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Real Estate

RERA: A critical analysis

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On May 1, 2020, the Real Estate (Regulation and Development) Act, 2016 (RERA) finished a long period since its establishment. This period is a conventional time skyline to consider the working of a Real Estate Regulatory Authority, set up under administrative law, in any event to addressing the course, want, and assurance, with which it has accepted the job endorsed for it under the law.

The discussion among home buyers is that RERA, a law authorized to enable purchasers has been cunningly turned around into law for real estate developers – of the manufacturers – by the manufacturers, capably helped by the Regulatory Authorities. A look into the different web-based social networking trades would commute home the distress through which home buyers are getting hooked in the possession of the developer – authority nexus.

Starting with the guidelines under the Act being wrongfully weakened by some significant States (principally forgetting about progressing ventures); delays in the foundation of Authorities/Appellate Tribunals/Adjudicating Officers; deficient facilitating of sites with practically no undertaking data; and others, there is currently an additional weight of managing administrative torpidity.

The most evident of which is the easy-going usage of significant arrangements of the Act, to be specific – informing quarterly task refreshes; ensuring the upkeep of 70 percent venture assets in a different record; guaranteeing offices and enhancements as guaranteed; defending nature of development; knowing about purchaser complaints; and in particular, the execution of requests.

One plausible excuse, being promoted by the Authorities is ‘we need more powers’. This excuse is the oddest contention made by any Regulatory Authority over any part in India. Similar forces are accessible to most administrative specialists, cutting across areas, specifically – to force punishments, and to get orders executed for recuperations as unpaid debts of land income. Truth be told, this is likewise conjured by the legal executive in instances of recuperation from delinquents. Actually, there is an absolute absence of importance to genuinely and powerfully actualize the Act.

On the other hand, some insignificant things are keeping a few Authorities drawn in, clearly by arrogating powers not given under the Act. One, the Authority of Self-Regulatory Mechanism (SRM) for manufacturers; one wonders, if developers were to self-manage, at that point, why would there be the requirement for RERA. Moreover, if self-guidelines worked then would the circumstances have come to such a pass. Another, the Authority thought of ‘reviewing’ land ventures, clearly to help offtake deals for manufacturers.

All restrictions of semi-legal etiquette were crossed when Real Estate Regulatory Authorities of all States held hands to frame a skillet India Association. Have we at any point known about any affiliation framed by legal or semi-legal bodies? As of late, there was a news report that this Association of Authorities, would seek after the Reserve Bank of India (RBI) for credit rebuilding for developers. It is bizarre, if not dubious, to see Authorities attempting to encourage supporting the board for developers.

Unpredictable expansion of undertaking enlistment has become a standard as opposed to an exemption. As of late, under the affection of COVID-19, most Authorities have offered six to nine months’ sweeping augmentation to all undertakings, past one year gave under the Force Majeure clause in RERA. This was done to cleanse developers of any obligation towards intrigue, remuneration and punishment, for delays.

The homebuyers’ locale is losing trust in RERA Authorities, which are encouraging the end of RERA, longingly looked for by manufacturers. In any case, we trust that the Central Government and especially the Prime Minister, will take comprehension of these practices, and find a way to bring the Authorities in the groove again. One such initial step could be a quick review, either by the Comptroller and Auditor General of India (CAG) or some other able position, of the elements of the Regulatory Authorities opposite obligations indicated under the Act. The time, vitality, center and assets squandered by the Authorities in doing the trivial items aforementioned, could have been all the more productively used for lively usage of RERA.

The outlook of the Indian real estate sector post-COVID-19

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The Indian real estate sector has been zooming through different changes in recent years; however, none of those has undermined the wellbeing of the sector as intensely as the current emergency is anticipated to have. The lockdown and the resulting apprehension of occupation misfortune have additionally marked the interesting side, and with developmental work at a halt, the graceful side has likewise been upset.

In spite of the fact that the mists look dull at this moment, it is too early to bounce to unflattering ends. The post-lockdown period will have some positive turns of events and some negative ones. Before we know it, we would have entered an increasingly advanced period. Let us gradually stroll through the foreboding shadows towards a clearer viewpoint.

Rental market post-lockdown

The rental market will be extensively unaffected because of the various national and state-specific lockdowns. There is inactive interest in the market, and it will return once the lockdown gets lifted completely. Individuals can slow down purchasing choices amid vulnerabilities and the dread of joblessness, yet once lockdown gets over and normalcy returns, the inactive interest for rental homes will return. No course rectification required here.

Deal purchase post-lockdown

Most definitely, an impermanent plunge in purchaser request is normal in the post-lockdown period as individuals will initially concentrate on returning to the typical daily schedule. Be that as it may, when individuals get acclimated to the new ordinary, lower loan fees and other worthwhile arrangements from developers will animate interest in purchasers. It may take several quarters to see a quantifiable change. Be that as it may, it will undoubtedly occur.

