1. INTRODUCTION

1.1 On May 13, 2020, the Ministry of Housing and Urban Affairs (the "Ministry") issued an advisory to the state governments to invoke the Force Majeure clause under the provisions of the Real Estate (Regulation and Development) Act, 2016 ("RERA") and to extend the timelines for (i) completion of the real estate projects which has been delayed due to pandemic caused by Covid-19 and (ii) for various statutory compliances ("RERA Advisory") under the provisions of RERA. As per the RERA Advisory, the Ministry mulled and considered the effect of the ongoing pandemic situation which resulted in reverse migration of the workers to their native places and break in supply chain of the construction material causing an adverse impact on the construction activities of real estate projects across India.

1.2 The RERA Advisory is issued in accordance with the discussions held on April 29, 2020 of the Central Advisory Council1 with all its stakeholders including representatives of homebuyers, developers, real estate agents, financial institutions, regulatory authorities and state governments. It was noted that the regulatory authorities in the states of Gujarat2, Tamil Nadu3 and Uttar Pradesh4 have already issued orders in their respective states for extension of completion dates of registered real estate projects under the provisions of RERA by 3 (three) to 5 (five) months.

1.3 It may be noted that with the introduction of RERA in the year 2016, every promoter of a real estate project is required to obtain registration certificates from the real estate regulatory authorities of the state/ union territories, prior to advertising, marketing, booking, selling or offering for sale, or inviting persons to purchase in any manner any plot, apartment or building5. Further, in terms of section 4 of the RERA every promoter while applying for a grant of registration for a particular project is required to prescribe a timeline for completion of the project. Non-completion of the project within the stated timeline results in a penalty which may extend up to 5% (five percent) of the estimated cost of the real estate project6. Additionally, if the promoter is unable to give possession in accordance with the timeline as set out in the agreement to sell, the allottee will be entitled to payment of interest as may be set out in the agreement to sell until the handing over of the possession7.

1.4 As an exception, RERA also states that in case of a Force Majeure, the timelines for the completion of a project may be extended upto 1 (one) year on an application made by the 'promoter' of the real estate project. The term Force Majeure has been defined under RERA to mean "a case of war, flood, drought, fire, cyclone, earthquake or any other calamity caused by nature affecting the regular development of the real estate project". Furthermore, the Supreme Court in the case of Bikram Chatterji and Ors. vs. Union of India (UOI) and Ors.8, has defined force majeure in context of section 6 of RERA as 'a case of war, flood, drought, fire, cyclone, earthquake or any other calamity caused by nature'. The Ministry, looking at the current scenario across the country stated that it is quite evident that the current pandemic is caused by nature and is a calamity of nature. It is adversely affecting the regular development of real estate projects; hence, it attracts the provision of force majeure under RERA.

2. KEY HIGHLIGHTS OF THE RERA ADVISORY

2.1 RERA Advisory has been introduced in order to protect the interest of all the stakeholders and accordingly the RERA Advisory has been issued to all states/union territories and their respective real estate regulatory authorities.

2.2 The said advisory states that in order to avoid multiplicity of applications from the promoters of various real estate projects to extend the timeline for completion of their respective real estate projects, the regulatory authorities of the states/union territories under their respective jurisdiction may issue the following orders/directions in relation to all registered projects for which the completion date, revised completion date or extended completion date as per registration expires on or after March 25, 2020:

  1. Regulatory authorities may issue orders/directions to extend the registration/completion date or revised completion date or extended completion date automatically by 6 (six) months due to outbreak of covid-19 by invoking Force Majeure provisions under RERA;
  2. Regulatory authorities may, on their own discretion, consider to further extend the date of completion for another 3 (three) months, if the situation in their respective states, for reasons to be recorded in writing, needs special consideration for invoking force majeure in view of the current pandemic;
  3. Regulatory authorities may issue fresh Registration Certificates with revised timelines in each such registered real estate project at the earliest; and
  4. Regulatory authorities may extend concurrently the timelines of all statutory compliances in accordance with the provisions of RERA and rules and regulations made thereunder.

2.3 On the same date at the date of the RERA Advisory, the Rajasthan Real Estate Regulatory Authority ("RRERA"), issued an order9, whereby RRERA, amongst other relaxations, granted an in-principle, across the board approval to extend by 12 (twelve) months the estimated finish date and the period of validity of the registration shown in the registration certificates of all real estate projects that were registered and not already completed, lapsed or revoked as on March 19, 2020. The said extension is also available to projects which were registered after March 19, 2020 upto the date of issuance of the order. However, in order to avail such extension, the promoters of real estate projects will be required to apply for extension by submitting a simple application along with fee. For this purpose, the RRERA will create, before June 30, 2020, a special window on its web portal for online submission of applications. Further, the said order also directs that in light of the 'force majeure, no interest or compensation is payable under section 12 and section 18 of RERA for the period covered by the aforesaid extension.

3. CONCLUSION

This RERA Advisory has been issued with a view to cater the situation wherein most of the promoters of the real estate projects across India will be unable to complete their respective projects within the prescribed timelines due to the ongoing situation. Accordingly the adoption of the RERA Advisory by the states and union territories will avoid a situation wherein the authorities are piled up with applications for extension for completion of the real estate projects.

Further, the said RERA Advisory has clarified that the Covid-19 situation is a natural calamity and accordingly the same amounts to force majeure under RERA. This is a welcome move by the Ministry as it avoids divergent interpretations by various authorities. More notifications from various State regulatory authorities are awaited, in light of the RERA Advisory, following suit of RRERA in extending the timelines for completion of real estate projects registered under RERA.

It should be noted that the Finance Minister has recently stated that owing to the Covid-19 situation10, the Government will be suspending fresh initiation of insolvency for upto a year and an ordinance in relation to the same will be notified shortly. Once such ordinance is notified, the recourse available to homebuyers (in their capacity as the financial creditor) under IBC would not be available for the said period of one (1) year. Further, with the extension granted by the State Governments/Union Territories on the project completion date pursuant to the RERA Advisory, the homebuyers (allottees) will unwillingly be left with no redressal during the interim period of suspension of initiation of insolvency under IBC/ extension of the project completion date under RERA. Viewed as such, the amendments brought about the Government are pro developers. However, if extension on project completion dates is not provided to the promoters, the same may lead to a situation wherein most of the real estate projects will be in non-compliance of law and hamper the development of such projects.

Footnotes

1. As established by the Central Government in accordance with RERA.

2. Vide order no. 33/2020 dated April 13, 2020

3. As available on http://www.tnrera.in/Downloads/CircularsAndOrders/TNRERA-Circular-06042020.pdf

4. As available on https://www.up-rera.in/frm_Ifram_for_PDf.aspx?Param=Press_Release_32603ExtensionofValidityperiod.pdf

5. Section 3 (1) of RERA

6. Section 60 of RERA

7. Section 18 of RERA

8. As decided on 23rd July 2019

9. Vide Order number F1 (146) RJ/RERA/2020/848

10. https://www.business-standard.com/article/economy-policy/ibc-suspended-for-a-year-covid-19-related-debt-exempted-from-default-120051700543_1.html

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.