Memorandum of Family Settlement: All you need to know
A Memorandum of Family Settlement is a preferred mode adopted by the families to record the terms of the partition of family properties. MOFS should not be confused with a partition deed
By Sunil Tyagi
Source: Moneycontrol.com
Often an individual invests his hard-earned money to purchase immovable property for his enjoyment during his lifetime. Post the demise of the owner, the property left behind by him is inherited by his legal heirs either as per his wishes as spelled out in his Will or in case he dies without leaving a Will, then in accordance with the provisions of the Succession Act applicable to such individuals.
It is common to find such cases where upon the demise of the owner, the properties left behind by him devolve jointly on his legal heirs and such legal heirs are entitled to enjoy the rights, title and interest in such properties jointly.
The joint enjoyment of such properties continues until one or more of the legal heir (being the co-owner) desires to separate and seeks the partition of his undivided share in such property(ies). The need of partition arises as soon as one of the co-owners seeks the partition of his undivided share. By virtue of a partition, a property is divided amongst co-owners by clear identification and demarcation of their respective ownership share of such property.
Partition can be achieved by the co-owners either by the mutual consent of all co-owners or in case the co-owners fail to arrive at a mutual consent then the only option left is to seek partition through court of law by filing a suit for partition.
In case where the co-owners mutually consent to the partition of their undivided share in the property(ies), it can be carried out:
By a written instrument; or A Deed of Partition or Family Settlement Deed are the written instruments that may be executed to effectuate partition of property(ies) between co-owners. It is pertinent to mention here that a Deed of Partition is required to be compulsorily registered under the provisions of Registration Act, 1908 and stamp duty at applicable rates is required to be paid on it as per the provisions of the Indian Stamp Act, 1899.
In cases where a partition is effectuated orally among family members, no written document is required to be executed.
Consequently, there are no stamping or registration requirements for such an oral partition under the Registration Act, 1908 and Indian Stamp Act, 1899.
However, an oral partition may be subsequently recorded in an written instrument/ deed namely, Memorandum of Family Settlement for the purposes of keeping a record of the terms orally agreed in respect of the partition of the property(ies) between the co-owners.
A Memorandum of Family Settlement is a preferred mode adopted by the families to record the terms of the division/ partition of family property(ies) in comparison to a partition deed as it is not a compulsorily registrable instrument and the stamp duty implications on MOFS are considerably lesser than in case of a partition deed.
MOFS in simple words is a document/ arrangement between the family members that records the orally agreed terms of division of property(ies) inter-se between them.
According to Halsbury’s Laws of England, “A Family Arrangement is an agreement between members of the same family, intended to be generally and reasonably for the benefit of the family, either by compromising doubtful or disputed rights or by preserving the family property or the peace and security of the family by avoiding litigation or by saving its honour. The agreement may be implied from a long course of dealing. But it is more useful to embody or to effectuate the agreement in a deed to which the term family agreement is applied.”
The essentials of a family arrangement were laid down by the Supreme Court in the case titled as Kale & Ors vs. Deputy Director of Consolidation which are as follows:
The family arrangement should be bonafide in order to resolve present or possible future disputes among family members and to ensure equitable distribution of property among the family members;
The family arrangement needs to be honest, voluntary and should not be induced by fraud, coercion and undue influence;
Family arrangement can either be oral or written;
The memorandum recording the family arrangement itself does not create or extinguish any rights in the immovable properties, therefore, not compulsorily registrable.
The members of a family who are parties to a family arrangement must have an antecedent title, claim or interest in the property. If the rights of a property are relinquished in favour of a member in a family arrangement who has no antecedent title in the property than it shall be presumed that such person has an antecedent in the property.
The family arrangement which is fair and equitable is final and binding on the parties to the settlement.
MOFS and partition deeds are often confused to mean one and the same thing. The primary difference between the two is that under a partition deed the terms and recitals of a family arrangement are made whereas a MOFS just records the terms of family arrangement that were already orally decided and agreed between the family members i.e. recording past transaction of division/ partition of property. Another important difference between the two is that a partition deed requires compulsory registration as it creates, assigns, limits or extinguishes rights or title in a property whereas MOFS is not a compulsorily registrable deed.
The Supreme Court in the category of judgments has held that registration of MOFS is not compulsory. The SC in its recent judgement dated 31st July, 2020 in the matter of ‘Ravinder Kaur Grewal & Ors vs. Manjit Kaur & Ors’ addressed the question regarding the registration of MOFS.