Buyers’ confidence in land parcels as an advantage class will likewise return. Among Indians, physical resources are known to render the most noteworthy feeling that all is well with the world particularly in conditions such as these when securities exchanges are falling to phenomenal lows, and other budgetary instruments additionally need steadiness.

Quicker adoption of technology

Most land organizations have begun utilizing video-walkthroughs to assist purchasers with shortlisting properties from the solace of their homes and without a physical visit. Shoppers also have been shockingly quick in jumping aboard with the procedure.

It’s straightforward to see property subtleties on the web and recordings give a decent estimation with respect to the real estimations and look of a property. They are more practical and drawing in than pictures and a progressively proficient method of shortlisting properties. The post-lockdown period will have some positive turns of events and some apparently negative ones. Before we know it, we would have entered an increasingly cutting edge time with regards to technology utilization for real estate.

The dynamic shift

The sector is doing what’s needed to react to the current circumstances by utilizing technological innovation to keep the ball rolling. The pandemic has made necessary a new way of life, and, as of now, set into movement a few changes which were just considered conceivable in a far-off future.

Faster appropriation of online properties combined with advancements, for example, video walkthroughs, online moment appointments, and online lease installments are ready to be a distinct advantage in real estate in the post-lockdown time. It is sheltered to state that we are in a transformative stage, and once it is finished, Indian reality would have progressed to a more brilliant period.

Intellectual Property Litigation During And Before Covid-19

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The Covid-19 has smacked nearly all aspects of our lives subsequently halting certain key operations including inter alia legal enforcement. The pandemic accompanied by the nationwide lockdown accompanied dawned upon us without any caution. The emergence of a new world saw the closing of multiple segments of the economy.

However, despite such telling circumstances, the courts could not afford a complete month-long shutdown. The Supreme Court, eventually followed by the high court and the district courts have extended the limitation period and all interim orders. Courts have been operating in a staggered manner hearing urgent cases over video-conference post a short duration of the closure. In such circumstances, the Controller General of Patents, Designs, Trademarks, and GI suspended their operations pursuant to a notification released on March 23 and thereby, led to essential questions being raised regarding the reliefs available for people in disputes involving intellectual property (“IP”).

Keeping in mind the current circumstances apprised by the pandemic, IP litigation has been moving largely towards patent and trademark infringement cases. The primary focus recently has been largely towards the pharmaceutical sector and the IP issues that arise therein. Recently, the Delhi High Court in a case of trademark infringement case filed by Dettol Inc. fined a company named Devtol to the tune of INR 1 Lakh and ordered an injunction, thereby, restricting them to use their brand name and confuse the consumers during such a critical time.

The issues pertaining to compulsory licensing of pharmaceutical products such as critical life-saving drugs, in consonance with the provisions under the law can be well predicted to rise during Covid-19. There has been a steady surge in licensing cases of life-saving drugs due to the continuously rising number of Covid cases witnessed worldwide.  Notwithstanding the predicted paradigm shift to the increased patent and trademark litigation as a result of the pandemic, the filing of such cases would be limited as courts would only be inclined to hear urgent matters only till the crisis subsides, which is unlikely in near future.

IP litigation conforming to the current circumstances is bound to experience a slight shift as the focus has now been majorly directed towards the pharmaceutical sector. Trademark cases and licensing cases have largely increased, and those have largely been in the pharmaceutical sector, which shows a shift in the patterns of IP litigation when compared to the pre-Covid time. Additionally, the Courts have recognized the nature of time-bound IP filings which have been absurdly stopped with the onset of the pandemic.

Nevertheless, the courts have recognized the various adversities and the limitation in respect of such cases has been extended as well a much-needed respite for stakeholders in India and abroad. In light of the ongoing circumstances, even WIPO has released remedies to deal with the hurdles faced by dealing with intellectual property rights categorically advising for an automatic extension of time limits and subsequent shift towards electronic communication to mitigate all possible undesirable outcomes arising out the current state of affairs. Evidently, the measures undertaken by India are on similar lines. One has to wait for normalcy to return, post which the real consequences of the shutdown on IP litigation can be well realized.

The doctrine of Suspension of Rent: A silver lining for tenants

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The transmission of a virus with flu-like symptoms has pushed world economies to an unprecedented standstill. To combat an impending economic depression and prevent a spate of homelessness, the government announced several rent relief measures looking out for tenant’s interests. However, the virus-induced nationwide lockdown has not only lead to large-scale ramifications for businesses across the globe, but has also adversely affected contractual relationships.

An important question that has arisen during these unprecedented times is whether this lockdown would entitle tenants to claim waiver, postponement, part-payment or suspension of rent. This article is concentrated on assessing the applicability of the latter i.e. the doctrine of suspension of rent and how Indian Courts have dealt with the subject, as this is the relief that most renters seek in the current circumstances.

