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Business News/ Opinion / Redevelopment: not a brick game

Redevelopment: not a brick game

Checks and balances are needed to make redevelopment a win-win for both residents and builders

Shyamal Banerjee/MintPremium
Shyamal Banerjee/Mint

In a large metro like Mumbai, once a building crosses the age of 25, it gets the redevelopment-tag. The usual disadvantages: lack of amenities, poor maintenance, safety issues — and advantages: larger apartments, sturdier structures and better amenities — are cited in favour of residents. For land-starved developers, redevelopment is a huge bonus, offering them extra floor space index (FSI), apartments with a higher selling price and greater development rights. Checks and balances are needed to make redevelopment a win-win for both residents and builders.

Consensus is necessary

Before saying redevelopment, the housing society must break the ice with its members. The best way to do so is to call for a meeting and ask members themselves to fetch proposals from developers who they deem fit for taking up the project. Such a move will make the process more transparent. It is a lack of mutual understanding between members that has spoilt many redevelopment deals in Mumbai. Often, it is only a few members who stall a redevelopment project.

Once a majority consensus is built, the law comes to your rescue. Guidelines under Section 79 (A) of the Maharashtra Co-operative Societies Act and recent court rulings state that if 75% of society members agree to redevelopment in writing, the proposal can be implemented.

PMCs: saviours in difficult times

Now, the next mandatory step is to appoint an architect or project management consultant (PMC) to vet the proposals and cherry-pick the best deal. A PMC advises the society on all aspects of the redevelopment process. It also handles legal intricacies and other requisites. Choosing the PMC must be done in a transparent manner so that the entity selected is above the board and is not accused of colluding with the developer. Most housing societies choose to do without a PMC. But hiring a PMC’s services will not affect the society’s purse strings as the entity’s fees can be recovered from the developer.

However, in case legal issues crop up later and the project gets delayed, the society will not be able to file a suit against the developer as they failed to follow the mandatory norm of appointing a PMC.

Developer’s track record

Do not fall for the developer’s proposal and initial claims. You may be promised the sky, but to ensure that the developer’s claims are true, check if they have successfully executed redevelopment projects in the past. Moreover, carefully assess the financial status of the builder and technical feasibility of the proposal. Also, note the quality of construction, and the amenities provided.

A holistic agreement

Any redevelopment agreement must clearly define all the transactions between the developer and society members, so that the members do not suffer any financial losses if it is delayed. Though a society has an umbrella agreement with the developer, individual members can choose what they want. Firstly, a member can sell her flat to the developer for a lump sum amount and altogether exit the deal. Secondly, members who want larger flats, can negotiate with the developer. The developer will offer more space at a mutually determined rate that is at some discount to the prevailing market rate. It must also clearly mention the obligations of both the builder and the society members, and the consequences that each must bear for breach of contract. Lastly, members must not vacate their flats unless the developer completes all the formalities.

The members should ensure that essential clauses are specified clearly in the agreement before signing on the dotted line.

Bank guarantee: Amounting to 20% of the project cost, bank guarantees may be encashed by the society to meet expenses in case the project is not completed on time.

Corpus fund: This is a lump sum amount given by the developer to take care of the rise in residents’ maintenance expenses post-redevelopment.

Date of completion: Failure to finalize a date for the project to be delivered will land the flat owners in trouble.

Larger apartments: Carpet size of each new apartment must be specified clearly in the agreement, in line with the extra FSI that accrues to the society.

Rent payments to tenants: While the building is being redeveloped, the developer must pay the rent charges incurred by residents for securing alternate accommodation.

Such payments should be collected in advance through post-dated cheques for a period of two to three years, in line with the date of completion.

Parking spaces: All parking spaces in the new property must be first allocated to the original members.

Other amenities: Also check whether other amenities within the apartment and other common facilities, have been provided properly by the developer, before you occupy the property.

In conclusion, redevelopment is a conscious and collective decision by a housing society: ensure that you go through the due process after getting all parties concerned on the same footing.

Binaifer Jehani, director, Crisil Research.

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Published: 10 Apr 2014, 07:05 PM IST
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