In this case, the SC held that in case a memorandum of family settlement is just recording the terms of settlement between the parties that was previously agreed between them then registration of such document is not compulsory as it in itself is not creating or extinguishing any right or title.
On the contrary, if the memorandum contains the terms and recitals of family arrangement made under that document then registration of MOFS would be compulsory. In the said judgment, SC reiterated the observations of its earlier judgement that a MOFS prepared after family arrangement was already made for the purpose of recording the information or for the information of the court, is not required to be registered.
In view of the above it is clear that the registration requirements of the MOFS would depend on the terms of the MOFS. MOFS which records earlier agreed terms of oral partition between family members needs to be carefully drafted to convey this intent. In case such document/ deed is ambiguous then it is open to various interpretations and may be construed to be a partition deed which shall be required to be registered and attract payment of stamp duty.
The author is Senior Partner, ZEUS Law, a corporate commercial law firm. One of its areas of specialization is real estate advisory and litigation practice
Daughters’ rights in HUF property: 10 things you need to know about SC’s judgment
Will the rights conferred to the daughters by the recent SC ruling only be limited to natural born daughters or be extendable to adopted daughters as well and more
By Sunil Tyagi
Source: Moneycontrol.com
The Supreme Court, on August 11, delivered a landmark judgment in the case of Vineeta Sharma v. Rakesh Sharma by providing equal coparcenary rights to daughters as similar to the sons in the Hindu Undivided Family (HUF) properties. This ruling will have an impact on the present and future estate and succession planning for HUFs. Here’s what you need to know about the judgment.
How does the recent judgment impact the current position of coparcenary right of daughters in HUF properties?
Daughter’s rights have been enlarged by virtue of the recent judgment of the apex court. Daughters will now have equal coparcenary rights in HUF properties even if they were born before the 2005 amendment to The Hindu Succession Act, 1956. The coparcenary right of a daughter shall not be affected even if her coparcener father demised prior to the 2005 amendment to HSA. The rights and liabilities of a coparcener son and a coparcener daughter shall henceforth, be on equal footing under the HSA.
What was the position of coparcenary right of daughters prior to the 2005 amendment to HSA?
Prior to the Hindu Succession (Amendment) Act, 2005 daughters had no claim in the ancestral property of their family. Earlier, coparcenary property was confined only to the male members of the family. On the death of a male Hindu, the interest in the ancestral property devolved by survivorship upon surviving members of the coparcenary. Post 2005 amendment, daughter’s born or adopted on or after September 9, 2005 were to be considered as a coparcener in the ancestral property and were provided with the same rights and liabilities as conferred to a coparcener son under the HSA.
Will the rights conferred to the daughters by the recent SC ruling would only be applicable for inheritance of coparcenary property or are they extendable to self-acquired properties of their father?
The coparcenary rights conferred to daughters by the recent SC ruling would only be applicable for inheritance of the coparcenary property. As regards to the rights of a daughter in the self-acquired property of her father, the provisions of HSA shall continue to govern.
The self-acquired property of the father would devolve either by testamentary succession or intestate succession. If a father executes a valid will as to whom the property should be bequeathed on his death, it is referred to as testamentary succession. In the absence of a valid will, the property of the father shall pass to his legal heirs by laws of intestate succession. In case of intestate succession, daughters have an equal right to father’s property as a son.
Whether coparcenary right of a daughter would continue to subsist in the event of her getting married?
The coparcenary right will continue to remain with the daughter regardless of her marital status.
What are conditions on which the plea of oral partition of coparcenary property would be considered as valid by the court?
In accordance with the SC ruling, only in exceptional cases the plea of oral partition of coparcenary property may be considered as valid. An oral partition may be accepted to be valid if supported by public documents which should manifest the same effect as that of a decree passed by a court. Keeping in view the provisions of HSA, SC held that plea of partition based on oral evidence alone will not be accepted by the court.
Is a daughter entitled to claim partition of the HUF property on her father’s death?
A daughter being a coparcener enjoys the right to claim partition. By the enforcement of 2005 amendment to HSA, a daughter is entitled to claim partition of HUF property.
Whether partitions/dispositions, alienations of property occurred before the 2005 amendment in HSA can be reopened by a daughter?
As per the SC judgment, the conferment of equal coparcenary rights to daughters will have no effect on the partitions/dispositions and alienations concluded or taken place before December 20, 2004 and such partitions or testamentary dispositions cannot be reopened by a coparcenary daughter.
