Andheri Project

Comments on the Draft of proposed agreement to be executed between society and its members

1. Recital part of the agreement : (i) In the draft agreement it is not mentioned whether conveyance with respect to the land in question has been done by the builder in favor of the society or not. There should be reference of the registered document conveyance in favor of society by virtue of which society is the absolute owner of the land and building.
(ii) Total area of land owned by the society is not mentioned in the Agreement. It is necessary to mention the same.

Viability of the project: Redevelopment project is based on the assumption that the revenue generated from the sale of additional area will be sufficient to met the cost of obtaining TDR and construction cost of the buildings. Relevant facts are as follows:

Total existing built up area 14,746 sq.ft.
Area proposed to be built up 25,734 sq.ft.
Area to be allotted free of cost 21509 sq.ft.

Additional area will be sold to members interested to purchase at the rate of 11,500/- per sq.ft.

Total amount to be received from the members on execution of the agreement on account of selling additional area will be Rs.5,50,73,500/-

Total amount to be paid to members who will get lesser area than they are entitled to is Rs.64,86,000/- which will be given to members within 12 months from the date of execution of the agreement as per clause 7. If the society is receiving the total amount Rs.5,50,73,500/- on the date of execution of the agreement, then there is no reason why society is taking 12 months time in paying to its members. It should be within seven days or against handing over the possession of the flat fixed on 1 Sept. 2008 as per clause 3(e). There is not even mentioned that society will pay interest at certain agreed rate if society fails to pay within 12 months.

However, we are informed by note dated 17/3/08 that society will also construct 5 flats of 2140 sq.ft. each which will be sold to prospective buyers at the rate of approximately 11,500/- per sq.ft. Thus total area available for sale will be 14,925 sq.ft. which will be sold at the rate of 11,500/- per sq.ft.. Thus total revenue generated will be 17,16,37,500/- However, there is nothing in the Agreement that society will construct 5 flats of 2140 sq.ft. each which will be sold to prospective buyers at the rate of approximately 11,500/- per sq.ft.

The total Fund generated and available to the society after the execution of the agreement will be Rs. 5,50,73,500/- out of which Rs.5,42,20,000/- will be utilized for purchasing TDR of 21688 sq.ft. at the rate of 2500/- per sq.ft..

will be utilized for purchasing TDR. and the and the amount received construction of building covering 25,734 sq.ft. and purchase of additional TDR. There is no other source of generating revenue and if that amount is not sufficient to complete the project i.e. meeting the expenses for demolition of the building, purchasing TDR and construction cost of the building, in that case each member will have to contribute in proportion to their built up area to be acquired in the new building.

Thus approximately Rs.1888/- per sq.ft. will be available towards construction cost and purchase of TDR 10,988 sq.ft.

Therefore, the project will be viable only if the society will be able to purchase TDR at the rate up to 600 per sq.ft. so that it can invest the balance of Rs.1288/- per sq.ft. towards construction cost.


3. Society has not come to any agreement with any builder for demolition of existing building, or for purchasing additional TDR of 10,988 sq.ft. and constructing building of total area of 25,734 sq.ft. as per plan approved by the society.

4.(i)Since, there is no agreement with any builder, the society through its managing committee appointed by the members of the society is wholly responsible and empowered for the execution of the project as mentioned in the recital clause (M) at page 4-5.

(ii) Because this project is to be executed by the society through its managing committee, all the risks related to the project has to be borne by the society and its members. Society is not going to compensate if the project gets delayed beyond 24 months. Society will not give any compensation for vacating the flat and staying outside till the project is completed and possession is handed over to each member. Members have to make their own arrangement at their cost till the project is completed.

(iii) Society has appointed architect who will do some specific works. However, the demolition and construction work of building can be done only through builder who is having such expertise. After execution of the agreement, managing committee will decide final terms of contract with the builder or contractor and it will get the construction done within 24 months.

(iii) If the society is able to complete the project at the cost below Rs.4,85,87,500/- , then society member will be benefited. If the cost price of the project increases, society will charge from each member additional cost in the proportion to their respective built up area. Because of reality boom, TDR prices are today very high and it is not possible to meet the expenses of purchasing additional TDR and demolition and construction cost with such a small amount of Rs.4,85,87,500/- Therefore, Society through its managing committee is bound to ask proportionate shares towards increased costs from its members during the completion of the project.

Members are at dark as to how much additional amount they will be required to pay before completion of the project because even as on today there is no negotiations with prospective vendor of TDR . There is no mention in this regard in the agreement.

(iv) Since, the cost of obtaining TDR and cost of constructions are the most crucial factors for the viability of the project or to determine the exact additional amount each member will have to pay before the completion of the project, it is necessary for the society to negotiate with the prospective vendor of TDR and Builder for demolition and construction of building. Draft agreements recording all the terms including commercial terms should be approved by the members of the society and all the agreements i.e. (i) the present agreement (ii) Agreement between Society and the vendor of TDR and (iii) Agreement between Society and the builder for construction of building should be executed simultaneously to ascertain the timely execution of the project at pre-ascertained cost.