Force Majeure

In the absence of any clarity by the Government on rental obligations under commercial lease agreements, businesses are left struggling with zero sales coupled with salary and rental obligations. Amid the pandemic, the much forgotten ‘Force Majeure’ provision in contracts and leases has gained traction and attention. The commercial tenants could invoke the ‘force majeure’ to absolve them from rental payments during “an event beyond the parties’ control”.

However, force majeure events are not exhaustively laid out under the law and applicability of this provision depends on the language of the rental agreement and interpretation of the courts. Therefore, the parties must review and, as mutually agreeable, revise the terms of the agreement in order to meet a consensus and provide breathing room to both parties.

Suspension of Rent

Recently, the High Court of Delhi in Ramanand & Ors. v. Dr. Girish Soni & Anr., set out the parameters to be considered while dealing with requests for waiver or suspension of rent, however clarified that the question of waiver, suspension or any remission in rental payments would differ from case to case. In doing so, the courts will be required to solve a convoluted interplay between the provisions of the rental agreement with applicable tenancy and property laws.

This recent judgment shall go a long way in providing relief to the tenants as long as they fit in the ambit of the conditions laid down by the court. This decision of the High Court makes it clear that it is not an inherent right of a tenant to seek waiver or suspension of rent from the landlord. Although this decision is first in line of the many judgments that will possibly be rendered by courts in this regard, it certainly does set the benchmark for consideration of requests for waiver or suspension of rent.

Various countries like Singapore and UK have requested the landlords to not evict their tenants in the event of non-payment of rent for a short period of time. Moreover, Indian States like Delhi, Maharashtra and Uttar Pradesh have requested landlords to give extensions to the tenants for the payment of rent and to amicably settle their disputes. The rationale behind these notifications was to provide some breather to tenants unable to pay rents during a crisis.

The recent judgment lays emphasis on the need to review and renegotiate rental contracts, and lease agreements to be entitled for the protection as well as show other grounds such as their financial and social status etc. Thus, the mere possibility of suspension of rent through a judicial decree is indeed to be considered as a silver lining for the tenants. While some postponement or relaxation in the schedule of payment can be granted owing to the lockdown, most tenancy agreements don’t have the provision of ‘force majeure’ and cannot invoke the doctrine of suspension and so unless announcements are backed by ordinances, the uncertainty of its enforceability remains.

Conclusion

The customary strained landlord-tenant relationships are further distressed with the lack of clarity in central and state government announcements bringing fore questions of eligibility and applicability of relief measures. Until the air clears, Indians will continue to rely on legislations that hugely favours tenants in rental disputes, leaving landlords grappling to survive the crisis without any respite. In the interim, as parties await clarification from the government, it is advisable to facilitate a shared objective of contractual performance through collaboration and provide a win-win solution to all until normalcy returns.

Builder Defers New Project Indefinitely: What are the legal remedies?

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Moving to a new house is a pleasant feeling but the number of sacrifices and efforts you can make to become a homeowner can be destroyed if the construction business is in danger. With so much turmoil and delay due to the coronavirus, all industries, including the real estate sector, have been hit hard. 2019 was not a gradual year and everyone was counting on 2020 to recover and improve from last year’s lows. However, the real estate sector is in a deep impasse in the face of the global economic crisis and the spread of COVID-19.

The Indian real estate sector has not been rescued either. The lockdown for such a long time will affect the prices of steel and other materials used in the construction industry in India. Difficulties in the supply of raw materials will reduce construction activities for ongoing real estate projects in the coming months, even if all restrictions are lifted. Despite the increased cost of construction and uncertainty regarding the return of labor to the major cities in their hometown after foreclosure, real estate prices should see corrections, due to buyers’ sentiment and some owners panicking in the resale market. The launch of new projects is expected to be postponed until October and is unlikely to do enough to raise average sales prices in different cities.

In order to protect the interests of innocent homebuyers, the Real Estate Regulation and Development Act (RERA) in 2016 introduced new laws that will lead to severe criminal penalties. These laws will make compliance with RERA standards a necessity for all manufacturers. It is easier for the governing body to eliminate the dishonest builders who inhabit the housing sector. Several provisions described in the law will help build a more transparent system for transactions in the real estate sector.

While in some cases, there are genuine reasons such as delay in getting government approvals, in others, the builders may have simply absconded or just don’t respond to buyers’ pleas to complete projects. The Supreme Court and consumer courts have repeatedly ruled that homebuyers cannot wait indefinitely, but it has not been clarified when compensation can be claimed in the event of a delay. To relieve hundreds of thousands of wounded buyers who had to wait to own their apartments for years, the Consumer Committee at the summit set a one-year period for delayed projects after which investors could ask manufacturers to recover them.

