With the real estate prices touching a new high, residents in old buildings are now discovering that they have an opportunity to unlock immense value from their property by offering it to a builder/developer for redevelopment. Developers, on their part, are also on the lookout for properties with unused development rights where they can build a new structure of a few storeys higher and sell those additional flats for a tidy profit for them. While it may sound like a typical ‘win-win’ situation, the process of redevelopment isn’t as easy as it sounds. It comes with a set of rules, procedures and implications which you need to understand.
It is needless to mention here that the Redevelopment of housing societies is usually burdened with bitterness and complaints of high-handedness and corruption against the Managing Committee. Hence, with a view to ensure transparency in societies seeking to undertake redevelopment projects, the State Co-Operative Department has, for the first time, issued guidelines for societies to follow under section 79 (A) of the Maharashtra Co-operatives act, 1960.
The recent guidelines are issued by a committee comprising the co-operatives commissioner and CIDCO chairman pursuant to a deep study of complaints by members of Housing Societies undertaking the redevelopment of their property. According to an important feature in the guidelines, a redevelopment scheme has to be approved by the general body only if three-fourths of the society members are present at the meeting.
The subject of redevelopment has assumed great significance because in Mumbai, majority of the buildings owned by the Co-Operative Housing Societies are quite old and in a dilapidated state. In case of redevelopment of old buildings which have completed 30 years or are beyond repairs as certified by the Govt. approved architect on the basis of his “Structural Audit”.
The first and the foremost step before going in for redevelopment would be a structural audit of the building. The structural audit report will determine whether the building should go in for redevelopment or for major repairs. In the absence of the technical report it would not be legally permissible to pass a resolution in the general body meeting. However, it is a fact that many co-operative societies suddenly call for General Body meeting and decide to go in for redevelopment in the absence of a structural audit report.
There are two important things in a Resident/Developer arrangement. One is from the commercial angle and another is from the technical angle. A Developer usually assures a certain amount of cash by way of corpus, an additional area or a mix of both. He may give an alternative accommodation for your temporary stay, foot your rentals or give you a monthly compensation within which you have to find your temporary accommodation.
Before you negotiate with a Developer, you need to establish the market value of the property you will receive on completion of redevelopment. This is a better approach than quoting a random figure to the builder that would make them feel short-changed or the high amount would make the builder shy on the new project.
The technical angle refers to the finished good. Does it match the quality and terms and conditions assured by the builder? In fact, at the agreement stage itself, the society residents should appoint a lawyer to draft and finalize the agreement. It usually takes a year for a builder to convince the society members and take an in-principle approval. The society members should ensure the timely completion of the project which is the most important detail to be mentioned in the agreement.
The main parties involved in the any redevelopment project are Society and Developer. Committee Members dealing on behalf of cooperative housing society are mostly non-technical and are laymen.
Therefore it is very important that the drafting of the Tender / agreement is done meticulously so that there is no chance of dispute and/or difference between both the parties. Excellent skills and vast Legal & Technical knowledge is required to draft such an important document. It is very important to avail the services of a professional, who is legally as well as technically qualified and a person who has the vision to anticipate future problems and requirements.
In any scheme of redevelopment, the primary objective is to ensure guarantee of performance. Performance is principally in the area of timely construction, quality control and adherence to rules, and regulations.
The best way to select the builder is to invite sealed tenders through a public notice and such tenders should have the basic eligibility criteria mentioned. This will bring in more transparency in selecting the developer. Brief details and advantages of the tendering process are given below.
BRIEF DETAIL OF TENDERING
– Preparation of Tender Document including Technical, Commercial and Legal conditions, detailed Specifications and offer etc
– Advertisement in 3 local News paper
- Selling Tender documents
– Identification of Developer and evaluation of offers and Recommendation
– Guidance in Negotiation
– Formation of suitable agreement
ADVANTAGES OF TENDERING
– As advertisement is given in 3 prominent newspapers society will get good offers from reputed developers.
– As offers are invited in a sealed tender form, there is a severe competition among the bidders.
– As all the specifications and terms and conditions are same for all the bidders, it becomes easy for comparison and evaluation.
– Earnest Money Deposit in the form of PAY ORDER payable to the society is taken from each and every bidder so that unwanted or non interested parties do not bid for the work
– Mode of measurement of carpet area and person who will certify the same is clearly defined.
– Entire redevelopment proposal to be done in society’s name making it safer for society in case of any problems faced by developer.
– Right to change and or remove developer stays with the society.
– As all the details pertaining to commercial terms such as Bank Guarantee, temporary accommodation, cost of additional area etc is clearly defined the chances of ambiguity and disputes are virtually non-existent.
– Detailed technical methodology of work is laid out in the tender document under the head of technical specification.
– Basic rates are mentioned in the tender document enabling members to change any specification for their individual uses.
– Right to check amendments of plans during the progress of work is kept with the society.
– Material to be used is spelt out with brand names to avoid any confusion.
– As all the items are defined clearly the chances of getting realistic offer are excellent.
– Consequences of delay are defined in tender document.
– Tender is a legally binding document.
– Bye Law No 158 recommends need of tender document for construction of building.
After a proper feasibility report is submitted, the next step in the process of Redevelopment of any society is the most important one, viz: Selection of the PERFECT DEVELOPER, who will meet all the needs of the society, and at the same time be financially stable, and having a lot of experience of Redevelopment because unrealistic offers can often lead to redevelopment projects being stalled and leave residents in a fix.
This is achieved by the process of tendering, wherein the PROJECT MANAGEMENT CONSULTANT will float a tender document containing all the Legal, Technical, and Commercial & Other important Terms & Conditions, whereby maximum safety of the society members is ensured, as they are parting with their life’s most valuable possession…. their house, in the hands of a perfect stranger.
Before we agree to re-development plan, please read carefully, the procedural aspects are strictly followed as per the Govt. guidelines at the Meetings of the Society.
The Government of Maharashtra has issued a Circular bearing No. CHS 2007/CR554/14-C, Co-operation, Marketing and Textiles Department Date: 3rd January 2009 which contains a Directive under Section 79(A) of Maharashtra Co-operative Societies Act 1960 for all the Co-operative Housing Societies in the State of Maharashtra regarding the Redevelopment of Buildings of Co-operative Housing Societies that wherever, the buildings of Co-operative Housing Societies in the State of Maharashtra are being redeveloped on a large scale, a number of complaints were received from members against managements of Co-operative Societies in which redevelopment is taking place. In respect of most of the Co-operative Housing societies, nature of complaints relating to redevelopment is as under:-
1. Not taking the members in confidence in the process of redevelopment.
2. There is no transparency in tender process.
3. Appointing contractors arbitrarily.
4. To work by violating provisions of Co-operative Act, Rules and Bye-Laws.
5. No orderliness in the work of Architect and Project Consultant.
6. Not planning Redevelopment Project Report.
7. Not adopting proper procedure in finalizing tenders.
Whereas there is no concrete policy in respect of all above points of complaint and therefore Co-operation Commissioner and Registrar, Co-operative Societies, Maharashtra State, Pune had appointed a Study Group under the Chairmanship of Joint Registrar, Co-operative Societies (CIDCO) to study the complaints received at various levels and for consultations