC and members of the committee. At least five bids have to be shortlisted. “A developer should be selected, based on his credentials, merits, reputation, experience and the added benefits he offers. An authorized officer and a registrar, along with at least 75% of the members, should be present to finalize a developer.
Essentials of a good agreement
The society would also need an advocate to draft the agreement carefully. Since the occupants are betting their asset (the current structure would be demolished), it is important the builder compensates them well, abides by the law, and fulfils the demands stated in the agreement. Therefore, the agreement should be comprehensive to ensure the occupants don’t suffer financial losses in case the builder fails to complete the project.
“The developer should give a security deposit to the members; this should be equal to the construction cost of rebuilding the society, according to the new design.
As a precautionary step, the developer is expected to give a bank guarantee of at least 20% of the project cost. The money would be used in case the developer fails to complete the project on time.
Transfer of development rights (TDR):
The society has to ensure the developer purchases the additional TDR and loads it on the society. “Members should ensure this before vacating their house because if the TDR rules change after vacating, the builder might not be able to give the extra flat area he had promised.
Society members should opt for the corpus fund, as this money is usually used to pay municipal taxes after the property is redeveloped. This is because, taxes would increase after the property is redeveloped, and investing funds from this corpus can be a good idea.
Society members should be given an alternate accommodation, preferably in the same area. Or, the developer should agree to pay the person’s monthly rent. Builders should provide advance payments for a year to members for rents (in the new accommodation). Whereas, for the next year, they should provide post-dated cheques.
Cost of shifting
Society members are entitled to seek the cost of shifting from the builder. The cost would include the amount members have to pay to shift to an alternative accommodation and back to the redeveloped society.
These would include all the facilities and amenities the developer has promised to society members. The carpet or useable area the developer has agreed to provide after the redevelopment should be clearly mentioned in the agreement.
When to vacate the flat
Society members should agree to vacate their homes only after the builder has secured the necessary legal approvals and permits (city-specific or eg: approvals from Brihanmumbai Municipal Corporation) to redevelop that space. It is important that the rights of an original occupant remain unchanged after the new building comes up.
“Don’t vacate the house until the agreement is registered and it says exactly what the members had demanded.
Members shouldn’t vacate the flat unless the developer issues an intimation of disapproval with the sanctioned plans and loads the TDR on the society. Also, ensure the security deposit and the bank guarantee are paid.
What if the project is delayed?
Ideally, redevelopment should be completed within two years; in exceptional cases, it could stretch to three years. If there is a delay, the developer has to pay extra rent, owing to the inconvenience caused to members of the society. If the developer turns out to be a fraud, the society agreement would come of use. Also, the PMC and the appointed lawyer would help approach court. However, these processes are time-taking.