The committee ordered the builder to pay 6% compensation annually to the total deposit for the late period, even after the handover. In the event that the apartment is not delivered within the period specified by the committee, the National Rehabilitation and Reconstruction Committee (NCDRC) has indicated that the builder will have to pay the full amount at 10% interest.

Delays in completion would result in a 10% fine based on the interest the company would have to pay buyers instead of the old penalty, which was 5 rupees per square foot. Given that many construction companies charge buyers 12% or even 36% interest rates for late payments, this decision seems more than fair. In addition, at least 70% of the money earned from investors or used for the project must be kept.

The Real Estate Regulatory Agency has also called for the creation of a specialized real estate court that can get justice faster. These courts of appeal will have the power to decide cases within 60 days, which will help buyers to get justice on time. In light of this, the National Commission ordered the developer of consumer disputes. They were ordered to pay the interest lost by the buyers who had sued. The two main points that emerge from the decision are that real estate developers cannot blame the buyer and lose the reservation amount due to an error on their part in case the buyer is forced to stop paying the installments. The main consumer committee also ruled that even if the developer was entitled to waive the reservation amount, he could not take more than 10% of the real money.

COVID-19 is unlikely to give rise to a force majeure defense valid in all contracts and under all circumstances, as different contracts and applicable laws stipulate different requirements for different situations. Companies are therefore well advised to proactively manage the related legal risk and to carefully assess which party must ultimately bear the financial losses caused by COVID-19.

The center issued an opinion to regulatory authorities in all states and territories of the Union, making it possible to treat the COVID-19 pandemic as a “force majeure” or a force majeure case. It made it possible to extend the deadline for the implementation of the project for a period of six months. All registered projects whose completion date or revised completion date or expanded completion date according to registration on or after March 25, 2020, or the date of registration and completion or registration date 6 months before due to the COVID-19 epidemic, the Commission decided.

After examining all aspects and also the opinion issued by the Center, it declared that the authority using the powers conferred on it under section 37 of the law had issued instructions concerning the extension of the registration of real estate projects for six months.

The revised timetables will form part of the new registration that the state regulators have issued, under the Real Estate Regulatory Act, to builders. Many state governments, including that of Uttar Pradesh, which has a huge number of projects piling up in Noida, have already given such a waiver to real estate companies. New contracts concluded during this period of uncertainty will likely be interpreted differently, if only because the parties were aware of the virus when they signed the dotted line. It can be said that neither party should be able to invoke the development of the situation as an excuse to postpone the performance of their obligations. Therefore, it would seem prudent for these contracts to formulate common assumptions regarding the expected consequences of the infection, including, for example, defining a baseline against which the injured party has the right to invoke the protection force provided for in the contract.

Real Estate Sector Sees Long Term Initiatives, But Quick Fixes To Boost

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The government-enforced lockdown has brought all economic activities to a jerking halt. The performance of the segment was muted owing to the prevailing liquidity crisis and subdued demands. The creation of the Rs 25, 000 crore fund and interest cuts did propel the industry towards recovery, to which beans were spilled by the pandemic. 

The structural changes were brought in after the damage was done. Implementation of RERA, GST, IBC focussed primarily on boosting liquidity in the segment. On the commercial front, demand for office space had been resilient and REIT had been yielding strongest rental assets until Covid-19 dampened the efforts. Nevertheless, the chief constraint had been rigid government mandate while the lenders were not accommodated.

While several steps had been taken to boost liquidity in the sector, there has been hardly any incentive for homebuyers to enhance their confidence post-Covid. There have been no speculations about the reduction of interest rates on new home loans to provide the much-required boost. Neither has been there any modification in the current GST regime for extended benefits, despite there being an urgent need for the same to boost demand amongst buyers. There being a reduction in interest rates, the borrowing rate for real estate developers still remains to be high causing much trouble. NBFCs have failed to pass on any benefits to the realtors owing to the integral set of problems. Consequently, private funds continue to increase the cost of lending, causing a demand-supply mismatch issue. Reduction for transaction costs could also help the industry sail a long way. 

The industry is likely to face an acute shortage of labor for completion of projects post the lockdown leading to further delay. Incentivising migrant laborers with increased wages and medical cover to aid the industry however there being no such stipulation as of now. In a nutshell, there remains the need for quick and short term measures to enhance the demand chain for the industry, for which realtors are keeping an eye on the government for instantaneous action.

Can tenants stop paying rent due to the Covid-19 situation?

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We are seeing a phenomenal circumstance, which not just has upset all our financial and hierarchical standards hereto, yet additionally has profoundly influenced our connections – both relational and social. In practically all the large urban communities where there is generally more convergence of vagrant workforce, stewing anxiety and discontent is unmistakable regarding the issue of non-instalment of the lease by tenants and the proprietor.

