All about non occupancy charges in cooperative housing societies

We look at various court cases, to explain the applicability of non occupancy charges under the Maharashtra Cooperative Societies Act and the maximum amount that societies can legally levy

What is non occupancy charges?

Non occupancy charges are levied by housing societies upon member flat-owners who do not reside in their respective premises. Such non-residence may be on account of the flat being vacant or rented out. If a flat owner chooses not to reside in his flat and gives the same on rent or keeps it vacant, then, the society can impose non occupancy charges upon him.


How to calculate the non occupancy charges?

Under a circular issued by the government of Maharashtra, under Section 79A of the Maharashtra Cooperative Societies Act, 1960, the amount of non occupancy charges cannot exceed 10% of the service charges of the society (excluding municipal taxes).

For example, suppose the total maintenance bill of a society for a member amounts to Rs 3,500 and it includes service charges of Rs 2,500. Then, the society will levy an amount of Rs 250 as non-occupancy charges, which is 10% of Rs 2,500.


What is the criteria for levy of non occupancy charges?

If a flat owner is himself residing in the flat, then, he is not liable to pay non-occupancy charges. In case the flat is occupied by members of his immediate family, namely, son, daughter (married or unmarried) or grandchildren, then, they will also be exempt from the payment of non occupancy charges.


All about non occupancy charges in cooperative housing societies


How much can societies charge as non occupancy charges?

Before the Maharashtra government capped the quantum of non-occupancy charges at 10% of the service charges, arbitrariness was rampant in its levy and collection. Societies would charge exorbitant rates, as much as Rs 9 per sq ft, as non occupancy premises. This had the adverse impact of increasing rentals and becoming a financial drain on non-resident flat owners. Non-resident Indians (NRIs), many of whom are avid investors in Indian real estate, were particularly affected. Instances were also coming to light, where they levy of non occupancy charges was highly disproportionate, to the tune of several lakh rupees per annum.

In the case of Bhartiya Friends Cooperative Housing Society, it was found that in a building with 49 flats, owners of two flats had paid Rs 2.5 lakhs towards non occupancy charges for their respective units. However, the bulk of this amount went towards paying the property taxes of the remaining 47 units. This was highly unethical and tantamount to cheating.
Similarly, in the case of Mont Blanc Cooperative Housing Society vs. state of Maharashtra, the Bombay High Court observed that out of 51 flats in the building, only three to six flats were given on rent at any given point of time. From these flats, non occupancy charges varying from Rs 3 lakhs to Rs 24 lakhs were collected. This stood in stark contrast to the property tax bills of the society, which came to just Rs 16 lakhs per annum.

Thus, it was apparent that non occupancy charges, rather than being regarded as a marginal amount, had effectively become a tool of harassment. Excess amounts collected by way of non occupancy, were being misappropriated towards paying the dues of other defaulting members.

Any amount charged under any additional head, apart from the fixed charges of 10%, shall be considered illegal. In such a case, the society can be prosecuted under the Consumer Protection Act, for deliberate negligence and deficiency in services and overcharging of the amount with abuse of power and harassment. The lessee is required to adhere to the due procedures and submit relevant documentary proofs, while initiating legal action.


What happens if the flat owner does not pay non-occupancy charges?

The housing society will send a reminder notice, in case the flat owner does not pay or refuses to pay the non-occupancy charges. It can declare the owner a defaulter, if the amount is not paid. Moreover, the no-dues certificate will not be provided by the housing society.


Government resolution on non occupancy charges

Housing societies in Maharashtra are governed by the Maharashtra Cooperative Housing Societies Act, 1960 (MCS Act 1960). The Act sets in place a legal and regulatory framework, to supervise and administer the affairs of housing societies. Disputes between housing societies and their respective members can also be adjudicated under the provisions of the Act.

Section 79A of the MCS Act 1960, empowers the state government to issue circulars prescribing guidelines for the functioning of societies. Circulars issued under Section 79A are binding in nature. Section 79A was invoked by the government of Maharashtra, to curb the levy of exorbitant non occupancy charges by housing societies upon their members.

The circular under 79A, which was issued on August 13, 2001, capped the quantum of non occupancy charges at 10% of the standard service charges of the society. The service charges of a society include lift, common area electricity, security and maintenance charges but exclude municipal taxes. Compliance with the circular was mandatory and any violation would merit penal action, which would include removal of society office bearers.

Non occupancy charges circular and the Maharashtra Cooperative Societies Act

The said 79A circular came to be challenged by Mont Blanc Cooperative Housing Society in the Bombay High Court. The society challenged the cap on non occupancy charges as unconstitutional and violating Article 19 of the Constitution of India. It also argued that the circular was an unwarranted interference into the internal affairs of housing societies.

Meanwhile the state of Maharashtra argued that its circular protected minority members from oppression by the majority. The circular also protected the right to property under Article 300A of the Constitution, because a member’s flat is his personal property and the society has no right to interfere with his use or enjoyment of the same. The state further argued that levy of exorbitant non occupancy charges ran counter to the spirit of the cooperative movement and would escalate property rentals, thereby, undermining the rental housing market.


Non occupancy charges court judgement

In a landmark judgment, a division bench comprising justices BH Marlapalle and JH Bhatia, upheld the 79A circular that capped non occupancy charges at 10% of the basic service charges of the society. The said circular was aimed at preventing the exploitation of minority members who were called upon to pay exorbitantly high non occupancy charges. Further, it represented a bona fide exercise by the state to avoid litigation and disputes, by imposing a uniform rate for the levy of non occupancy charges and delinking them from the rental income earned from the flat.

The judgment of the High Court did come with a modification, however. The court reduced the scope of exemption for members exempt from paying non occupancy charges. It held that exemption from non occupancy charges could extend only to the flat-owner and members of his immediate family, namely, his son, daughter or grandchildren. Members of his extended family, if they resided in the flat, could not claim any exemption in this regard and would have to pay the non occupancy charges as prescribed.


As of today, non occupancy charges levied by housing societies cannot exceed 10% of the service charge component of the monthly maintenance bill. Such charges would be levied, the moment the flat is given on leave and license, or falls vacant. A resale flat purchaser is also advised to check for such arrears, if any, if the flat was vacant prior to the sale.



What are non occupancy charges?

Non-occupancy charge refers to a sum levied by cooperative housing societies on members who do not reside in the society premises.

Who pays non-occupancy charges?

The owner of the unit (a member of society) has to pay the non-occupancy charges.

What are service charges?

As per the bye-law number 68 of the new model bye-laws, service charges constitute salary and allowances to staff, sitting fees to committee members, common electricity and outgoings for society office.

(The writer is a practising lawyer in the Bombay High Court, specialising in real estate and finance litigation.)


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