COVID-19:Relaxations to the Real Estate Sector under the Real Estate(Regulation and Development) Act

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COVID-19: Relaxations to the Real Estate Sector under the Real Estate (Regulation and Development) Act, 2016

Introduction

The novel coronavirus (‘COVID-19’) and the ensuing nation-wide lockdown, has disrupted businesses and impacted economic activities in several sectors, especially the real estate sector.

Construction activities on real estate projects across the country have been brought to a standstill. Further, the reverse migration of laborers to their hometowns and breaks in the supply chain of construction material has worsened the situation.

To mitigate the hardships faced by real estate developers, the government and the regulatory authorities under the Real Estate (Regulation and Development) Act, 2016 (‘RERA’) have issued some advisories/orders.

RERA and force majeure

In terms of section 4 of the RERA, every promoter applying for registration of a real estate project, has to file a declaration on an affidavit, stating the time period for the completion of the project.

For any extension of the time period stated in the application, the promoter has to file an application to the authority. Section 6 of the RERA provides that the application for extension can be made only on the grounds of force majeure.

The RERA defines ‘force majeure’ to mean 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.

Extension in completion of projects due to COVID-19

Central Government Advisory on extension of registration of projects due to COVID-19

The Ministry of Urban Development issued an advisory dated 13 May 2020 (‘Advisory’) to all the States/Union territories and their respective regulatory authorities to treat COVID-19 as a force majeure event under the RERA and grant automatic extension of registration.

The Advisory was issued with a view to avoid submission of separate applications for extension of project by promoters and ease compliance norms for promoters.

The Advisory provides that the regulatory authorities for all registered projects for which the completion date, or revised completion date, or extended completion date, expires on or after 25 March 2020 may issue directions to:

  • Extend the registration and completion date or revised completion date or extended completion date automatically by 6 (six) months by treating COVID-19 as a force majeure event under the RERA;
  • Consider to further extend the date of completion for another 3 (three) months, if the situation in their respective states, for reasons to be recorded in writing, needs special consideration for invoking force majeure in view of the current pandemic;
  • Issue fresh registration certificates with revised timelines in each such registered real estate project at the earliest; and
  • Concurrently extend the timelines of all statutory compliances in accordance with the provisions of the RERA and rules and regulations made thereunder.

It is pertinent to mention that the regulatory authorities of Maharashtra, Gujarat, Uttar Pradesh and Tamil Nadu already issued orders in their respective States for extension of registration of real estate projects from 3 (three) to 5 (five) months under the provisions of RERA even before the above-mentioned Advisory was issued. Pursuant to the Advisory, various State regulatory authorities (including Maharashtra, Gujarat, Uttar Pradesh and Tamil Nadu) issued/amended circulars/orders providing relief to the real estate sector. A brief summary of the orders issued by some of these States regulatory authorities, is set out below:

Maharashtra Real Estate Regulatory Authority (‘MRERA’)

  • The MRERA issued an order bearing no. 14/2020 dated 18 May 2020, stating that the period of validity of all registered projects where completion date, revised completion date or extended completion date expired on or after 15 March 2020, will be extended for 6 (six) months.
  • The time limit for statutory compliances which were/are due during the force majeure period are automatically extended by 6 (six) months.
  • Any interest, penalties, or compensation payable by a promoter under Section 40 of the RERA Act during the force majeure period, will be recoverable after expiry of such period.

Karnataka Real Estate Regulatory Authority (‘KRERA’)

  • The KRERA issued circular bearing no. 04/2019-20 dated 19 May 2020 supressing its earlier circular dated 04 April 2020. In terms of the 19 May 2020 circular, the KRERA extended the period of validity for registration of registered projects by 6 (six) months where completion date, revised completion date or extended completion date expired on or after 15 March 2020.
  • Further, the time limit of all statutory compliances which were due by 15 March 2020 were extended up to 15 September 2020.
  • All complaint cases listed for hearing up to 14 April 2020 before the MRERA were adjourned. The next date of hearing was to be posted on the official website of the MRERA, with urgent matters being heard through ‘Skype’.

Tamil Nadu Real Estate Regulatory Authority (‘TNRERA’)

  • The TNRERA vide its circular dated 06 April 2020 extended the completion period and the validity of registration of all registered projects by 5 (five) months.
  • Further, the time limit of all statutory compliances due in March to June 2020 was extended to September 2020.
  • Vide its circular dated 22 May 2020, TNRERA also extended the registration and completion period of all the registered projects by 1 (one) month over and above the period of 5 (five) months already extended.

Kerala Real Estate Regulatory Authority (‘KERERA’)

  • The KERERA issued a circular bearing no. T3/102/2020 dated 15 May 2020. Pursuant to the circular, KERERA extended the registration and completion period in case of registered projects having completion date on or after 25 March 2020 by 6 (six) months.
  • Further, in case of ongoing projects in respect of which registration certificate is yet to be issued but the completion date committed to the allottees is on or after March 25, 2020, the completion date is extended by a period of 6 (six) months from such committed date.

Promoters bound to deliver units in terms of the contract with the buyer

The benefit of any extension of registration granted to a promoter due to force majeure under RERA, may not result in a corresponding extension of delivery/handover of possession of the unit to the buyer. This is considering that the timeline for delivery of possession of a unit to the buyer will be strictly governed by the terms and conditions of the contract executed between the promoter and the buyer.

Thus, the ability of a promoter to extend the date of delivery/handover to the buyer is dependent on the existence of a ‘force majeure’ provision and the terms of such provision, in the contract between the parties.

In light of the above, the following scenarios can be envisaged:

(i) ‘Force majeure’ provided for in contract – If the contract contains a force majeure clause, whether COVID-19 would first qualify as a force majeure event will depend upon the wording of the clause and the events captured therein. In the event the force majeure provisions captures a COVID-19 like situation, the promoter may be able to extend the date of delivery of possession of the unit(s).

(ii) ‘Force majeure’ not provided for in contract – If the contract does not contain a force majeure clause, the promoter may be able to seek extension of allotment of unit on grounds of frustration of the contract under Section 56 of the Indian Contract Act, 1872.

In case a promoter in unable to extend timelines, the promoter may be held liable under Section 18 of the RERA, for delay in delivery of the possession of a unit and required to pay the amount/compensation/interest contemplated therein.

Conclusion

The central government and the state governments issued the above mentioned orders/circulars under the RERA, with a view to ease compliance norms for real estate promoters in light of COVID-19.

Other governmental authorities are looking to, or have already introduced measures, to further ease the stress on real estate promoters. For example, the Reserve Bank of India has offered a moratorium on payment of instalments in loans.

Similarly, the Ministry of Law and Justice recently notified an ordinance (on 5 June 2020), suspending the initiation of the corporate insolvency resolution process under sections 7, 9 and 10 of the Insolvency and Bankruptcy Code, 2016 for a period of 6 (six) months from 25 March 2020. The ordinance clarified that such suspension is only applicable for defaults arising on or after 25 March 2020, and not applicable for defaults arising before 25 March 2020.