The pandemic COVID-19 outbreak has created a huge impact on the economy. Which in turn pushed sentiment in real estate to its all-time lowest level. It has affected not only the residential and but also the commercial real estate sector. The residential sector has been facing a lower demand, which has now put the developers in dilemma regarding taking a risk by launching any...
The pandemic COVID-19 outbreak has created a huge impact on the economy. Which in turn pushed sentiment in real estate to its all-time lowest level. It has affected not only the residential and but also the commercial real estate sector. The residential sector has been facing a lower demand, which has now put the developers in dilemma regarding taking a risk by launching any new projects. Since because of various factors such as shortage of material and labour, construction for on-going projects are already stalled. Amidst this fear, the other concern revolving around in almost every sector across the globe is about whether pandemic COVID-19 would be considered as 'force majeure'. A lot of scholars, writers, analysts around the world have tried analyzing this issue and expressed their opinion regarding the same. Every Authority at their level is trying to make an effort to deal with the situation created due to pandemic COVID-19. Recently, looking at the hardship being faced by the developers concerning their real estate project, the Real Estate Regulatory Authority of Maharashtra, Uttar Pradesh, Karnataka allowed certain relaxations in terms of compliances under Real Estate (Regulation and Development) Act, 2016 ("Act") and their respective RERA Rules. Further on 13.05.2020, the Central Government announced that COVID-19 be treated as an event of force majeure under RERA. It also advised respective State/UTs Real Estate Regulatory Authorities to Suo moto provide an extension in registration and completion date by 6 months along with certain other relaxations. Such measures were announced to destress real estate developers and ensure completion of projects so that home buyers can get delivery of their booked houses with new timelines.
Likewise, in prevailing circumstances, Rajasthan Real Estate Regulatory Authority ("Authority") took into consideration the practical difficulties such as availability of workers, material, finance being faced by the developers due to lockdown. Consequently, in efforts to deal with this, the Authority vide its order dated 13.05.2020 bearing no. F1(146) RJ/RERA/2020/848 ("Order") ordered that for the purpose of Section 6 of the Act and Rule 7 of Rajasthan Real Estate (Regulation and Development) Rules, 2017 ("Rajasthan RERA Rules"), pandemic COVID-19 is a case of force majeure. Additionally, under the said Order, the Authority issued certain directions pertaining to the same. However, the said Order led to the rise of a plethora of questions such as (i) Are the relaxations provided under the said Order safeguarding the interest of allottees in any manner? (ii) Is the Authority in the façade of COVID-19 being considered as force majeure, allowed to pass directions not in consonance with the preamble of the Act itself? This article would elucidate about such issues and exhibit a comparative analysis of the same with the orders issued by various other State's Regulatory Authorities.
The Order issued by the Authority provides direction regarding extension of the estimated finish date and validity of registration whereby extension by 12 months has been allowed in respect of all the real estate projects that were registered and not already completed, lapsed, or revoked as on 19.03.2020. However, an important facet to note here is that the Ministry of Housing and Urban Affairs vide its memorandum dated 13.05.2020 advised the State's regulatory authorities to issue suitable orders/directions to automatically extend the registration and completion date or revised completion date or extended completion date by a period of 6 months and further advised to consider an extension for another period up to 3 months at their discretion if required to do so. Also, the various State's regulatory authorities such as that of Maharashtra, Madhya Pradesh, Uttar Pradesh, Punjab, Tamil Nadu, Karnataka, and Chattisgarh have issued orders providing an extension for a period ranging from 3 months to 6 months. Such a period of the extension seems to be reasonable on the ground that the nationwide lockdown has suspended the performance of services by such a period. However, the Authority in abuse of its discretion to allow extension by a period of 12 months for all real estate projects in Rajasthan has failed to maintain the balance of interest between the developer and the allottee concerning their real estate project. In consonance with the memorandum issued by the Ministry of Housing and Urban Affairs and the period for which activities were suspended due to lockdown, the extension should be allowed to the developers only for a reasonable period. Hence, presently there is a dire need to reduce period of extension regarding the estimated finish date and validity of registration by the Authority to create fairness among the interest of developers and allottees.
In addition to this, the Order further specifies direction pertaining to the moratorium on interest and compensation. It has been stated under the said Order that owing to force majeure, no interest and compensation will be payable under Section 12 or Section 18 of the Act for the period covered by aforesaid extension in estimated finish date of the project. In this regard, it is pertinent to highlight that pandemic COVID-19 and consequently, the imposition of lockdown has slowed down the economy. Such circumstances have caused hardship not only to the developers but also to the allottee in general because of several factors such as pay cuts, job layoffs, cash flow, or liquidity issues in the business. However, imposing a moratorium on interest and compensation for a period of 12 months has been an unfavourable step for the allottees. The Authority has neglected adversities being faced by the allottees. No relief has been provided to the allottees to ease out their hardship caused due to prevailing circumstances. The Authority has disregarded the ground of reasonability and issued an arbitrary order thus, reflecting that under the sham of COVID-19, the Authority is trying to recoup the stilted real estate sector at the cost of consumers.
Further, the Order also mentions direction relating to the moratorium on the execution of refund orders. It has been stated in the said Order that up to 31.03.2021, no coercive steps will be taken by the Authority for the execution of refund orders issued in the past or that may come to be issued in the meanwhile. The significant aspect to notice here is that the preamble of the Act states that it is an Act to 'protect the interest of consumers' in the real estate sector. Also, Rule 18 of the Rajasthan RERA Rules provides that any refund along with the applicable interest and compensation, if any, payable by the promoter in terms of the provisions of Section 18 of the Act shall be payable by the promoter to the allottee within forty-five (45) days from the date on which such refund along with interest and compensation, if any, becomes due. A lot of allottees in the past have already been suffering due to non-adherence of refund orders by the promoters by not refunding the amount within the specified timelines. Adding to this real struggle of allottees, the Authority by the issuance of the direction of not taking any coercive action even in respect of refund orders issued in past has frustrated the basic objective or the intent of this legislation and has also created more trouble for the allottees. Such direction issued by the Authority in no manner serves to protect the interest of consumers in the real estate sector. The other State's regulatory authorities such as that of Maharashtra has issued direction stating that any refund order under Rule 19 of Maharashtra RERA Rules, which becomes due during force majeure period, is allowed to be executed in a period extending up to 1 month after expiry of force majeure period. Further, any amount due under Section 40 of the Act, during the force majeure period, shall be recovered any time after the expiry of the force majeure event. The Maharashtra RERA while issuing the direction, has taken into consideration the difficulty being faced by the developers regarding liquidity however, at the same time said direction has not created much of trouble for allottees. The Maharashtra RERA has allowed extension for a reasonable period considering the ground of fairness, equity, and justice dissimilar to the Authority issuing direction for not taking any coercive action for the execution of refund order for a period of a whole one year.
In times of pandemic COVID-19 which is being considered as 'force majeure', it is imperative for the State's regulatory authorities to issue directions considering all the aspects such as pay cuts, jobs layoffs, liquidity crunch, shortage of material and labour affecting both the interested parties i.e allottees and the developers. The directions issued in this regard should not be detrimental to the interest of both the parties or arbitrary rather it should be grounded upon the principle of reasonableness, fairness, and equity. This would create a balance of interest among both the affected parties. Correspondingly, such directions would act as an effective step in reducing hardship, trouble being faced by the parties concerning their real estate project.
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