Humanity is under stress trying to evade the perils of the pandemic prevailing worldwide. The times have dawned with dire crisis persisting in all spheres of life. A huge loss has been caused to our economy with thousands of individuals left unemployed unable to meet everyday expenses like monthly rentals. As an immediate consequence, tenants are being evicted by the landlords on the defaults made in payments. In light of horrendous events of tenant eviction during the lockdown, the government issued a recent circular in favour of the tenants’ interests allowing relaxations in payment of rents. In the legal parlance, the tenant and landlord have a contractual relationship bound by the rent agreement execute. The agreement is primarily based upon the terms and conditions agreed upon by the parties in speculation of the future happenings. Nevertheless, a pandemic was out of the imagination of every individual while entering into a rent agreement.

A comparative study of the doctrine of frustration under Section 56 of the Indian Contract Act and Section 108(e) of the Transfer of Property Act is critical here. This will assist us with appreciating the commitment of renter in cases wherein the power Majeure condition is missing in the rent deed. Under the Transfer of Property Act if by fire, tempest, or flood or violence of an army or a mob or other irresistible force any material part of the property be wholly destroyed, the lease shall, at the option of the lessee, be void. In that view, Section 56 of the Contract Act has no application to leases and instead of that, Section108 (e) will apply as far as frustration relating to leases is concerned.

In any case, for the current emergency, even the arrangements of Section108 (e) of the Transfer of Property Act are likewise inapplicable, on the grounds that the land was neither demolished nor turned out to be for all time unfit for the motivations behind the occupation.

In layman’s language, it can be said that it is out of line to anticipate that the occupant should satisfy his commitment in ‘remarkable conditions’, for example, the COVID-19 pandemic, where he could be as of now under extraordinary money related pressure. Law frequently inclines toward rationale. Under the law, the Doctrine of ‘Power Majeure’ specifies that the obligation of a gathering is suspended briefly or deferred for all time when a happening occasion outside the ability to control of the gatherings that renders execution of an agreement incomprehensible occurs.

As it were, a gathering whose obligation it is to release an obligation – pay his month to month lease in this example – is secured regardless of whether they neglect to do so once the occasion is considered by law to be surprising and outside their ability to control. Be that as it may, the “waiver of rentals” would rely upon the realities and conditions of each case. Insignificant non-use or failure to utilize the property can’t be treated as an occasion rendering the property “generously or for all time unfit”. These decisions help answer a few circumstances which an occupant or proprietor can confront contingent upon whether an agreement conveyed a satisfactory ‘Power Majeure’ proviso.

Nevertheless, the question is what will be the remedy if force majure clause has not been included in the agreement. This situation of a pandemic was an unforeseen situation and was not known earlier which drags us to the position. The insignificant presence of a ‘Power Majeure’ proviso in an understanding would not qualify an inhabitant for a waiver. That is with the exception of and until a situation of failure to utilize or get to the premises for reasons as pervasive during the COVID pandemic is specified authoritatively between parties. If the tenure understanding is quiet and doesn’t consider a ‘lockdown’ situation, a suspension of the lease during the lockdown time-frame can’t be looked for simply due to the lockdown or non-utilization of the premises.

If an agreement contains a “Force Majeure” proviso, wherein the instalment can be deferred, it will be represented by the arrangements of the area of the Contract Act. On the off chance that the provisions of the agreement do not accommodate “Power Majeure conditions” or if any of the Force Majeure conditions are past the agreement statements, segment 56 of the Indian Contract Act, 1872 can be conjured by and large. Further, in the occasion the renter looks for security under the arrangements, he can do as such, and just on account of the property being completely crushed rendering the premises for all time and generously unfit for use. Along these lines, nothing favours an inhabitant or resident aside from, and except if, the agreement spares their advantage.

Notwithstanding the way that the progressing pandemic may have brought about the extraordinary difficulty to the inhabitants and despite governments likewise mentioning proprietors to embrace a merciful view, in standard conditions, without anything to the opposite in the occupancy understanding, the ‘lockdown’ because of the novel coronavirus can’t be utilized by the tenant to pardon himself from the installment of the lease under law. It depends absolutely on his/her legally binding game plan. A perfect situation would be for the tenant to arrange and talk about the waiver, deferrals with the proprietor staying away from complexities, prosecution.

COVID-19: Economic slowdown to worsen liquidity crunch for Indian realty

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The dent in new launches, the increasing number of indefinitely-deferred projects, and the persisting slowdown aggravating at a steady pace depicts a gloomy picture for Indian realty. The reliance on hefty loans has already led to a credit crunch in the system with the measures taken by the RBI not helping as much as they were expected to. In the back of the lockdown and the liquidity crisis, the fall in residential sales seems to be an obvious phenomenon. With the major metropolitan cities being worst affected by COVID-19; the vanquishing of housing demands looks even steeper. In the absence of a robust demand recovery proposal, the revival of the said sector seems to be far from reality.

