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 with all constituents working in the relevant fields. The said Study Group has expressed the opinion that it is essential to frame regulations for redevelopment of buildings of Co-operative Housing Societies after consultation with all the constituents in the field of Co-operative Housing.
Directive for Redevelopment of Building of Co-operative Housing Society
1. Requisition for convening Special General Body Meeting for Redevelopment of Society’s Building:-
Not less that ¼ members of the Society the building of which is to be redeveloped should submit a requisition to Secretary on the Managing Committee elected as per provisions of Bye-Laws and lawfully formed along with their scheme and suggestions for redevelopment of the Society’s building for convening Special General Body Meeting to finalize the policy on redevelopment of the building.
2. Convening Special General Body Meeting:-
On receipt of an application as per Directive No. 1 above, Managing Committee should take a note thereof within 8 days and Secretary of the society should convene General Body Meeting of all the members of the society, Agenda of the Meeting should be furnished to each member 14 days prior to the day of meeting and acknowledgement thereof should be kept on record of the society.
Before convening the said meeting, Society should obtain list of Architects / Project Management Consultants on the panel of Government / Local Authority and obtain quotations from minimum 5 experienced and expert persons for preparing project report for redevelopment work of the building and one expert person from among them will be selected in the Special General Body Meeting.
Following business will be transacted in the said Special General Body Meeting:-
1. To take preliminary decision by taking into consideration demand of the members for redevelopment of society’s building and suggestions received in respect of the same.
2. To select expert and experienced Architect / Project Management Consultant on the panel of the Government / Local Authority for work of redevelopment of the building and to finalize items of work to be done by them and terms and conditions of work.
3. To submit outline of the program for redevelopment of the building.
3. To accept written suggestions from members relating to redevelopment of the building:-
Members of the Society will be entitled to submit in writing to the committee eight days prior to the meeting their realistic scheme, Suggestions and recommendations for redevelopment of the building in the name of experienced and expert Architect / Project Management Consultant known to them. However, that Architect / Project Management Consultant should submit a letter that he is desirous of doing work of redevelopment.
4. Decisions to be taken in the Special General Body Meeting:-
Quorum for the Special General Body Meeting convened for redevelopment of building of the Co-operative Housing Society will be ¾ of the total members of the society. If quorum is not formed, meeting will be adjourned for eight days and if there is no quorum for the adjourned meeting, it will be deemed that members are not interested in redevelopment of the building and meeting will be cancelled.
On formation of quorum for the meeting, Suggestions, recommendations and objections from all the members with regard to redevelopment of the society’s building will be taken into consideration and opinions expressed by all the members will be recorded in the minutes book with names of concerned members. Therefore a preliminary decision will be taken whether to redevelop society’s building or not. Such decision must be taken with majority vote of more than ¾ of the members. On preliminary resolution about doing the work of redevelopment getting passed, following business will be transacted in the meeting.
a) To selected expert and experienced Architect / Project Management Consultant
from the panel of the Government / Local Authority for work of redevelopment of the building and to finalize items of work to be done by them and terms and conditions for the same.
b) To submit an outline of the program for redevelopment of building.
5. Providing minutes of Meeting to all members:-
Secretary of the Society should prepare minutes of Special General Body Meeting as above within ten days and a copy thereof should be furnished to all members and acknowledgement therefore be kept on record of the society. Also one copy should be forwarded to the office of the Registrar.
6. Issuing Appointment Letter to the Architect / Project Management Consultant:-
Secretary of the society will within 15 days of the meeting issue Appointment Letter to the Architect / Project Management Consultant selected in Special General Body Meeting and Society will enter into an agreement with Architect / Project Management Consultant incorporating therein terms and conditions approved in Special General Body Meeting.