5) As we are informed that society is likely to spend approximately a sum of Rs.4 crores toward obtaining TDR and assuming society is to spend Rs.85,87,500/- towards demolishing the building, the construction cost will have to be borne by each member. If the construction cost comes to approximately Rs.1500 per sq.ft., in that case a member who have opted a flat of 1535 sq.ft. will be required to pay a sum of Rs.23,02500/- before the completion of the project. If the project is completed within 24 months, the member will have to pay approximately Rs.25,000/-x24 = 600000/- towards rental. The members who are surrendering some area will get Rs.20 to 22 L. So if the project is completed within 24 months, the additional burden can not be more than 6 to 7 L to the member who are surrendering some areas. But two members will get a new flat of area admeasuring 1535 sq.ft. each and one member will get area of 1200 sq ft which is greater than existing areas of 1146, 1000 & 910 sq.ft. respectively and along with a car parking space. Therefore the project is in favor of these members also. The value of additional area at the rate of Rs.11,500/- per sq.ft. comes to Rs.44,73,500/-, Rs.61,52,500/- & Rs.33,35,000/- Therefore, if the project is completed within 24 months at the estimated cost as mentioned above, the members will be comfortable at the end of the project.

Therefore, it is in the interest of all the members to ensure the i) cost of TDR (ii) Construction cost (iii) timely execution of the agreement. This can be better done if three agreements i.e. (i) the present agreement (ii) Agreement between Society and the vendor for purchase of TDR and (iii) Agreement between Society and the builder for construction of building is executed simultaneously. The Agreement between Society and the builder for construction of building will ensure quality of construction and its timely execution and completion of the project at pre-estimated cost.



Give up your old house to a builder for a new one
2006-11-08 12:17:55
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Some of the complications which the society may face in case
of redevelopment are:
· Inability to assemble all members of the society at a single point of time, as some of the members may not be available. Some flats may be mortgaged to a bank or a financial institution
· Some of the members may be interested in purchase of new flats at a discounted rate in the new building.
· The title may not be clear, i.e. conveyance deed of the land and structure is not executed in favour of the society.
· Anxiety in the minds of the members about possible delay in completion of the project after they have vacated their old flats.
· The old documents of the members may not be traceable
· Lack of unity amongst the members
· The tax issues regarding redevelopment are not clear to the society.
· Very high prices are expected on sale of old flats in the case of certain members who are not interested in staying in the new building.
· Corpus amount takes a long time to be fixed by the society.
· The decision as to which member will get what type of parking takes a very long time.

There can be different arrangements under which, a project involving the use of TDR FSI can be developed jointly. Some common arrangements are:

· An existing building is demolished and the existing FSI is developed for the use of the owner. The builder uses additional TDR FSI - the cost of which is to be borne by the developer alone and constructs the new building.
· In case the existing building is tenanted, the tenants are compensated for the inconvenience caused either by providing temporary alternate accommodation during the period of construction or by monetary compensation for vacating the premises. In some cases, they are given ownership rights in place of tenancy rights.
· As per old municipal laws, it was possible that the owner of building permitted TDR FSI to be loaded over the existing structure by way of additional floors for a consideration. This, however, is no longer permissible under the existing municipal laws.

Drafting a Development Agreement
Some of the important points and clauses of a development agreement are:

· The cooperative society, the developers and preferably all the members should be parties to this agreement.
· A brief history of how the conveyance deed was given to the society should be given in the redevelopment agreement.
· The registration number of the cooperative society under the Maharashtra Co-operative Societies Act, 1960, should be mentioned in the agreement.
· The particulars of the existing flats with carpet area of the flats occupied by each of the member in the said buildings should be noted in the development agreement.
· The area of the plot as per the 'property register card' should be mentioned.
· The total estimated FSI area that can be constructed by utilizing TDR on the said plot should be mentioned.
· The carpet area, including the additional area, which will be made available to the
members in the new building, should be stated in the agreement. The schedule of payment of the total consideration should be specified in the development agreement.

· The tentative date for vacating the flats in the old building by the members should be mentioned in the agreement, which shall be linked with the plans being approved by the concerned authority.
· The number of open car parking space, stilt car parking and closed parking which will be given to the members in the new building should be mentioned in the development agreement.
· Usually the developers obtain at their own costs the rights under the Development Right Certificate (DRC) in accordance with the provisions of the Development Control Regulations for Greater Bombay, 1991. Further, the developers get the building plans approved, obtain the commencement certificate and sanction of building plans from the MCGM and pay all the requisite deposits, fees and premiums to various authorities including the MCGM. It should be clarified in the development agreement that neither the Society nor the Members shall be expected to pay such types of expenses.
· It must be clarified in the development agreement that each purchaser of a flat in the new building who intends to be a member of the society will be required to pay to the society the entrance fee and share allotment money as well as a sum as approved by the society towards the sinking fund of the society.
· The time period for completion of the new building on the plot owned by the society shall be defined in the development agreement. In the event the developers fail to complete the entire work within the stipulated period, a penalty clause can be mentioned in the agreement.
· It should be specified in the development agreement that from the date of taking complete vacant possession of the existing structure till the date of receipt of occupation certificate in respect of the new building and till such time that the builder intimates the members to take possession of their respective flats, the developers shall bear and pay all municipal rates, taxes and other payments required to be paid to the concerned authorities.
· The agreement should also clarify that the society shall pay only the municipal rates, and other outgoing taxes till the vacant possession of the entire property is done (the plot and the existing structure) to the developers after receipt of full occupation certificate in respect of the new building.
· The development agreement should list out the broad specifications and amenities to be provided for the flats in the new building on the plot owned by the society.
· The development agreement should have a proper schedule of the property at the end of the agreement which should specify the location of the property alongwith the name of the village, taluka, final plot number, CTS number, area of the plot and municipal ward number.

Abovementioned are some of the important points relating to redevelopment of old buildings by by cooperative societies. Since the laws on the subject of redevelopment are yet to be fully developed, any decision in this matter should be taken with great care or else it could lead to a possible dispute or litigation