How has the COVID-19 pandemic affected the relationship between tenants and landlords?

The disruptions brought in by the COVID-19 pandemic has led to all enterprises scampering to use their cash reserves and reducing payouts to minimise rental payments. The active endeavour of tenants has been to secure a way out to lawfully evade rental payouts for the entire duration of several versions of the enforced lockdown. To analyse this issue on the legal front; rent suspension can only be afforded in cases where there has been deliberate dispossession caused to the tenant, but not being limited to the premise.

Additionally, examining judicial response, calling aid from Force Majeure clauses within the Real Estate (Regulation and Development) Act, 2016, in the COVID-19 situation might not be of much help considering the vehement contemplation of the contract in that case. While tenants look for a way out to ease the burden for rental payments, a legal remedy for avoiding the same does not look much plausible.

How can cities improve their civic and transport infrastructure?

A hawkish eye on the realty sector shows various leakages with regards to property tax collection pan India. The lacklustre apparatus, minimal collection efficiency and flawed valuations lead to the divulgence of the funds which could otherwise have been well utilised for strengthening the civic and transport infrastructure of cities. Over the top, defaults and disputes in payment of property taxes are cosmic since ages. The outstanding amount of taxes due to pending disputes, if cumulated, can reinforce the industry immediately. Given the current downfall in the market, the wealth erosion, if not mended soon, could lead to an incredible amount of losses till the time the market recovers from the aftershocks.

How do you feel about the actions of the various Real Estate Regulatory Authorities during these times?

While market regulators such as the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) have been working to mitigate the distress caused by the COVID-19 crisis actively, the various State Real Estate Regulatory Authorities have failed to, at the least, gauze a direction for easing the situation. Real estate developers, leaving homebuyers at their plight, have ingeniously manipulated the Authorities to bid outcomes in their favor.

The need for digitisation in contemporary times has become beyond essential. The incomplete website, rare and scattered project information and regulatory lethargy are the cherries on the cake, making it more difficult for homebuyers to make way for an efficacious remedy. The alibi of lack of powers is a bizarre argument from a regulatory body vested with statutory force failing to implement necessary provisions. The homebuyers’ community has been left in disdain by being at the mercy of the bungling regulators.

How do you perceive the foreseeable future of the real estate sector?

As the moratorium period edges towards completion, the real estate sector is getting apprehensive about many different aspects. Currently, the moratorium is only provided to banks and Non-Banking Financial Companies (NBFCs); capital market instruments availed no such benefits. The liquidity and funding challenges could worsen hereafter, as the demand-side pressure is expected to intensify owing to the economic fallout. With the demand quotient currently looking bleak, a persistent worry regarding an improvement in the number of property transactions in the coming quarters continues for real estate developers.

COVID-19: Are government measures sufficient for the real estate sector?

By Real Estate No Comments

The Coronavirus crisis has jolted the very fabric of the Indian economy, once poised to be the world’s second-largest one. The resultant slowdown in the real estate sector, being the second largest job provider, is mercilessly affecting the fragile construction workers at the bottom rung. With the Coronavirus in the background, let us analyze the rehabilitative measures taken and their sufficiency in the current scenario.

Wealth erosion for wealthy realty

A hawkish eye on the realty sector shows various leakages with regards to property tax collection pan India. The lacklustre apparatus, minimal collection efficiency, and flawed valuations lead to the divulgence of the funds which could otherwise have been well utilised for strengthening the market. Over the top, defaults and disputes in payment of property taxes are cosmic for ages. The outstanding amount of taxes due to pending disputes if cumulated can reinforce the industry immediately. Given the current downfall in the market, the wealth erosion, if not mended soon, could lead to an inconceivable amount of losses till the time the market recovers from the aftershocks.

The doctrine of rent suspension

The disruptions brought in by the pandemic has led to all enterprises to scamper to cash reserves, reduction in payouts trying to minimalize rental payments. The active endeavor of tenants has been to secure way-outs to lawfully evade rental payouts for the entire duration of several versions of the enforced lockdown. To analyze on the legal front, rent suspension can only be afforded in cases where there has been deliberate dispossession caused to the tenant but not being limited to the premise. Additionally, examining judicial response, calling aid from force majeure clauses in the COVID 19 situation might not be of much help considering the vehement contemplation of the contract in the instant case. While tenants look for a way out to ease the burden for rental payments, a legal remedy for avoiding the same does not look much plausible.