7. Work to be done in the initial stage by Architect / Project management consultant:-
a) To survey Society’s building and land.
b) To obtain information about conveyance of land to the society.
c) To take into consideration prevailing policy of the Government and the regulations applicable from time to time depending on ownership of the land (MHADA/SRA/Municipal Corporation) and to obtain information about FSI and TDR, which would be available in relation to building and land of the society.
d) To take into consideration suggestions and recommendations from the members for redevelopment of the building as also the residential area to be made available to the members, commercial area, vacant area, garden, parking, building specifications etc. and to prepare a realistic project report.
e) Architect / Project Management Consultant should prepare the project report within two months of date of his appointment and to submit the same to committee of the society.
8. Action to be taken on receipt of redevelopment Project Report:-
a) On receipt of Redevelopment Project Report as above, Secretary of the society will convene a joint meeting to approve the Project Report with majority vote by taking into consideration suggestions received from Committee Members and Architect / Project Management Consultant. Notice in that behalf will be published on the Notice Board of the Society mentioning time venue etc. of the meeting.
b) It should be mentioned in the notice that a copy of the Project Report is available in the society’s office for members to see and the notice should be served on all the members that they should submit their suggestions eight days prior to the next Committee Meeting and acknowledgement of such notice should be kept on record of the Society.
c) Seven days prior to joint meeting, suggestions received from the members will be forwarded by Society’s Secretary to the Architect / Project Management Consultant for his Information.
d) There will be a detailed discussion in the Joint meeting on the suggestions / recommendations from members and opinion thereon of the Architect / Project Management Consultant and project report will be approved with necessary changes. Thereafter draft of tender from will be prepared and date of next joint meeting will be fixed for discussion on draft tender form and finalizing the same.
e) While preparing draft tender form, in order to get competitive quotations from renowned experts and experienced Developer, either carpet area or corpus fund fixed (not to be changed) and by finalizing other technical matters, the Architect / Project Management Consultant will invite tenders. Society’s members will be entitled to furnish information about it to the reputed and experienced Developer known to them.
9. Preparing List of Bids Received:-
a) On the Last day for receiving quotations, Secretary of the Society will prepare a list of offers received and display the same on the notice board of the society.
After 15 days of the last day for receiving quotations, Secretary of the society will convene special meeting of Managing Committee of the society. Authorized representatives of bidders and members of the society desirous of remaining present can remain present for the meeting as observers.
Tenders so received will be opened in the presence of all and the Architect / Project management consultant will scrutinize all tenders and prepare a comparative chart and after checking merit, reputation, experience and comparative rate etc. and select minimum 5 bids and if the bids received are less than 5, all the bids for putting up before Special General Meeting and concerned bidders will be informed about it immediately.
10. Selection of Developer:-
a) Office of the Registrar to appoint Authorized officer for attending General Body Meeting:-
An application with list of the members should be sent within eight days to the registrar for appointment of Authorized officer to attend the Special General Meeting of the Society for selecting a Developer out of those selected by committee of the Society with the help of the consultant, by taking into consideration his experience, merit, financial capacity, technical capacity and competitive rate etc.
b) Convening Special General Body Meeting for finalizing tender:-
After appointment of authorized officer, with his prior permission Secretary of the Society will fix the time and venue convene Special General Body Meeting for appointment of Developer and Agenda of this meeting will be sent to all the members 14 days prior to the meeting by hand delivery and by registered post and keep acknowledgement thereof on record of the Society. Also, office of the Registrar will make arrangement to keep his authorized representative present for the meeting.
