Dated 4th September, 2020
With the outbreak of the global COVID-19 (Corona Virus) Pandemic and the nation-wide complete lockdown effectuated from March 2020; the entire nation has witnessed a standstill. There has been reverse migration of the laborers to their native villages, disrupting the supply chain of construction material and thereby adversely affecting the Real Estate Industry to a large extent.
The Maharashtra Real Estate Regulatory Authority (“MahaRERA”) has declared the COVID impacted period from 15th March-14th September 2020 as ‘FORCE MAJEURE’ in accordance with the provisions of the Real Estate (Regulation and Development) Act. A final order was promulgated by MahaRERA secretary Vasant Prabhu in line with the advisory order issued by the Ministry of Housing and Urban Affairs (MoHUA) on 02 April, 2020, granting extension of registration of real estate projects and simultaneously extending timelines for all Statutory Compliances due to ‘Force Majeure’ during the Covid-19 pandemic. MahaRERA’s move has provided a wave of relief to the builders/promoters as MahaRERA has the highest number of real estate ventures registered with it in the country.
The MahaRERA had earlier extended the timelines for registration and statutory compliances by a period of three months till 31st June 2020. With the continued impact of the Pandemic, the Authorities sue moto decided to extend the period for another three months up to 14th September 2020.
What is Force Majeure?
The expression “Force Majeure” literally means “Superior Force”. Force Majeure refers to a contingent event that prevents a party to perform its obligation under a said contract.
According to Section 6 of RERA, any registration granted under the provisions of the act may be extended by the Authority on an application made by the Promoter due to Force Majeure in the form and manner as prescribed under the Regulations. A proviso to the Section further states that the Authority upon recording the reasons in writing may grant an extension to a project for such time as it may deem necessary not exceeding a period of one year.
As per the explanation added to the Section the expression ‘Force Majeure’ includes a case of war, flood, drought, fire, cyclone, earthquake, or any other calamity caused by nature affecting the regular development of the real estate project.
Invoking Force Majeure clause provides a temporary exemption from the obligations required to be performed under a given contract.
Details of Notification/order No – 14/2020
- The situation of the Covid-19 Pandemic will be treated as “Force Majeure” under the provisions of Section 6 of the Real Estate (Regulations and Development) Act.
- The said Force Majeure period will be treated as a “moratorium period” for the purpose of calculating interest under Sections 12, 18 19(4), and 19(7) of the Act. Thus, no homebuyer can claim any interest during the said period.
- Any registration of agreement for sale which becomes due during the same six-month period can be extended till the expiry of the force majeure period and the dates of possession mentioned in already registered agreements for sale shall also be deemed to be extended by the Force Majeure period.
- No action will be taken against any Developer for the amount due under Section 40 of the Act and the same can be recovered after the expiry of the force majeure period.
- Any work not undertaken due to non-functioning of certain offices such as registration of the contract, compliances regarding the transfer of title under Section 17, etc. shall not attract any liability/penalty during the Force Majeure period and the same is allowed to be completed post the expiry of the Force Majeure period.
This will provide an elbow room to the Developers to complete their construction projects and would save them from going into defaults or attracting penalties due to delay in completion of such projects owing to the complete standstill of the work amidst the Pandemic.
Rights of the Home-Buyers in Danger?
Although this notification has given a wave of relief to the Developers facing the heat of the Pandemic, it has led to a huge black mark on the rights of the Homebuyers.
It can be perceived in a way that Homebuyers are left to face the “triple blow”- delay in possession, payment of EMIs and rent for additional six months, and non-entitlement to tax benefit due to delayed possession while losing job prospects and facing salary cuts. The impact of the notification on Homebuyers can be better understood with the instances as under:
- Suppose if a person gets the dream home or his investment after a period of six months, he would not be entitled to any delayed interest from the period of 15th March-14th November 2020.
- Suppose if a person has RERA decree prior to the Force Majeure period and wants to get it enforced, he’s not entitled to do so before the expiry of the Force Majeure period and would have to wait to recover the due amount.
- Suppose if a person has been deceived by a Developer or a Builder on the pretext of false advertisement or misrepresentation, no action can be taken before the expiry of the said period. Further, no interest or compensation would be given for this Force Majeure period.
In this way, it has also provided erstwhile Developers an escape route from paying compensation in case of failure to deliver the possession even in those cases that had lapsed before 15th March 2020. It has provided unnecessary relaxation to the errant Developers while depriving the purchasers to enforce their statutory rights. This would in turn add to the hardships of the purchasers who have invested huge amounts in Real Estate Projects.
Therefore, to strike the balance between safeguarding the rights of Developers on one hand and that of the Homebuyers on the other hand has become the need of the hour. If the Force Majeure benefits are extended to the Developers, an equal amount of relief is to be provided for the buyers who are not in a position to pay EMIs for additional six months. Meanwhile, the Developers can take this period as an opportunity to build a fiduciary relationship with homebuyers by speeding up the construction of previously delayed projects and providing or extending the grace period to the homebuyers also for the payment of the next lined up installments.
Prima facie, this seems to be a one-sided form of action on part of MahaRERA benefitting only Developers/Builders. Thus, to effectively implement the fundamentals of RERA, the guidelines should be re-considered to level the differences and to ensure that the rights and interests of the Developers are safeguarded but not at the cost of the rights and interests of the Homebuyers or Purchasers.
Section 6 of MahaRERA vis-a-vis Section 6 of RERA
A bare reading of Section 6 of RERA would make it clear that it envisages two types of extensions – (i) extension due to Force Majeure and (ii) extension granted by the Authority subject to certain circumstances upon recording the reasons in writing and should not exceed one year in aggregate.
However a third opportunity to seek extension is envisaged under Section 6 of MahaRERA which states that the period for which registration shall be valid shall exclude such period where actual work could not be carried by the promoter as per sanctioned plan due to specific stay or injunction orders relating to the real estate project from any Court of law, or Tribunal, the competent authority, statutory authority, high power committee, etc., or due to such mitigating circumstances as may be decided by the Authority.
This exclusion in effect may automatically extend the timelines often bypassing the one-year limit on extensions for reasons other than Force Majeure. Although the Builders/Promoters can reap the benefit of this rule, the legality of this type of extension may be vulnerable to challenge before appropriate Judicial Authority as it seems to be indefinite as to which provision exactly empowers the State to grant such automatic extensions.
However, the Government of Maharashtra issued a notification in 2019 to amend certain provisions of MahaRERA referred to as the Amendment Rules. Consequently, Section 6 of MahaRERA was also amended in order to bring it in line with the provisions of RERA. Earlier where while calculating the period for which the registration shall be valid shall exclude “due to such mitigating circumstances” which were at the discretion of the authority to exclude after giving a reasonable opportunity to every interested party thereon has been completely omitted and this power of decision has been taken away.
Article by Ms. Purvi Devpura under internship of Adv Shankarlal Raheja
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