Ambiguity in law, execution problems may dilute RERA effectiveness

By Yogesh Singh

Primarily a consumer centric legislation, RERA has been touted to be the key to resolving the wide-ranging problems prevalent in the Indian realty sector.

What RERA means for Consumers, Developers and Others:
However, with the impending rules for its implementation and setting up of the RERA Authority in several States, its execution remains to be tested. To add to this, what the optimists fail to notice, is how RERA regime is neither a novel concept, given the existing framework governing the sector in most States, nor does it provide a fool-proof method for resolution, transparency, accountability and efficiency. That is not to say that it is not a forward-looking or much needed reform. It surely is, but it needs to evolve and be implemented well, which task has already been undertaken in some State rules.


Consumers are drawing comfort from the 70% deposit requirement as the end of the road for the rampant fund diversion in the sector. However, the manner of addressing this requirement for ongoing projects has been left unanswered. Even in States like Haryana, where the rules look to address this problem, uncertainty prevails on whether any monies remain undiverted and at the developers’ disposal to comply with this requirement. Even the penalty provisions in RERA are a double-edged sword. Although aimed as a deterrent for the developers, the ultimate aim of the customers is not (and should not be) to have a very stringent regime which hampers project timelines and completion, especially in ongoing projects. Consumers’ objective is to receive delivery of properly completed properties in which they have invested their life savings. Developers
One key concern for developers is whether RERA encompasses each of their ongoing projects. With each State defining ongoing projects differently, developers must assess each of their ongoing projects in light of the relevant State rules to ensure compliance. The Central Government ministers state that the only yardstick should be whether a completion certificate has been obtained as of 1 May 2017. It seems that the Central Government may nudge the State Governments to follow this approach – what pans out remains yet to be seen. The nature of prohibition under RERA is also pertinent to note in this respect. Given that RERA only prohibits sales and marketing of unregistered projects, it is safe to conclude that sold-out projects pending grant of possession until issue of completion certificate, need not register under RERA.

Without the RERA Authority or even an interim authority in place (barring in a few States) and the three-month deadline fast approaching, uncertainty also looms over compliance with the registration requirement. Consequently, developers are also at a loss whether the prohibition on marketing and sales activities without registration applies to their ongoing projects. However, in the absence of an express close shops till registration rule, developers can continue marketing and sales activities for their ongoing projects till the end of the three-month timeline. If the RERA Authority or rules are not in place, it is very likely that this timeline for applying for registration may be extended.

Despite the State rules providing templates of the agreements to sell, RERA as well as most of the State rules do not specify whether re-executing transactions with the existing allottees of ongoing projects is mandatory. Without an express provision, such a requirement can be safely assumed to not apply. However, in cases where the existing documentation is developer friendly (a very likely scenario) or contains commercials that may not be implementable under the RERA regime (such as assured returns to consumers), the uncertainty of frustration of such contracts, coupled with repercussions under RERA, prevails. In many cases, it may be worthwhile for developers and customers alike to execute fresh agreements, which are compliant with RERA.

Expectedly, developers are crying foul of the 70% deposit requirement as a roadblock to their fund management efforts and cause of the resultant liquidity crisis. Small players and developers sourcing funds from other projects are also likely to be weeded out of the market with this requirement leaving only the established players to compete. To restart pending projects, promoter level financing or additional mezzanine funding may be the only option. The Government may need to consider a mechanism of dealing with the stranded projects if the promoters fail to raise the requisite financing.

Given the parallel requirement of registration of real estate agents, and the absence of a cooling off period (as in the case of ongoing projects), it is clear that developers can engage only registered agents for their projects. Business is sure to be impacted with the absence of agents.

RERA defines promoters to include any person who constructs or develops land into a project, or anyone who acts as a builder, contractor, developer, etc. Purely financial investors would not fall within this ambit. However, for investors engaged in active roles in the development, marketing or sales of any project, restructuring their rights and obligations is of paramount importance.

This new and stringent regulatory environment coupled with the limited fund raising options may trigger an exodus of several (small to medium scale) developers from the sector resulting in a possible consolidation or sell-offs, opening avenues for interested and equipped players in partnering with or buying projects from such exiting developers.

The author is Partner at Trilegal, a full service law firm
With inputs from Senior Associate Ramya Suresh and Associate Itisha Gupta, Trilegal

Disclaimer: The facts and opinions written in this column are those of the author and do not reflect the views of

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