What should happen in cases where grandfathers or fathers bought properties in the name of their wives or daughters to save tax?
Under the provisions of HSA, a woman’s property includes all properties (movable or immovable) obtained through inheritance or devise, or at a partition, or in lieu of maintenance or arrears of maintenance, or by gift from any person, whether a relative or not, before, at or after her marriage and also covers her self-acquired property. Therefore, any property bought in her name would be construed as a gift to her and shall devolve as per rules of succession prescribed for Hindu women under succession laws.
Whether by virtue of this ruling, daughter, grand-daughter or great granddaughter will be equally bound to follow the obligation under the Hindu Law to discharge any such debt and can be sued by a creditor against debt contracted prior to the 2005 amendment to HSA?
After the enforcement of 2005 amendment to HSA, courts do not have the power to proceed against a son, grandson or great grandson (born or adopted prior to 2005 amendment) for the recovery of any debt due from his father, grandfather or great-grandfather on the ground of pious obligation under Hindu Law or to discharge the aforesaid debt.
However, any debt accrued towards obligation before the commencement of the 2005 amendment is liable to be discharged by a son, grandson or great grandson against the claim raised by any creditor.
By the virtue of the SC ruling, daughter, granddaughter or great granddaughter will now be equally bound to follow the pious obligation under the Hindu Law and discharge debt in relation to it. The liability of any debt accrued towards pious obligation or claim by a creditor before the commencement of 2005 amendment can be raised against such daughter, grand-daughter or great granddaughter.
Whether the coparcenary right conferred to daughters by the recent ruling would only be limited to natural born daughters or be extendable to adopted daughters?
The coparcenary rights conferred to daughters by the recent ruling is applicable to both naturally born and adopted daughters regardless of them being born or adopted prior to 2005 amendment to HSA.
The author is Senior Partner, ZEUS Law, a corporate commercial law firm. One of its areas of specialization is real estate advisory and litigation practice.
Expert Speaks: SC ruling that daughters have equal coparcenary rights in a joint HUF ‘progressive’; settles all ambiguities, legal experts by Mr. Sunil Tyagi
The apex court has settled the issue on the effective date of the 2005 amendment, by laying no relevance on the date of birth of the daughter or alternatively the date of death of the father. So long as the daughter is alive post 2005, she has an equal right as a son in the coparcenary property
MoneyControl • Aug 12, 2020 11:22 AM IST, By Vandana Ramnani
The Supreme Court ruling that daughters have equal coparcenary rights in a Hindu Undivided Family (HUF) property even if the father died before the Hindu Succession (Amendment) Act, 2005, came into force is a ‘progressive step’, and settles the ambiguity surrounding the nature and extent of a daughter’s rights to inherit the property, legal experts told Moneycontrol.
The apex court's verdict came on the issue whether the amendment to the Hindu Succession Act, 1956, granting equal rights to daughters to inherit ancestral property would have retrospective effect.
What this means is that whether with the passing of the Hindu Succession (Amendment) Act, 2005, a daughter of a coparcener shall by birth become a coparcener in her own right in the same manner as the son, or if she could be denied her share on the ground that she were born prior to the enactment of the Act on September 9, 2005, and, therefore, cannot be treated as coparcener.
A coparcener refers to a person who assumes a legal right in parental property by birth only.
“The Hon'ble Supreme Court has taken a progressive step towards equal rights as provided for under the Constitution,” said advocate Yudhist N. Singh, senior partner, YNS & Associates.
Date of daughter’s birth, death of father not relevant
The apex court has clearly settled the issue on the effective date of the 2005 amendment, by laying no relevance on the date of birth of the daughter or alternatively the date of death of the father, whether prior to the 2005 amendment or post. So long as the daughter is alive post 2005, she has an equal right as a son in the coparcenary property.
The matter of Vineeta Sharma v. Rakesh Sharma, decided by a three-judge bench of Justices Arun Mishra, S. Nazeer and M.R. Shah “is a truly progressive judgment on women’s rights”, said Payal Chawla, founder, JusContractus.
The reference to the three-judge bench was made in view of two conflicting judgments of the Supreme Court in the matter of Prakash v. Phulavati (2016) and Danamma @Suman Surpur v. Amar (2018). The Court in Vineeta Sharma has overruled Prakash v. Phulavati and partially upheld the Danamma judgment, she explained.
