REDEVELOPMENT OF HOUSING SOCIETIES: ARE GOVT. GUIDELINES REALLY PERSUASIVE AND CONVINCING?

REDEVELOPMENT OF HOUSING SOCIETIES: ARE GOVT. GUIDELINES REALLY PERSUASIVE AND CONVINCING?

REDEVELOPMENT OF HOUSING SOCIETIES: ARE GOVT. GUIDELINES REALLY PERSUASIVE AND CONVINCING?

With a view to ensure transparency in Societies seeking to undertake redevelopment projects, the Government of Maharashtra had issued a Circular bearing No. CHS 2007/CR554/14-C, Co-operation, Marketing and Textiles Department Date: 3rd January 2009 this contains a Directive under Section 79 (A) of Maharashtra Co-operative Societies Act 1960 for all the Co-operative Housing Societies in the State of Maharashtra regarding the Redevelopment of Buildings of Co-operative Housing Societies. These guidelines are applicable wherever the buildings of Co-operative Housing Societies in the State of Maharashtra are being redeveloped on a large scale.  

It is implied that these guidelines are to be followed stringently before any step or idea of redevelopment is mooted by the Managing Committee amongst the members of the Society. In the following article, I have endeavoured to bring out certain vital but unnoticed areas of redevelopment aspects that have dejectedly escaped the attention of the Government while formulating these guidelines.    

A new home in place of old is a dream that every resident member either tenanted or owner of the flat share. Wrecked buildings often on the threshold of collapse are a depressing reality for thousands of Housing Societies across Mumbai city and its suburbs. With structural strength already poorly affected and conditions deteriorating further with each passing day, week and month, sooner or later the stage arises when members start aggressively exploring the possibility of redevelopment as the only option for their properties rather than spending lakhs after cosmetic repairs and yet, the buildings remain as old as ever.

However, deciding and implementing a venture of changeover from an old dilapidated building to new and specious houses with stable structure is a Himalayan Task. With imperfect or ambiguous information creating friction among members with no knowledge and poor leadership of office bearers of the Societies lead to diffident situation at a later date or during the tenure of redevelopment project making it difficult to achieve the desired results.

The non-availability of conveyance from the old owners/Builders renders the Societies liable the entire process of redevelopment break down instantly. Identifying the right kind of Builder or Developer is another challenge. There are various reasons due to which the redevelopment of old buildings has become a common cause of serious concern for the thousands of Housing Societies across Mumbai. It is the calamitous need of the hour that those Societies standing on the threshold of redevelopment and want to ensure the successful completion of redevelopment task without any imperil; get genuine advice and educate themselves by the redevelopment experts and counsellors having both, the experience and expertise.

It is said that Co-operative Movement is a Socio-Economic and Moral Movement. It is to fulfil the Constitutional Goal of the community that it is encouraged by the Government. It is neither a profit making activity nor is it a device for building power politics. Its candid role cannot be forgotten or else it will lose its sanctity and reliability.

It should be ensured that any activity of redevelopment of Housing Society should not compromise the rights of members and must safeguard the existence of the Society. In case the dissenting members fail to abide by the resolutions passed at the meetings then it is not the Developer to use his power but the Managing Committee of the Society who has to initiate appropriate action against those dissenting members under the recourse of law.  

In most of the redevelopment projects one world is always missing i.e. “Co-operation” by all members of the Society. Some members in minority disapprove the decision of redevelopment merely because they manage to survive as opposition. However, their opposition must be acknowledged if it is judiciously established that their disagreement to issue of redevelopment is due to non-transparency, criminal conspiracy, underhand dealings or undesired favouritism to the Developer by the Members of their Managing Committee, fraud or misrepresentation or due to some statutory prohibitions.

The rule of supremacy of majority in Society’s affairs should prevail in cases where proper process of redevelopment is followed up, emphasize is given to the cooperative nature of Society’s deal by discussing each and every aspect of redevelopment openly in General Body Meetings and considering the suggestions in its true spirit, transparency in negotiations with the Developer thereby maintaining an equivalence among members.