The urgent need for RERA corrections

In recent horizon, the real estate industry has been doomed. While market regulators like SEBI and RBI have been seen to actively mitigate the distress caused due to the COVID crisis, the RERA has failed to at the least, gauze a direction for easing the situation. Builders, leaving homebuyers at their plight have ingeniously manipulated the authority to bid outcomes in their favor. The need for digitization in contemporary times has become beyond essential. The incomplete website, rare and scattered project information and regulatory lethargy are the cherries on the cake, making it more difficult for homebuyers to make way for an efficacious remedy. The alibi of lack of powers is a bizarre argument from a regulatory body vested with statutory force failing to implement basic provisions. The homebuyers’ community has been left in disdain and deceit being left at the mercy of the bungling regulator.

Final nail in the coffin of realty industry

With the end of the moratorium period nearing soon, the realty market fears the impending doom that might dawn upon. Currently, the moratorium is only provided to banks and NBFCs; capital market instruments availed no benefits. The liquidity and funding challenges could worsen hereafter, as the demand side pressure is expected to intensify owing to the economic fallout. The demand quotient being currently bleak, the persistent worry remains to be demand revival to rejuvenate the industry. Consumer end demand is likely to show a further nemesis owing to the slowdown of the economy. The recent interest cuts would do barely little to bolster demand soon.

Drop in housing sales: phenomena in a decade

The dent in new launches, indefinitely deferred projects and the persisting slowdown aggravating at a steady pace depicts a further gloomy picture for the realty market. Reliance on heavy loans has already led to a credit crunch in the system with the RBI measures not helping as much. In the back of the lockdown and the liquidity crisis, the fall in housing sales seems to be an obvious phenomenon. With the major cities being worst hit by the pandemic, the vanquishing of housing demands become even steeper. In the absence of a robust demand recovery proposal, the revival of the industry happens to be far from reality.

Will Corporate Tenants Disappear In The Pandemic?

By Real Estate No Comments

Stock market crashes, mass unemployment, and disruptions hinting a recession – are only the tip of the iceberg and its underlying repercussions are likely to unfold with time. The COVID-19 pandemic is adversely affecting commercial real estate (CRE) as it continues to wreak havoc in industries throughout the economy. For many years, the primary declining CRE sector in India has been brick and mortar retail stores. However, the retail sector is no longer suffering alone, as the COVID-19 outbreak is hurting most other CRE sectors: office, hospitality, multi-family, restaurant, personal services, entertainment and construction.

Central, state and local governments have ordered business shutdowns and social and travel restrictions limiting most social and commercial activities. As a result, commercial tenants throughout the country are going out of business, temporarily closing, curtailing operations, laying-off employees and suffering sharply declining revenues.

Even so-called “essential” or “life-sustaining” companies that are largely exempt from governmental restrictions are experiencing declines in business. The spread of this deadly virus can prove to be the biggest black swan event for the real estate sector. Where all commercial real estate may see a decline, retail businesses may find that their regular flow of customers substantially reduced thereby essentially placing a period on the rental incomes of commercial landlords.

  1. ‘Force Majeure’ provision 

In the absence of any clarity by the Government on rental obligations under commercial lease agreements, businesses are left struggling with zero sales coupled with salary and rental obligations. Amid the pandemic, the much forgotten ‘Force Majeure’ provision in contracts and leases has gained traction and attention. The commercial tenants could invoke the ‘force majeure’ to absolve them from rental payments during “an event beyond the parties’ control”. However, force majeure events are not exhaustively laid out under the law and applicability of this provision depends on the language of the rental agreement and interpretation of the courts. Therefore, the parties must renegotiate the terms of the agreement to provide breathing room to both parties.  

  1. Doctrine of Frustration

A question that may arise is whether a Lessee can invoke the Doctrine of Frustration in the absence of a Force Majeure Clause for Non-Payment of Lease Rent? Typically, the Doctrine is invoked in circumstances where the purpose of their contract is held to be frustrated under Section 56 of the Indian Contract Act. However, the Supreme Court in Raja Dhruv Dev Chand v Raja Harmohinder Singh, observed ‘’Authorities in the courts in India have generally taken the view that Section 56 of the Contract Act is not applicable when the rights and obligations of the parties arise under a transfer of property under a lease’’.

Thus, it is unlikely that a lessee can claim frustration of contract in the absence of a Force Majeure clause under a lease agreement and seek waiver of lease rental as consequence of a Force Majeure event. However, most tenancy agreements don’t have the provision of ‘force majeure’ and cannot invoke the doctrine of frustration and so unless announcements are backed by ordinances, the uncertainty of its enforceability remains. 

  1. Common Area Maintenance Costs

Commercial landlords responsible for common parts (Common Area Maintenance) are providing more frequent and thorough cleansing of those common parts, particularly frequently touched surfaces (e.g. door handles, elevator buttons and toilets), although, there is no legal obligation on them to provide such services to prevent the spread of the virus. Supplying these extra cleaning services will have cost implications, and commercial landlords should check the service-charge provisions in their leases to ensure such charges are recoverable.