The judgment says if a daughter is born before September 9, 2005, she would become a coparcener, in her own right, in the same manner as sons i.e. with same with same rights and liabilities, provided there has been no parting/partition/or devolution before December 20, 2004.
“The reason is that a daughter is a coparcener, with effect from the date of amendment and she can claim partition in her own right by birth and ‘not by dint of inheritance’,” added Chawla.
Therefore, it is irrelevant that her father was alive or not on the cut-off date of September 9, 2005.
Clarifies that coparcenary is a birth right
The top court in its ruling conferred an equal status of coparcener on the daughter born before or after amendment to the Section 6 of the Hindu Succession Act, 1956, in the same manner as son.
“The daughter shall now have equal rights in the parental property even if father was not alive on 9.9.2005. It is a landmark judgment and I feel it is another big step towards gender equality and women empowerment,” said Sunil Tyagi of Zeus Law, a law firm.
It clarifies the ambiguity over the extent of a daughter’s rights in an HUF property.
“This judgment has settled the ambiguity surrounding the nature and extent of a daughter’s rights in a HUF property and thus settled a disputed question of law. This clarification was vital in setting aside the grip on previous decisions accorded coparcenary rights to daughters only if both father and daughter were alive as on September 9, 2005, when the amendment was notified,” said Sonam Chandwani, managing partner at KS Legal & Associates.
The judgement is a "welcome move" and clears all webs around a daughter's rights and interests over an HUF property.
“While clarifying that coparcenary is a birth right, the verdict confirms that a daughter cannot be deprived of the right to equality granted to her under Section 6 of the Hindu Succession Act, 1956, even in case the father expires before the 2005 amendment. The ruling aids the society at large in moving towards a more sensible conclusion and breaks free from the deadlock of the dated patriarchal system,” said Rahul Arora, partner, Trilegal.
“Finally it’s crystallised the law with respect to rights of women as coparceners and removing the inequality under succession laws that had been prevalent historically. A huge number or cases all over the country were grappling with this issue and hopefully now things can proceed expeditiously,” said Vaibhav Gaggar, managing partner, Gaggar & Associates.
Can partitions before 2005 amendment be reopened by a daughter?
The ruling is important for various reasons. One it clearly sets to rest whether partitions which were undertaken prior to the 2005 amendment can be re-opened by the daughter.
“On this point the apex court has clearly stated that if a partition has taken place prior to 2005, such a partition cannot be re-opened, so long as the legal process has been followed of a documented partition deed and registration of the same,” said Bijal Ajinkya of Khaitan & Co.
“Obviously, this throws out of the window situations where sham partitions are shown as undertaken prior to 2005, so as to avoid having the daughters consent taken or allowing them any rights,” he said.
The judgement also states that in this context an oral partition is not a statutory recognised mode of partition and the same can be accepted only in exceptional cases if the same is backed by public documents or affected by a decree of a court.
“What this means is that if any party is relying on oral partition to beat the interest of daughters, the standard of proof required would be extremely high and would require the same to be proved through documents or a court decree,” said Chawla.
Often coparceners enter into a family arrangement or oral partition, and it may not be necessary to register such a partition. Any coparcener relying upon any family arrangement or oral partition must prove the same by leading proper documentary evidence, the order said.
“The Court has to keep in mind the possibility that a plea of oral partition may be set up, fraudulently or in collusion, or based on unregistered memorandum of partition which may also be created at any point of time. Such a partition is not recognized under Section 6(5),” the order noted.
Next challenge
An amendment to Section 15 of the Hindu Succession Act, 1956, is the need of the hour, say experts.
“I strongly believe that the time has come to make an amendment to Section 15 of the Hindu Succession Act, 1956, for changing the present scheme of succession to the effect in case a female dies intestate leaving her self-acquired property with no heirs then an equal right is given to her parental heirs along with her husband heirs to inherit her property,” said Tyagi.
One issue which is still open and is a matter of legal debate is “whether the lineal descendants of a daughter partake the same rights as the lineal descendants of a son”, added Ajinkya.
The Supreme Court order eliminates all challenges to the equal rights of women as coparceners in HUF assets except where the assets have been divided on or before the cut off date of December 20, 2004. "Many ancestors who did not believe in this equality and never imagined that law will change to this effect may turn in their grave. This is a good development for gender equality, but will certainly open a Pandora box and unimaginable contentious issues, more so as this is now retrospective as well as retroactive," said Rajesh Narain Gupta, managing partner, SNG & Partners.
