Three years’ advance rent for redevelopment: Will it help SRA projects?

The Maharashtra government has proposed to make it mandatory for developers to keep a security amount in advance, to pay rent to the tenants whose property will be redeveloped. We look at the implications of this proposal

In the past, many residents of slums that underwent redevelopment, have complained that developers have not paid them rent, for the transit accommodation. For example, over 100 slum dwellers of the Dhobi Ghat slum rehabilitation project in Mumbai, have said that they did not receive their monthly rental from the developer for many years and some of them were forced to live on footpaths. In another case, many residents staged a protest outside the office of a developer for non-payment.

Keeping in view the increasing instances of defaults by developers and harassment faced by residents, Maharashtra chief minister Devendra Fadnavis, in a reply to a discussion at the state legislative assembly, has said that builders will have to deposit three years’ rent in advance, for slum rehabilitation projects. The CM also emphasised that when project costs are nearly Rs 50 crores, there is no harm in keeping a small part as an advance, in an escrow account, so that there are no hardships later.

 

The problems redevelopment projects are facing currently

In a redevelopment project, the residents are offered rental for alternative accommodation, till the date of possession of the flat. According to officials at the Slum Redevelopment Authority (SRA), “More than 5,000 cases have been reported, where the builders stopping paying rent due to paucity of funds and the projects have stalled. The Authority has also issued stop-work notice to developers, for alleged non-payment of rent to the slum-dwellers.”

Omkar Mhatre, a resident of Mulund, has been shifting houses for the past four years, after his society went into redevelopment. “The builder, while negotiating for our area, promised us rent for five years and immediate possession. The redevelopment work in area started in 2013. Till date, only half of the tenants have got their units and around 200 rooms are yet to be prepared. The builder has not given rent for the past three years. The people of the area have been living in a transit camp for the past seven years, although the duration was only to be five years. When tenants ask for the rent, the only answer we get is ‘next month’. Work has completely stopped on the project,” he laments. In a similar case, 80-year-old Prabha Anande from Dadar, had written to the CM, seeking help as her project had stalled and she was staying on the road.

Legal expert Vinod Sampath points out that “When two parties get into a contract, the negotiations involve many things – carpet area, price to be quoted, material to be used, etc. At present, the focus is shifting from luxury flats to economical and smaller flats. Normally, projects take two to five years to complete. So, there is nothing wrong, if builders’ money, for paying rent to slum-dwellers in advance, is blocked for around three years. If they complete the project early, they can request the authorities for a refund from the slum-dwellers. In such a scenario, of the builder wants to exit the project, slum-dwellers will suffer less. However, developers will have to pump in more capital.”

 See also: Mumbai’s self-redevelopment scheme 2018: How it works

 

Three years’ rent for SRA projects: How will it affect developers

Several experts maintain that the developer must first demonstrate his financial capability to execute a redevelopment project. Also, the money that he receives from the free sale component, must be put in an escrow account, till he rehabilitates the existing occupants. Jitendra Gupta, a civic activist says: “None of the developers would deposit funds in advance, as it will not be feasible. Will the three years put them in a capacity to earn enough, to pay future maintenance after three years? Builders already give corpus fund to society, where maintenance becomes free for project-affected tenants. This corpus fund is part of the project’s cost to the builder.”

Developers too, are citing the economic slowdown in the real estate market, as the reason for their inability to fulfil their commitments. Housing activist Sulaiman Bhimani feels that while the move to ensure that developers deposit three years’ rent in advance, is a good initiative in favour of slum-dwellers, the government is not addressing the issue of how the construction industry will survive. “The real estate market is facing a deep recession. What measures are being taken, to bring confidence in home buyers and builders? This is totally missing,” he adds.

 

What you can home owners do, if the builder stops paying the rental of a redevelopment project?

In case the builder is not paying the rental, then, one can file a complaint in the consumer forum, to recover arrears of rentals. Rajkumar Sharma, president of ALMANAC, advises: “One should send a legal notice to the builder, calling upon him to forthwith start disbursing the rent, to which you are entitled to each month, as and when the same falls due. The builder has to strictly act in accordance with the development agreement.”

 

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