The Govt. Guidelines have clearly spelt the process of calling meeting for redevelopment and business of such meetings, process of selection of Developer, appointment of an authorized officer from Dy. Registrar’s office, deliberations on the terms of Development Agreement and so on. However, in light of various observations made, it is a matter of thought whether these Guidelines for redevelopment of Society buildings and its process need thorough reconsideration and revision by the Government.

There should be an absolute transparency and integrity from the Developer’s side in executing the Development agreement. In most of redevelopment projects, the Managing Committee passes the resolution in favour of a Developer and set out vital commercial terms of Development Agreement. The Managing Committee thereafter negotiates these terms with the Developer and signs the agreement on behalf of the Society. There are certain very crucial and imperative questions on the practice of incorporating these terms/clauses which silently, provide rights to the Developer in the property of the Society in the so called “Development Agreement”.

Very often, the clauses in the Development Agreement between the Society and the Builder/Developer are such that all rights of the Society in the land including the benefits attached to the same in the form of existing/future FSI etc. are surrendered to the Builder/Developer. Thus, the Society not only looses the existing structure and building completely but is divested of its right and title in the land itself. If all such arrangements are accepted at their face value, then, the existence of the Co-Operative Housing Society itself is threatened.

For example, in the Development Agreement, many times under the head of “Developer’s Area Entitlement” it is quoted that ‘save and except the flat areas agreed to be allotted to the members of the Society under this Development Agreement besides the Society’s areas and all additional premises/areas constructed, shall belong solely to the Developer including the increase in future FSI of the Society by virtue of its enhancement declared by the Government as a policy decision’.

Is it not giving away the “Rights in Property” rather than assigning only the “Development Rights”? Every Managing Committee needs to be prudent and cautious while negotiating the terms and principles that are governing the Development Agreement. The market practice of adding such clauses as giving away the absolute right and authority to consume future FSI in Development Agreement creates rights in the property itself in favour of Developer.

These are the deceptive trade tricks of the Developers to create their ownership rights over the property of the Society. The Managing Committee of every Society must ensure to protect the title of property which exclusively belongs to the Society and such wicked and manipulative clauses are not supposed to be entertained or contemplated while approving the draft of Development Agreement.

It must be remembered that in case of negotiating and agreeing to the terms of Development Agreement, the Developer has to act only as an agent of the Society, purchase TDR in Society’s name, obtain various permissions in Society’s name and enter into Society’s premises as a licensee for developing the property and lieu of these performances, he gets his profitable consideration by way of selling his designated portion in the redeveloped area proportionately available to him out of additional FSI.

The Developer’s assignment of redevelopment comes to an end the moment the Occupancy Certificate is issued by the competent authority and handed over to the Society. It is needless to mention that the Society always remains the owner of its entire property including the future enhancement in FSI.

It is very essential here to pronounce that the Government Guidelines issued vide its circular dated 3^rd January, 2009 should have covered the aspects of TDR/FSI and other rights attached to the land and property of the Society. Going through the fine print of these guidelines indicate that several vital aspects are lost sight of and the rights of the members are not given serious consideration.

The Government directives do not deal with the aspect of TDR/FSI and other rights attached to the land and how they have to be dealt with. Therefore, in case the Society desires to assign the development rights in the property to the Developer by way of executing the Development Agreement then the nature of such rights should be adequately documented by the Government with a view not to allow the Developer s to encroach or establish their future claims in the property of any Society.

The Government guidelines should also emphasis strongly on the discussions are to be held at the General Body Meeting of the Society on all the agreed terms of Development Agreement between the Developer  and Managing Committee as the present guidelines of the Government do not provide for approval of draft Development Agreement at General Body Meeting and hence in case Managing Committee innocently or without understanding its implications, creates such rights in Society’s property in favour of the Developer and then the entire Development Agreement becomes vulnerable to such clauses and is exposed to risks of ownership of Society’s property.