Experts Speaks: What RERA timeline extension means for homebuyers by Mr.Sunil Tyagi
What RERA timeline extension means for homebuyers, real estate developers
While the measures announced by the Centre certainly provide relief to real estate builders, homebuyers say it does not offer any immediate help in the form of interest or rent waivers
MoneyControl • May 15, 2020 08:04 AM IST
On May 13, Finance Minister Nirmala Sitharaman said that the deadline for the completion of real estate projects would be extended by up to six months in the face of the COVID-19 and that it should be treated as a ‘Force Majeure’ event under the Real Estate Regulatory Act (RERA) 2016. This announcement was followed up by the Centre issuing an advisory to all states and union territories to treat the pandemic as an ‘act of God’ and suo motu extend the completion dates of projects.
While this will certainly provide relief to real estate builders in completion of projects as no cases can be registered against them for the period nor will they be liable to pay any penalties to the authority or the homebuyers, it does not seem to offer any immediate relief in the form of interest/EMI waivers to buyers except that the measure “safeguards their interests to get delivery of their homes with a delay of few months.”
RERA was brought in to regulate the real sector in 2017, with states allowed to draw up their own rules under a broad framework laid out by the Centre.
Why was this necessary
There are as many as 51,850 real estate projects registered under RERA across the country and it was felt that submission of individual applications by builders for extension of project timelines and processing them individually was not feasible. With this order, as and when issued by the respective states, all projects in such states get an extension.
It would help developers as the construction activity has been adversely hit due to the ongoing lockdown. It would give some elbow room to projects as they gradually restart operations once the lockdown restrictions are eased.
It will aid in smoothening the operations as construction projects would have to grapple with issues related to adequate availability of labour due to reverse migration and supply chain issues with respect to timely availability of key raw materials such as cement, steel.
This would save most ongoing projects from going into default due to delay in completion because of total work stoppage during the lockdown.
They will now get a six-month suo-moto extension for project registration and completion of projects (with scope for a further three-month extension).
No individual applications from real estate developers will be needed to get this extension. Regulatory Authorities will issue fresh ‘Project Registration Certificates’ with revised timelines for such projects. All timelines for compliances will get changed concurrently.
RERA provisions invoked in the Central advisory
The ministry of housing and urban affairs (MoHUA) issued an advisory to all RERA authorities to treat the pandemic COVID-19 as ‘force majeure’ being a natural calamity, as it is adversely affecting the regular development of the real estate projects and automatically extend registration of RERA-registered projects, which were due on or after March 25, by six months ad further period of upto three months, if the situation in a particular state or any part thereof needs special consideration in view of the pandemic.
According to the advisory issued by the Centre, Regulatory Authorities may, in pursuance of section 37 of RERA read with other enabling provisions, in their respective jurisdictions issue following orders/directions to the effect that 'notwithstanding anything contained to the contrary and by virtue of powers conferred under section 37 read with section 34 (f)of the RERA, the registration or extension thereto under Section 5, 6, 7 (3) of the RERA or rules thereunder, all registered projects under jurisdiction of regulatory authority for which the completion date or revised completion date or extended completion date as per registration expires on or after 25th March, 2020.”
Section 37 of RERA states that the authority can issue such directions from time to time to the promoters or allottees or real estate agents, as the case may be, as it may consider necessary and such directions shall be binding on all concerned.
Section 34 defines the functions of the Authority to include registration and regulation of real estate projects and real estate agents registered under the Act and part (f) states that its role is to ensure compliance of the obligations cast upon the promoters, the allottees and the real estate agents under this Act and the rules and regulations.
Section 5 of RERA empowers the Authority to grant registration to a real estate project within 30 days and provide a registration number,
Section 6 of RERA states that the registration granted to a builder may be extended by the Authority if it receives an application from the builder due to force majeure. The Authority can also extend the registration in ‘reasonable circumstances,’ provided there is no default on the part of the promoter, for the period as it considers necessary, which shall, in aggregate, not exceed a period of one year:
This section also 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.
Section 7 (3) of RERA says that the Authority instead of revoking the registration under sub-section (1), permit it to remain in force subject to such further terms and conditions as it thinks fit to impose in the interest of the allottees, and any such terms and conditions so imposed shall be binding upon the promoter.
Legal experts say the advisory sent out to the states and union territories has sought to utilize both Section 6, Section 34(f) and Section 37 under which RERA authorities have general powers to issue directions. All states would now issue individual orders.
