In most metros redevelopment of
old residential buildings is a normal and desirable occurrence. Without
redevelopment, there would be no new supply in the fully developed city
centres.
Also, redevelopment is
necessary because every building has an inbuilt shelf-life, after which it
becomes unsafe, unattractive to the market and difficult to maintain.
Even now, a number of housing
societies in metros are contemplating the redevelopment option.
However, the stakeholders of
these societies often lack the information they need to make an informed call
on which developer to enlist and what guidelines they should follow before
making a commitment.
Here is a brief reference guide
on what to look and ask for.
Check handover time lines
A developer undertaking the
redevelopment of a residential building can legally start the construction
process only after he obtains the Commencement Certificate (CC). However, there
are a host of other permissions and approvals to be obtained prior to that,
together referred to as Intimation of Disapproval (IOD) approvals.
While the society members and
developers mutually decide on when to vacate for facilitating the construction,
it should ideally be done after the IOD has been obtained. In fact, the
developer would also be more comfortable with vacating members only after the
IOD has been obtained, since this would minimize his outgoings on the rentals
which he would have to pay to members towards meeting their alternative
accommodation costs.
Verify reimbursement parameters
The housing society members of
a project that is to be redeveloped are entitled to monthly rental payments
from the developer undertaking the project. The extent and limit for these
payments must be clearly outlined in the agreement drawn up between the members
and developer. Usually, it will be equivalent to the applicable rental for a
similar-sized apartment in or around the same locality. The developer must also
reimburse members for the cost of packers and movers and minor interior alterations
in the rented accommodation they occupy during the redevelopment process, as
these are also counted as expenses incurred while relocating to a new
accommodation.
Clearly define rental
escalation clause
In a city like Mumbai, there
have been several cases where member’s backs have been put to the wall because
of poorly framed rental clauses. It is important for the rental escalation cost
to be included in the agreement between a developer and the housing society
members. Typically, the rentals tend to rise by 10% every year, though this can
vary depending on locations, category/type of buildings and some other aspects.
Society members should do their due diligence on this subject and negotiate for
rental escalation terms that best fit their location and building type.
Consider increased maintenance
costs post redevelopment
The maintenance costs for a
project are bound to rise after it has been redeveloped, proportionate to the additional
amenities that the developer has provided. These amenities would include but
are not limited to recreational facilities, garden, swimming pool, gymnasium,
covered parking, air-conditioned lobby, open areas, etc. The housing society
members need to calculate and assess the financial implications, keeping in
mind the interests of all members. Depending upon the average financial
capacity and everyone’s common interests, members should ask the developer to
only provide amenities that everyone has agreed on.
Often, developers offer
maintenance free periods to members, wherein the developer is willing to bear
the maintenance charges which would otherwise have been borne by the society
members. In the case of such an arrangement, the society should ask the
developer to deposit this amount in a separate account prior to giving him permission
to sell the surplus flats in the newly redeveloped building.
Ensure a strong delay clause in
the agreement
The terms and conditions in the
agreement between a developer and the housing society must clearly capture all
the details regarding the construction time frame. The developer should be
asked to specifically mention the date by which he would be handing over the
completed structure to the society members. The applicable penalties that the
developer incurs if a delay occurs should also be mentioned. The penalties
could be in the form of termination of contract, wherein the society members
pay a pre-decided amount on a pro-rata basis according to the status of
construction progress. Else, the developer may be liable to compensate the
society members in cash or otherwise as a fine for delay.
To summarise, the redevelopment
agreement between a housing society and a developer must incorporate maximum
clarity over the roles and responsibilities of each involved party.