All the members of the Society must read the fine prints of the Development Agreement containing the vital terms and offer their thoughtful and solicitous comments and observations before getting the draft Development Agreement approved in the General Meeting as here is a question of handing over of their hard earned shelters to the Developer.

It is largely observed that the draft of Development Agreement is presented by the Developer to the Society, is always found “Developer Friendly Draft” which has to be restructured by the Society with in-depth study and ensure that all protections are available under the law and make it “Society Friendly Draft” to avoid any litigation at a later date.

Apart from maintaining the absolute transparency in Development Agreement, one of major impediments that contribute in redevelopment process is the allegation of discrimination among the members of the Society and underhand dealings including receiving illegal gratifications from the Developer s particularly by the Managing Committee. The allegations of underhand dealings if any should be probed thoroughly before execution of Development Agreement.

The conflict of supremacy of Society’s resolution and rule of majority v/s Individual interest in redevelopment may sometime be fatal. Merely because some members in minority disapprove of the decision cannot be the basis to negate the decision of the General Body. As per the present Government guidelines on redevelopment, the rule of supremacy of General body is unquestionable, yet the valid objections of minority should not be ruled out and there should be a mechanism where their objections are adequately and expeditiously resolved.

The issue of conflict between collective interest and individual interest should be clearly addressed in the Government guidelines as otherwise; the minority will always feel subjugated and dispirited in such redevelopment work and in all probability the pace of redevelopment will suffer.

The Government guidelines are silent over a crucial issue and that is in case the non-cooperating member does not vacate, the Society should be delegated with powers of getting the resolution passed against the non-cooperating member and expel him with at least ¾ majorities since getting the order against him for eviction through Cooperative Court is costly, tedious and time consuming.

The Developer cannot initiate process of evicting dissenting member under the shelter of Development Agreement as the agreement never establishes privity of contract with the individual member or a dissenting member and hence for getting peaceful possession of the Society’s property, the Society has to take appropriate action against the dissenting member. The Government guidelines do not provide any efficient mechanism to solve such hindrance and handover peaceful possession of Society’s property to Developer to carry out redevelopment.

At times, the perception of safety over vital issues affecting the redevelopment can itself be a key point of litigation by dissenting members. The penalty and termination clauses in a Development Agreement are not enough protection to Society members in case the construction does not proceed or for some reason is halted or stopped. Further, many times, a Development Agreement doesn’t provide for termination of the agreement since such clauses cause discomfort to a Developer and hence the only remedy left with the Society is to go for prolong litigation of termination of the agreement and/or wait for getting penalty for delay in handing over of new structure.

Under such circumstances, there is no certainty of getting the redeveloped houses within agreed time and the existence of the Society itself is in danger. The Government guidelines provide some more protections like time bound completion of redevelopment project, providing financial Bank Guarantee of 20% of the project cost and non transferability of the development rights etc.

Here, one more issue requires serious concern that as per the Government guidelines, if the Developer provides a financial Bank Guarantee of 20% of the project cost as security, what about the unsecured portion of remaining 80%? In case the Developer abandons the redevelopment project leaving the Housing Society high and dry, whether cashing of the financial Bank Guarantee of 20% of the project cost is sufficient to complete the project and re-house the existing members in new premises?

The Government guidelines are alarmingly deficient and lack in the matter of such lifetime security issue of individual member who surrenders his shelter to remain in main stream. The Housing Societies must ensure to demand financial Bank Guarantee of 100% of the construct cost of at least the total residential area to reconstruct the premises belong to their existing members.

Looking to the enormous need of redevelopment in the city, a regulatory body should be created to oversee effective execution of redevelopment projects and quick remedy of Society’s and member’s grievances. Further, the safety of Society in redevelopment process needs to be reconsidered in the Government guidelines.