“It is expected that RERAs across states will exercise their power under Section 37 Section 34 (f) and wherein they will change the completion date prescribed in the registration certificate issued to the builders under Section 5. The completion dates will be changed by default. The builder will not have to apply individually. In case, the realtor requires a further extension under Section 6, that too may be considered in addition to this timeline,” says Sunil Tyagi, the senior partner and co-founder of Zeus Law.
“By exercising their power under Section 37, the authorities are expected to change the date of completion prescribed under Section 5 and in the registration certificate itself. If the registration certificate had December 2020 as the completion date, it would now read June 2021,” he explains.
However, if the developer requires a further extension, he would have to apply for it under Section 6 separately.
“This is a general extension granted by invoking section 37. This will be over and above the one-year extension permitted under section 6. After six months, the builder can approach the authority and seek an individual extension of six months on grounds of any other force majeure. That would be for another force majeure event besides this force majeure which is COVID-19,” he says.
Some Authorities have already extended deadlines by 3-6 months So far, RERA authorities in Maharashtra, Gujarat, Uttar Pradesh and Tamil Nadu have given extensions for completion of projects registered under the law by 3-6 months.
Madhya Pradesh has extended by six months the completion deadline of registered projects that were to be completed on or after March 15.
Rajive Kumar, chairman, UP RERA told Moneycontrol that for now six months force majeure extension and attendant consequences will apply. Theoretically, authorities that have already extended the timelines would now have to extend the period further.
Soon after the Centre issued its advisory to state RERAs, the Rajasthan Real Estate Regulatory Authority issued an order extending by a year the deadline of projects registered before March 19, 2020, waiving off the fee for the extended period.
However, the fee prescribed by RERA on August 16, 2019, will have to be paid, the order said.
It clearly stated that "Being on the ground of force majeure, the aforesaid extension will be in addition to the extension already granted or that may be granted to a project under the First Proviso to section 6 or under section 8 of the Act."
As per the order, developers will be able to divide projects into more than one phase and amend building plans so that the interests of the allottees are not affected. All changes will require the nod of at least two-thirds of the allottees, the order said.
What does the advisory mean for builders This will provide a six-month suo-moto extension for project registration and completion of projects (with scope for a further three-month extension).
The ministry statement had said that in the absence of urgent remedial regulatory measures under Real Estate (Regulation and Development) Act, 2016 (RERA), there is also a possibility of many real estate projects getting stalled leading to litigation etc. This may ultimately result in non-delivery of flats to the homebuyers, who have invested their lifetime savings for their dream homes.
“It is vital to take remedial measures now to ensure that COVID-19 does not lead to a complete breakdown of the real estate sector. In the prevailing circumstances, the primary objective is to address the concerns of homebuyers by ensuring suitable regulatory relief to the real estate projects so as to create a win-win situation for all the stakeholders – it will enable developers to complete the projects so that home buyers get the delivery of their booked houses within the revised timeline,” it said.
Builders have welcomed the government’s decision. Sanjay Dutt, MD & CEO - Tata Realty and Infrastructure Limited, said that the Government’s decision to treat the COVID-19 period as an event of force majeure to extend the registration and completion date by six months for all registered real estate projects will alleviate a great amount of stress on the developers… Due to the lockdown, migrant labourers have been displaced and all construction work came to a grinding halt.
The announcement to treat COVID-19 as an event of ‘Force Majeure’ and as an ‘Act of God’, and permission to extend project completion timelines and other statuary compliances under RERA by six months is a positive step for the developer community. It will enable them to deliver projects to the end consumer under the new timeline, said Anshuman Magazine, chairman and CEO India, South East Asia, Middle East and Africa.
Some lawyers say that this de facto extension of timelines by six months would mean that all the penalties that might ensue as per the builder’s original timelines will no longer have to be paid. “There will be no liabilities (penalties) to be paid to either buyers or the authorities,” says a legal expert.
What does it mean for buyers? The government, in its statement, said that the extension of the timelines will protect the interest of homebuyers as they will get the property, though delayed by six months.
“This measure will save the projects and enable the developers to complete the projects within the revised time lines thereby safeguarding the interest of home buyers as it will ensure delivery of their booked flats/homes within the revised timeline. Delay of a few months is certainly better than not getting booked houses at all,” the ministry statement has said.
Homebuyers, however, will have to bear another six months of delay in possession of the apartment. He would have to bear the additional liability of paying rent for six months.