Also arrangement will be made for video shooting of the meeting at the cost of the Society. Any person other than formal members will not be entitled to attend this meeting. Therefore members will be required to present at the venue of the meeting with their Identity Cards. At the time of submitting redevelopment proposal to the concerned authority for sanctioning, selection of Developer and other work should have been done in the presence of authorized officer from Registrar’s office.
c) If there is no quorum for Special General Body Meeting:-
If the quorum of ¾ members out of total members is not formed for Special General Body Meeting, the meeting will be adjourned for eight days. If quorum does not get formed for adjourned meeting, it will be deemed that the members have no interest in redevelopment of the building and the meeting will be cancelled and thereafter the said subject will not be taken up before the Special General Body Meeting for approval.
d) In the Special General Body Meeting to be convened for selection of Developer, authorized representative from the office of the Registrar will be present and observe proceedings of the meeting. Also, on concerned representatives and authorized officer remaining present at the venue and at the time of meeting and on quorum of ¾ members getting formed, following business will be transacted in the meeting.
i) Providing comparative information in respect of tenders selected for presentation (for redevelopment work).
ii) Presentation by bidders one by one.
iii) To select Developer for redevelopment of the building, to finalize terms and conditions and finalize the tender.
iv) To obtain consent from the selected Developer.
v) Give information about further work. It will be essential to take written approval by ¾ majority vote of the members present for the meeting for selection of Developer. If the selected Developer of his representative does not remain present for the meeting, further action will be taken by presuming that they have given their consent for the project.
11. Agreement to be entered into with Developer:-
Subject to the terms and conditions approved by General Body Meeting of the Society, an agreement should be entered into with the Developer within one month under guidance from the Architect / Project Management Consultant. Along with the points suggested by the Architect / Project Management Consultant appointed by the Society, following points will also be included in the agreement.
(1) The period for completing redevelopment project of the Society will not exceed more than two years and in exceptional cases, it will not exceed three years.
(2) Developer will give a Bank Guarantee for amount equal to 20% of the project cost.
(3) During the period of redevelopment, the Developer will make available to the members alternative accommodation in the same area as far as possible or arrange to pay monthly rent and deposit as acceptable to members or make available transit camp accommodation.
(4) The said agreement will be registered under Registration Act, 1908.
(5) On completion of redevelopment project, new members will be admitted in the Society only with approval of General Body Meeting of the Society.
(6) Carpet area to be allotted should be clearly mentioned in the agreement.
(7) Development right vested in the Developer will be non-transferable.
(8) Members will vacate their respective premises only after all legal approvals are received for redevelopment of the building.
(9) Rights of those who are in possession of the flats will remain unaffected.
(10) If any dispute arises in the work of redevelopment, provision should be made in the agreement to resolve the same as per provisions of Section 91 of the Act.
(11) After receipt of Occupation Certificate, flats in the redeveloped building should as far as possible be allotted as per present conditions floor-wise and if it becomes necessary to allot flats by drawing lots, on completion of construction, Developer should make arrangement drawing lots, and at that time flats should be allotted in the presence of Registrar’s representative and this process be recorded by video shooting.
(12) Any Committee member or Office Bearer of the Society should not be the Developer or relative of the Developer.
(13) Building plans sanctioned by the Municipal Corporation / Competent Authority should be put up before the General Body Meeting for information and if any member wants copies of approved documents, he should submit application for the same to the Society and it will be binding on the Committee to furnish the information by charging necessary fee.
By order and in the name of the Governor of Maharashtra (Dr. Sudhirkumar Goyal) Principal Secretary (Co-operation and Marketing)
1) Co-operation Commissioner and Registrar, Co-operative Societies, Maharashtra State, Pune.
2) Divisional Joint Registrars, Co-operative Societies (All).
3) District Deputy Registrars, Co-operative Societies (All).
Select File (14-C).
Ref.: Z:\000 – 500\2 GOVERNMENT CIRCULARS & COURT JUDGEMENTS 2008\2 GOVT CIRCULARS 2007\142 Directive for Redevelopment of Building of Co-operative Housing Society [English] 03-01-2009.
A well drafted consent of at least 70% the Society members must be obtained in writing during the Society meetings when the subject of redevelopment is discussed. However, the minority members of co-operative housing society cannot obstruct a redevelopment project. On Jun 28, 2010, the Bombay high court has once again ruled that members of a co-operative housing society who are in minority cannot obstruct a redevelopment project and must abide by the majority decision of the society, unless they show that here is some prejudice caused to them or a fraud has been committed.
