WHETHER REGISTRATION OF A REAL ESTATE PROJECT IS MANDATORY IF PROMOTER INTENDS TO LEASE THE PROJECT INSTEAD OF SALE?
by Hitendra V.Hiremath
● Authored by Mr. Hitendra V.Hiremath, presently works as Legal Consultant with RERA Consultants LLP and has earlier worked as In-House Counsel at M/s. Shriram Properties Private Limited and thereafter with an investment banking firm Capaegis at Bengaluru, Karnataka, India
INTRODUCTION
It is necessary to understand the definition of 'Lease' much before discussing the registration of real estate project wherein the promoter intends to lease the project. Section. 105 of the Transfer of Property Act, 1882 defines "a lease of immoveable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee. Who accepts the transfer on such terms.
Lessor, Lessee, premium and rent defined: The transferor is called the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service or other thing to be rendered is called the rent"
Now, looking onto the definition of the term lease, the essential ingredients of a lease are i) transfer of a right in the property; ii) duration of lease and iii) payment of consideration. Further, it is clear that a lease can be made for perpetuity on receipt of the rent or premium.
Now, the answer as to whether a real estate project is compulsorily required to be registered if the promoter intends to lease the apartment, building or plot, as the case may be, instead of selling is not specifically dealt under the provisions of The Real Estate (Regulation and Development) Act, 2016 ("Act"). However the definition of the Allottee has to be taken into account to interpret the same, as per Section.2 (d) of the Act, an allottee in relation to a real estate project, means the person to whom a plot, apartment or building, as the case may be, has been allotted, sold ( whether a freehold or leasehold) or otherwise transferred by the promoter, and includes the person who subsequently acquires the said allotment through sale, transfer or otherwise but does not include a person to whom such plot, apartment or building, as the case may be, is given on rent;
Further Section. 11(4)(c) of the Act dealing with function and duties of promoter stipulates that promoter shall obtain the lease certificate, where the real estate project is developed on a leasehold land, specifying the period of lease, and certifying that all dues and charges in regard to the leasehold land has been paid, and to make the lease certificate available to the association of allottees;
WHAT DOES THE REAL ESTATE (REGULATION AND DEVELOPMENT) ACT, 2016 MANDATE?
Section.3(1) of the Act deals with prior registration of real estate project with real estate regulatory authority which stipulates that no promoter shall advertise, market, book, sell or offer for sale, or invite persons to purchase in any manner any plot, apartment or building, as the case may be, in any real estate project or part of it, in any planning area without registering the real estate project with the Real Estate Regulatory Authority established under this Act.
The provision deals with only sale of the apartment, building or plot, as the case may be and is silent over the registration of real estate project where the promoter intends to lease the same instead of sale.
IS IT NECESSARY TO REGISTER THE REAL ESTATE PROJECT IF THE PROMOTER INTENDS TO PROMOTE THE PROJECT IN A MANNER THAT LEASE AMOUNTS TO SALE?
We are of the view that a real estate project has to be registered irrespective if the promoters intention either to sale or lease due to the following reasons:
1. If the proposed lease is for perpetuity: If the promoter enters into an Agreement of Lease with no end date and without having any provision for cancellation or termination.
2. The period of lease is for 99 years or more, wherein the transaction essentially cannot be termed as lease but may be a sale as leaseholder by virtue of the term of 99 years ought to acquire the rights of an allottee as mentioned under Section. 19 of the Act for example in State of Karnataka, the statutory bodies like Karnataka Industrial Area Development Board used to allot the land on 99 years clause of lease cum allotment wherein the same was diluted to ten years for land parcels less than 2 acres recently. Further, even the process of allotment of plot to an allottee in State of Karnataka by Karnataka Housing Board is on lease cum allotment basis.
JUDICIAL PRONOUNCEMENTS:
1. In Lavasa Corporation Limited v. Individual Allottees,, the Bombay High Court held that the provisions of the Act, shall apply for the agreements styled as agreement to lease executed for a time of 999 years on payment of substantial consideration. The Bombay High Court further held the following:
2. Nomenclature of the document cannot be relied upon and such the contents of the agreement have to be read in order to ascertain the intention and understanding between the parties. Just is terming a document as 'agreement of lease' will not take away the right of allottee as mentioned under the Act.
3. Definition of allottee should not be construed in a restrictive manner and will include the leaseholders if the transaction is not essentially a lease, but a sale.
4. In Commissioner of Income Tax, Tamil Nadu v. Rane Brake Lining Limited, the Madras High Court relied upon the apex court ruling of R K Palshikar (HUF) v. CIT, MP Nagpur holding that in a lease of plot of 99 years, the assessee had parted with an asset of an enduring nature and accordingly the transaction amounted to transfer of a capital asset.
CONCLUSION:
We are of the view that any real estate project being developed with an intention to lease in perpetuity by receiving substantial amounts of consideration being equivalent to the sale price of the apartment, building or plot, as the case may be shall required to be registered
However, leasing arrangements for relatively shorter duration, where major part of price of apartment, building or plot, as the case may be will not be paid to the promoter shall require further in detail examination by the Real Estate Regulatory Authorities. We hope that all the Real Estate Regulatory Authorities shall come down with the clarifications and notifications in this regard in near future.
DISCLAIMERS
● This post underlines the information as per the applicable provisions of the Real Estate (Regulation and Development) Act, 2016; and
● We recommend the Promoters to seek the assistance of the Professionals involved in the real estate practice in case of any queries, clarifications with respect to advertisement of the real estate project.
CONTACT
For any other details, clarifications, assistance, advise and other services, please visit www.reraconsultants.in; or can get in touch with us at 080 – 2223 3003 or email to consult@reraconsultants.in
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