“Under the income tax law, homebuyers are entitled to a deduction on certain interest payments. These are available to the buyer provided he has received possession of the unit. This would now be delayed,” says a tax expert.
It was to offset such liabilities, that a compensation provision was provided under RERA. Under Section 19 (4), an allottee is entitled to claim the refund of amount paid along with interest at a rate as may be prescribed and compensation provided under the Act.
This would not hold for the next six months, says a legal expert, adding in that respect relief would now only be available and limited to builders and not homebuyers. A buyer will no longer be able to exercise his right to cancel the booking.
“This is akin to granting immunity to the builder and putting a moratorium on the rights of a buyer to make any claims for delay. There should ideally have been a provision for an equal amount of respite for buyers who are unable to pay EMIs or interest for these six months,” he says.
Homebuyers say that if the force majeure benefit is extended to builders, similar benefits should also be granted to them too.
“While the force majeure benefit is extended to builders, in the same way homebuyers should also be taken care of suitably. The interest component of the loan should be waived as homebuyers are now facing job cuts, lack of job security and over and above that they have to pay rent,” said MS Shankar, general Secretary, Forum for People’s Collective Efforts.
“The builders should bear the interest part till homebuyers gets possession of his/her flat, as due to no fault of the buyer they are forced to pay both rent and EMI. If the project gets completed as per RERA completion date, the financial impact on the homebuyer will be only EMI not rent. Hence, the RERA Authorities, while utilising their discretion to extend the project, should direct the builders suo-motu to compensate the interest part of the EMI till possession of the flat is granted," he said.
He also said that the extension of project completion should be for the actual lockdown period.
Other legal experts are of the view that the government's advisory seeks to provide respite to both buyers and builders.
“The payment plan for most buyers is construction linked. If there is no construction activity on site for three months, there will be no demand for payment from the builder to the buyer for that period. The buyer would indirectly be getting relief. For a Rs 1 crore loan, if the bank has disbursed only Rs 40 lakh to the developer for four floors that have been completed, the buyer’s EMI would be restricted to Rs 40 lakh only. Banks may continue charging interest for the amount that has been disbursed,” says the lawyer.
Also, the relief granted to builders is only for construction timelines and not on the financial front. “They would have to continue servicing their financial obligations to their lender,” he says.
Expert Speaks: Real Estate - Investment sales horizon in short to mid term by Mr. Sunil Tyagi
https://youtu.be/tsmqlTf-3ws
Coronavirus impact | Will Force Majeure come to rescue of builders, homebuyers
Coronavirus impact | Will Force Majeure come to rescue of builders, homebuyers
While real estate developers will be struggling to comply with completion dates approved by RERA, homebuyers too would be unsure when they would get physical possession of their homes
Moneycontrol Contributor
Vivek Kohli | Neetika Bajaj
The real estate sector has been struggling to come to terms with the impact of the adverse market conditions, not to mention the recent changes in legislation. And now, it is also facing the brunt of the lockdown caused by the coronavirus outbreak.
Undoubtedly, the sudden outbreak of coronavirus, supplemented by the extreme measures adopted by the various governments, clearly indicate that the nature, extent and reach of the COVID-19, was completely unforeseeable and was, indeed, unforeseen; there is no standard template of response to this kind of a contagious disease, and the societal risk outweighs any individual or entity level risk.
As much as what is required of us presently is “not to act” – i.e., isolate ourselves – to break the chain and consequentially, arrest the spread of the virus. As a result, this has, on a vast scale, disrupted the functioning of the developer, homebuyers and other stakeholders in the real estate sector.
At the moment, real estate will be going through various predicament, inter-alia, such as unavailability of raw materials; unavailability of labour; suspension of construction work and restriction on the cash flow in the projects.
Since it is established that the outbreak of a novel virus COVID-19 has immensely impacted the sector, it is important to analyse the repercussions on the real estate developers.
Real estate developers function in a framework where time is the essence as they are mandated to complete their real estate project(s) within a defined timeframe. As a result of the ongoing lockdown, the construction and development of these project(s) have been forced to come to a halt.
Additionally, the developer will be struggling to comply with completion date approved by the Real Estate Regulatory Authority due to the complete lockdown all across India. Moreover, supply and demand of essential construction materials, along with transportation and labour costs would also be affected, meaning thereby that the project / per-unit costs are likely to take a massive hit.
