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Who Is A Promoter In A Real Estate Project?

Real Estate is one of the primary focus of a human endeavour and every person in their lifetime develops a craving for having a real estate property on its own name. By the opening of the markets and the lower of the interest rates by the Reserve Bank have provided a boom in this class of asset for Investors. This has attracted construction and architectural based companies, which in turn became the Real Estate Construction Companies that raise capital by borrowing from Banks/NBFCs and in turn develops a market for homebuyers and property dealers.

The RERA has in fact regularized the business of the Real Estate business and is made with the intent of timely completion of Real Estate projects and the protection of the interest of the Buyer/allottees of the property.

The provisions under Real Estate (Regulations and Development) Act, 2017 (RERA)is applicable only to the real estate dealings where the area of the project is of 500 sq. meters and the number of buildings constructed under the project is 8 which will comes under the category of the promoter under this Act.

Who is a Promoter?

A promoter is an organization or a body corporate generally, registered as a Private or a Public Limited Company or an LLP registered with the Registrar of Companies or an Authority created by the Government for construction of houses. The promoter as any other corporate entity managed by a Board of Directors and owned by its shareholders.

The Real Estate (Regulation and Development Act, 2016 (RERA) describes the term ‘promoter’ in Section 2(zk)

  1. a person who constructs or causes to be constructed an independent building or a building consisting of apartments, or converts an existing building or a part thereof into apartments, for the purpose of selling all or some of the apartments to other persons and includes his assignees; or
  2. a person who develops land into a project, whether or not the person also constructs on any of the plots, for the purpose of selling to other persons all or some of the plots in the said project, whether with or without structures thereon; or
  3. any development authority or any other public body in respect of allottees of-
  4. building or apartments, as the cases may be, constructed by such authority or body on lands owned by them or placed at their disposal by the Government; or
  5. plots owned by such authority or body or placed at their disposal by the Government, for the purpose of selling all or some of the apartments or plots; or
  6. an apex State level co-operative housing finance society and a primary co-operative housing society which constructs apartments or buildings for its Members or in respect of the allottees of such apartments or buildings; or
  7. any other person who acts himself as a builder, colonizer, contractor, developer, estate developer or by any other name or claims to be acting as the holder of a power of attorney from the owner of the land on which the building or apartment is constructed or plot is developed for sale; or
  8. such other person who constructs any building or apartments for sale to the general public.

Thus, the definition for being a promoter compromise of various other bodies whether public or private entity which has the principle claim of construction of a building or of plot and after due registration with the Authority (Section 4) will be considered as a Promoter in the Act.


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  • What if the Promoter executed an Agreement of lease with the Allottee?

In Lavasa Corporation Ltd. Vs Girish Vassan Panjwani and others, before the Hon’ble Bombay High Court, where the Appellant entered into an agreement of lease with the respondents/allottees and agreed that after completion of the housing project, the said properties will be transferred to the respondents for a  holding period of 999 years. Later, in the due course, the project was not able to complete as per the stipulated time and the respondents approached the Maha RERA. The Promoters in their defence alleged that, as per the definition under Section 2(zk), a promoter constructs a building or plot for the ‘purpose of selling’ but the respondents in the present case are not the owner but, Lessees of the properties.

The court held that the ‘Agreement’ apparent on the face of it cannot be termed or treated as an ‘Agreement of Lease’, but, in its real purport, it is an ‘Agreement of Sale’. The very fact that more than 80% of the entire consideration amount is already paid by the Respondents to the Appellant and the lease premium agreed is only of Rs.1/- per annum, including the clause relating to the period of lease of 999 years, are self-speaking to prove that, in reality, the transaction entered into by the parties is an ‘Agreement of Sale’ and not an ‘Agreement of Lease’.

  • Will the Relation of Promoter-Allottee subsist where a project is assigned to a third party developer?

In M/s Samruddhi Developers vs Sudhakar Kasiinath Salunkhe the original Promoter and the allottees enter into a Deed of Assignment with the Appellant/Assignee to carry on the completion of the project for building the 8th floor of the apartment. The project was not completed in the stipulated time and the allottees demanded compensation. The original promoter argued that the project had been assigned to the appellant/assignee is to be liable for compensation. The appellant/assignee contented that, he did not have any contractual binding with the allottees/respondents in the said case.

The Court rejected the arguments of the appellant and held that as per Section 15(2) and the definition under Section 2(zk) clearly indicates that, the appellant has stepped into the shoes of the esterwhile promoter and takes the obligation as per the provisions with the Act and the rules or regulations made thereunder as well as the Agreement of Sale with the Allottees. Therefore, through an assignment of a real estate project, the liability of compensation will exist on the new Real Estate Promoter.


Read: What are the Defenses A Tenant Establishes in A Tenancy Dispute?


Duties of the Promoter

It is the primary duty of the promoter in a Real Estate Project. It is the promotors duty in construction of the real estate project, the advertisement and the release of the prospectus, sale of the project and registration and compliance with the deadline of the project before the Real Estate Regulatory Authority.

Section 11 of the Act provide the statutory duties of the Promoter some of which are:

  1. Placing and updating details of the Project on the website of the Authority.
  2. In publishing the advertisement and prospectus of the project with all the necessary details.
  3. The providing information to the allottee at the time of booking of the allotment to the buyer.
  4. The execution of conveyance deed with the allottee.
  5. To obtain the allotment certificates of occupancy certificate to the allottees of the property by the Authority.
  6. Providing and maintaining essential services until the taking of the project by the association of allottees.

With that, the promoter has to ensure that the project is complete in a timely phased manner which being the allottees get their possession of the allotment.

Conclusions

The law has framed made it clear the action and the duties of the promoter, which will protect the interest of the allottees. A promoter in a Real Estate Project has the duty in construction, development and transfer of possession of the property developed by it. The promoter is responsible in all activities for raising funds and completion of the project in a timely manner and providing possession to the allottees.

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