In a recent ruling, the Bombay High Court has stated that the issue of minority of tenants cannot be an obstacle for redeveloping a property if minimum 70% of the tenants are ready for the same.
The judgment came against a matter of a redevelopment in Dadar where 17 members were opposing the redevelopment of an old Parsi chawl. Based on the writ petition filed by the group of dissenting members, Justice D.B.Bhosale granted the permission to BMC to forcibly evict the families with the police help in case of any opposition from the others against the redevelopment.
It is important to note that as per the section 103B of Maharashtra Housing and Area Development Act, 1976, with the guidelines for redevelopment of old Municipal Properties by the Municipal Tenants Co-Operative Housing Societies on the land owned by the Corporation under regulation 33(7) of the Development Central Regulations for Greater Bombay, 1991, it is necessary that more than 70% of the eligible existing Municipal tenants should give written consent to redevelop the property under the scheme with a formation of a co- operative society / association and an initiative proposal for the redevelopment.
The court has held that once 70% or more occupants /tenants give their consent for redevelopment by forming a co-operative body and if the scheme is approved by the corporation, it is binding to all other occupants. As per the guidelines, the tenants / occupants with separate stand, have no choice but to follow the norms. Being in minority (about 30% or less than that) the only choice for them remains is, to give up their tenancy rights and quit from the scheme.
The special general body has to approve the bid of the successful bidder in a meeting attended by the registrar. The entire proceedings have to be video-recorded. Once the agreement is accepted in terms of area and corpus fund, it cannot be revised. The successful bidder has to give a bank guarantee equivalent to 20% of the total project cost to show his financial strength, and proof that he will not throw away the project midway.
The Developer values the kind of Societies that either have some open plot of land or are willing to demolish the old structures to reconstruct new buildings. Where such redevelopment is possible, Developer normally agree to pay some consideration by way of Corpus Fund including more area in their existing flats to the members and seek permission to construct a building on the open plot of land or to construct a new, bigger building using the Transferable Development Right (TDR), Floor space index (FSI) after demolishing the existing structure.
Depending upon the offer from the Developer and subsequent negotiations him, he either provides alternate residential flats to the members of the Society or pay rent in advance by way of post dated cheques, one month rent as brokerage and transportation charge etc. to secure an alternate accommodation till the new building is constructed and the members are rehabilitated in their new flats. All the demands and negotiations have to be carefully recorded in the ‘Development Agreement’ for successful execution of redevelopment in a housing society and the office bearers and the managing committee members have a strong role to play.
In any process of redevelopment, one must be aware of various documentations that are required and also one must understand the tax implications on redevelopment of immovable property. The principal documents are ‘Development Agreement’ and ‘Power of Attorney’ which are to be registered by paying appropriate stamp duty.
By executing the Development Agreement’ with the Society, the Developer gets the required permission to develop the land and submits the papers to concerned civic authorities. Upon various sanctions available to him, the Developer constructs the buildings at his cost, retains some flats for him to be sold in the open market and earn profit.
It is important for a Society to have a valid conveyance of land and building in its favor for it to be redeveloped at a later date and that includes acquiring marketable title, permission for reconstruction and construction of additional floors by use of TDR and FSI, or else, Society may not get any approval of plan from Municipal Corporation. But due to our ignorance, majority of Builders fail to convey the title to a Co-Operative Society after the flats initially constructed on a plot of land.
In fact, the greater majority of the Co-Operative Housing Societies, formed in Mumbai in the last twenty years, do not have the land conveyed in their favor which results in the Developer or the earlier owner continues to remain the owner of the property. This results in a situation where these Societies have only possessor rights and not the ownership rights over the land, depriving them of the additional TDR FSI that is the main driving force for entering into such redevelopment agreements when required at a later date.