The homebuyers are also left with uncertainty and fear as they will now have no clarity on the actual physical possession of their respective unit in the project.
Moreover, they will also be facing serious cash flow issues to make payments to the developer coupled with EMIs payable to the banks against the home loans availed by them. It is understandable that delay in completion of the project would further add to their burden, especially those putting up in rental accommodations.
What is Force Majeure
Force Majeure is a contractual provision in terms of which a party is entitled to suspend the performance of the contract or is entirely excused from its performance, of course, upon the occurrence of specified events beyond a party's control. The basis of this doctrine is to save the performing party from consequences of breach arising from an event over which it has no control. It is, therefore, an exception for breach of contract.
What constitutes a Force Majeure event
The crucial elements that need to be satisfied for an event to qualify as a Force Majeure are: it should be an “unforeseen” event; its occurrence could not have been prevented, and there should be a direct link between the occurrence of the event and consequent impossibility to perform under the contract.
Subsequent to the enactment of the Real Estate (Regulation & Development) Act, 2016, the Real Estate Sector is now being regulated by the Act. All real estate projects are being monitored by the Real Estate Regulatory Authority(s) established under the Act.
The Real Estate Regulatory Authority is empowered to provide a completion date of a project after due application of mind and active decision-making process and provide RERA registration of the projects.
Thus, it is imperative for the regulatory authority to declare such period, which affected the developer from carrying out the construction work in the project, as “Force Majeure” and consequently extend the date of the RERA registration and/or completion date of the projects to allow reliefs to the developers and to pre-empt from committing various violations under the Act.
The banks and financial institutions shall also declare such affected period as Force Majeure to provide relief to both developers and homebuyers by extending the term of the loan and waive the interest component till such Force Majeure prevails. This will maintain cash flow in the real estate sector, which presently is at standstill and/or is rapidly declining due to outbreak of the coronavirus.
Simultaneously, the developer and the homebuyers shall also not impose and/or accrue any penalty and/or interest on the delay in payments or in delay in possession of the units during such period of Force Majeure.
The authors are a senior partner, and senior associate, respectively
ZEUS Alerts:High Court orders for Force Majeure
Bombay High Court Denies Force Majeure Protection to Several Steel Importers
The Bombay High Court has held that the steel importers cannot take the plea of force majeure to restrain the banks from encashing/negotiating Letters of Credit. Several steel importers had contended that their contracts with South Korea based Hyundai Corp and GS Global stood terminated on the ground of frustration of contract and impossibility to perform due to the lockdown. The steel importers moved to the HC seeking an order to restrain the bank Wells Fargo from encashing the Letter of Credit. The Court rejected the plea of the importers on the following grounds:
The contract is between the importers and the sellers, thus, the disputes between the parties doesn’t concern the bank.
The force majeure clause in the contract is applicable only to the South Korean exporters and the importers cannot take advantage of this.
The steel products have already been shipped from South Korea. And the failure of the importers to purchase the goods or that will they suffers damages due to unavailability of purchasers in the market cannot be held against the exporters.
Distribution of steel being on the list of essential services, there is no restriction on its movement and export-import.
Delhi High Court Declares Lockdown Prima Facie in the Nature of Force Majeure
In a temporary relief to the oil services provider, Halliburton Offshore Services, against the mining and natural resources giant, Vedanta, the Delhi High Court has ruled that the lockdown is prima facie in the nature of force majeure.
The High Court restrained Vedanta from invoking eight bank guarantees (BGs) of Halliburton till 11th May. The Order read and we quote “The injunction presently being granted, it is reiterated, is purely ad interim in nature, and is being granted only in view of the completely unpredictable nature of the lockdown, and its sudden imposition on 22nd March, 2020, of which the petitioner could not legitimately be treated as having been aware in advance.”
Halliburton had in April 2018 won the contract for integrated development of Mangala, Bhagyam and Aiswarya oil and gas fields of Vedanta. As part of the contract Halliburton furnished various bank guarantees.
The service provider on 5 December 2019 stated in a communication to Vedanta that it would complete the development of the fields by 31 January 2020. Vedanta claims that the deadline was subsequently extended to 29 February 2020 and finally to 31 March 2020, on Halliburton’s own behest without any approval from them.
Halliburton in a communication, dated 18 March 2020, to Vedanta had invoked Force Majeure, citing Covid-19.
The High Court relied on the principle of “special equities in the form of preventing irretrievable injustice” against invocation of BGs to grant interim relief to Halliburton.