Wider regulatory issues regarding any steps taken (such as cleaning or surface disinfection) by a commercial landlord or its managing agents should also be addressed. For example, municipal permission for commercial premises will often contain conditions that restrict or limit the hours within which such operations may take place. This could possibly catch enhanced or additional cleaning activities, for example, if additional garbage clearance is required or additional traffic and noise is caused.

But there could be a possible solution in order to save the commercial leases and the solution can lie in one of the most important statutes.

  1. Transfer of Property Act 

Section 105 of the Transfer of Property Act (TPA) defines a “lease”. The recognizes certain situations under which unforeseen circumstances may give rise to a justified ground to treat the lease as terminated. Section 108(B)(e) shows three criteria must be satisfied before any benefit can be derived: (i) the existence of an ‘irresistible force’; (ii) property becomes substantially and permanently unfit for use for which it was let; and (iii) the lessor must be informed of the lessee’s decision to render the lease deed void. Therefore, under Section 108(B)(e), it is as important to establish that COVID-19 rendered the property permanently unfit for the purpose for which it was leased out, as it is to establish that COVID-19 is in itself an instance of an ‘irresistible force’.

In this context, it becomes important to examine whether COVID-19 and the lockdown can be termed as an ‘irresistible force’ for the purposes of Section 108(B)(e). Black’s Law Dictionary defines force majeure, inter alia, as a “superior or irresistible force” (4th ed. 1972). While the authors have not come across a judicial precedent where the definition of ‘irresistible force’ has been specifically settled, obiter indicates that the Courts have not made a distinction between ‘irresistible force’ and force majeure. Whether COVID-19 itself would qualify as a force majeure event is a question of fact and is most likely to be settled on a case to case basis. 

  1. Payment obligations and unforeseen circumstances

An obvious and major concern is whether the payment obligations under the lease remain active despite the lessee not having access to the property. The question as to COVID-19 and not having access to the property is a question of fact for the courts to determine on a case to case basis. But Courts have deemed that the lessee is in possession of the property and has access to is unless a notice under Section 108(B)(e) of the TPA is sent to the lessor.

  1. Considerations for a Lessee

The relationship between the lessee and the lessor are primarily governed by the terms of the lease deed. If the lease deed does not have a force majeure clause, resort has to be had to Section 108(B)(e) of the TPA. The lessee will have to first satisfy himself that the event is one of ‘irresistible force’ and has to notify the lessor to avoid future rental payments.

This analysis is complicated by two important considerations. First, a lessee can only seek the benefit of Section 108(B)(e) if the lease in question is duly registered under the Registration Act, 1908. In the absence of registration, a lessee must examine their protection under common law for a month to month tenancy. Second, most lease agreements for commercial establishment contain an arbitration clause as the means for dispute resolution. The arbitrability of disputes under a lease deed is currently pending resolution by the Supreme Court. In Himangni Enterprises v. Kamaljeet Singh Ahluwalia (2017) the Court held that disputes under the TPA were non-arbitrable. The correctness of this view has been doubted in Vidya Drolia vs Durga Trading Corporation(2019) and a reference to three judge bench is currently pending. Given the large number of open-ended questions, it would be interesting to observe how courts react to the impact COVID-19 has had on various economic relationships.

Impact on the Sector

The Indian residential sector has been grappling with subdued demand for the past few years. In an attempt to stay afloat amidst changing dynamics, developers tried to pull all levers like restricting supply, focussing on execution, reducing unit sizes and developing affordable housing projects. However, the liquidity crisis initiated by IL&FS fiasco and subsequent fallouts of various financial institutions further impacted residential sector. Amidst these changing dynamics, PE players shifted their attention totally towards commercial assets.

As per ANAROCK Research, residential PE investments’ share of the overall inflows declined from 53% in 2015 to a mere 8% in 2019. COVID-19 has severely hit residential real estate business and the sector has come to a standstill. With a screeching halt to site visits, discussions, documentation and closures, the early indicators depict that we are likely to face a tough time for the next few quarters and the sector’s recovery has been pushed further away by at least a couple of years. As per ANAROCK Research, more than 15.62 Lakh units launched between 2013 till 2019 across the top 7 cities of India are in various stages of construction. Of this, MMR and NCR together comprise of 57% or about 8.9 Lakh units. With India being locked down until mid-April 2020 (as per the current advisory) there will be massive disruptions in the construction material supply even after the lock down ends, leading to disturbances and delay in the construction activity. 

Conclusion 

The customary strained landlord-tenant relationships are further distressed with the lack of clarity in central and state government announcements bringing fore questions of eligibility and applicability of relief measures. Until the air clears (pun intended), Indians will continue to rely on legislations that hugely favors tenants in rental disputes, leaving landlords grappling to survive the crisis without any respite. In the interim, as parties await clarification from the government, it is advisable to facilitate a shared objective of contractual performance through collaboration and provide a win-win solution to all until normalcy returns.

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