To sum up, though the Government guidelines for redevelopment of Housing Societies has tried to thrust and maintain transparency by the Housing Societies in the process of redevelopment.  However, apart from above mentioned issues raised, the following issues also need to be given due concern to incorporate in the revised guidelines as soon as possible to safe guard the corporate interest of Housing Societies for more efficient redevelopment:

a) After the finalization of draft tender form and in order to get competitive quotations from experienced, reputed and reliable Developers, the Society should publish an advertisement in at least three leading News Papers of the city and invite offers rather than Society’s members to be entitled to furnish information about the Developer known to them.

It is worth to mention here that in the name of redevelopment of old housing societies in Mumbai, the various authorities, in last few years have carpeted free ground to breed rampant corruption to benefit the private builders to sub serve their illegal and deceitful objectives to garner huge profit. This is most required of the Government to impede the members of Managing Committees to enjoy the sleep with the builders for few greens and thrust redevelopment idea on the innocent and gullible members.

The corrupt members of the Managing Committees also resort to arm twisting, harassment and threatening method to the flat owners into submission as per the builder’s orders. Scared by such hounding tactics, most society members accept and offer their consent towards the redevelopment of their society without any protest and prefer to go along with whatever the members of the whole Managing Committee decides.

It is well known fact that the illegal gratifications and lavish spending by a large cartel of unscrupulous Builders entice the members of the Managing Committees of Cooperative Societies and provoke them to turn against their own members of the Society in the matter of obtaining consent and force implementation of redevelopment.

b) Members should be allowed to cast their vote through one of their family member as proxy, since many of times they may not be able to remain present in the General Body meetings held to discuss important issues and pass the resolutions;

c) Formation of high profiled Credit Rating Agency consisting of Industry Experts exclusively under the control of Housing Ministry of Central Government for Registration and fixing the grades for the Developers since in redevelopment projects of Housing Societies and SRA projects, the existence of the Society itself is challenged and it may get trapped into the community of III tire Developers’ taller claims to bag the projects beyond their means and capacity;

d) Provide for mechanism for quick action and appointment of a new Developer in case of non performing Developer;

e) Provide for stern penalty measures including imprisonment and blacklisting of Developer in case he Developer fails to execute the project in time.

f) Suitable legal action to initiate and severe action against unauthorized constructions, selling of car parking basement area as commercial, violation of rules of DCR, MMRDA, MRTP and BMC.

It has been often noticed that during the process of redevelopment, the terms of Development Agreements as agreed upon, the unhealthy attempts with ulterior motives are made by the Developers to twist and grossly violate the rules of MRTP and DCR by unlawful planning and constructing additional/unauthorized areas that are beyond their entitlement (i.e. beyond the plot FSI and the TDR/FSI loaded) for their hidden financial gains. The buyers of such unlawful flats/properties land themselves in deals that lead to litigation at a later date.

The ill- observance of MRTP/MCGM/DCR rules and guidelines are overlooked by the sympathetic officials of the MCGM and the plans so submitted, are sanctioned without verifying the eligibility or its conformity with the Development Agreements.

The Projects are completed and the Occupancy Certificates are issued without the proper inspection neither carried out by the MCGM officials nor taking pains to verify whether the actual measurement of the constructed areas tally with the final plans submitted.

It is further noticed that upon the completion of the projects, these additional/unauthorized constructions are silently regularized at the last moment by executing the Supplemental Agreements with the Office Bearers of the Societies with green handshakes/offering them handsome rewards.

g) Provision for providing financial Bank Guarantee of 100% of the total construction cost of total project cost/cost of construction for residential FSI to re-house the existing members.

h) Clarification on the applicability of Government guidelines wholly or partly in cases where a Society has only passed a resolution for appointment of Developer prior to the implementation of guidelines i.e. 3^rd January 2009 and further steps are pending for ongoing negotiation of commercial terms between the Housing Society and the Developer.