Handover Process of Common Areas and Facilities from Promoter to AOA

This article is specific to the law in Uttar Pradesh. The article has a video presentation. | Download eManual on Apartment

Introduction

The U.P. Government enacted U.P. Apartment (Promotion of Construction, Ownership and Maintenance) Act, 2010, (“2010 Act)”Statement of Objects and Reasons whereof are:

           “Housing is a basic human necessity and the quality of the house as well as of its environment plays an important role in the growth of individuals, both physically and mentally. The widening gap between the rising urban population and the housing stock added every year has gradually reached such a critical stage that the problem of providing proper shelter and desirable standard of living seems very difficult of be solved. Moreover, majority of the citizen of urban areas of the State cannot thinks in terms of owing houses on individual basis because of the shortage of land in the urban areas. The efforts made by the Government as well as different agencies have not made much dent into the housing problem. Uttar Pradesh is predominantly an agricultural State; is no advisable to use fertile lands more and more for housing purposes which ultimately will affect the production of food grains. It is essential investment should be observed, for which Group Housing development will have to be promoted. With a view to promoting the Group Housing, it has been decided to make a law to provide for the ownership of an individual apartment in a building of an undivided interest in the common areas and facilities appurtenant of such apartment and to make such apartment and interest heritable and transferable.”

Statement of Objects and Reasons. UP Apartment Act 2010

As it is clear that the Government wanted to promote Group Housing where the minimum number of apartments would be four, but the maximum number is left on the capacity of the builder/promoter.  The State Government vide Local Building Bye-laws like NOIDA Building Bye-laws or Lucknow (LDA) Building Bye-laws has allowed Group Housings to be constructed with the maximum possible number of apartments therein.  It has prompted the private builders and promoters to construct Group Housing comprising of over 10,000 apartments in a single project.

The State Government realized that maintenance of common areas and facilities of such large group housing may become a permanent profit-making ground for the promoters, as such in the U.P. Apartment Act, it made provisions for maintenance of the apartment buildings/ group housing through Apartment Owners Association (“AOA”).  However, due to the lack of awareness amongst the apartment owners and AOA’s, most of the promoters have been able to delay-dally the handover process of the common areas and facilities, sinking fund and IFMS to the Apartment Owners Associations.

The Apartment Act casts liability of the formation of AOA on the promoter.  However, hardly any promoter comes forward to form the Association of Apartment Owners through a free, fair and legal process.   By means of this article, the author is trying to make aware the Apartment Owners and Apartment Owners Associations about the handover process of Common Areas and Facilities in FAQ form.

1. When to form Apartment Owners Association?

An Apartment Owners Association should be formed as soon as there is occupancy of 33% in the group housing (as per the U.P. Apartment Act, 2010) or occupancy of 60% as per U.P. Apartment (Amendment) Act, 2016.  Due to Section 2 of the Amendment Act, 2016, the author of this article is of the opinion that the 2016 amendments have not come into effect till date.  In Writ Petition No. 3791 of 2020 the Hon’ble Allahabad High Court had specifically enquired the State Government to bring on record the notification under Section 2 of the Amendment Act, 2016.  However, same could not be produced as such the Hon’ble Court granted stay in the petition where the registration certificate of an Apartment Owners Association was cancelled because the occupancy of the concerned Group Housing was less than 60% of the total apartments.  The builder had got the registration certificate of concerned AOA cancelled on the ground of occupancy of less than 60%, but the Hon’ble High Court stayed the order of the Registrar Societies after being prima facie satisfied that Amendment Act, 2016 has not come into effect

2. Why Apartment Owners should hurry for the formation of an Apartment Owners Association?

It is the statuary right of the Apartment Owners to maintain the common areas and facilities of their Group Housing by contributing common expenses without any profit for the Association.  The law has been made with the objective of not letting the promoter earn any profit from the maintenance of common areas and facilities.  The promoter is a businessman who will always try to make profits from the CAM charges collected by it from the apartment owners.  The longer the apartment owners will take time to form AOA, the longer the builder will be able to make wrongful gains (profits through illegal means like by deceiving another side) for itself and wrongful loss to the apartment owners.  Also, it is required to be mentioned here that it is the objective of the promoter to not to let go of the maintenance of the common areas and facilities of a group housing until and unless it has sold all the apartments and convenient shops in the project and then further delay the handover of the sinking fund and IFMS money.  The promoters are akin to the local provisions that the AOA can recover the IFMS and sinking fund by creating a charge on the unsold apartments of the promoter; as such, the promoters take every step to frustrate the formation of an independent AOA.

3. How to start the handover process once the Apartment Owners Association has been registered?

It is a great achievement for the apartment owners if an AOA is registered soon after occupancy of 33% of the apartments in a Group Housing.  The AOA should immediately after its registration through the office bearers should issue a letter/ notice to the promoter and the concerned competent authority notifying them about the registration of the AOA and about the effect of Section 14(5) of the 2010 Act which provides for the deemed transfer of common areas and facilities from the promoter to the AOA, and also inform therein that henceforth the AOA will collect the common expenses (CAM charges) in its bank account and demand the builder to hand over all the documents pertaining to the construction and maintenance of the project, the maintenance balance sheet, IFMS and sinking fund from the promoter through a written agreement.

It is to be noted that it is not necessary under the law that builder should through written agreement handover the common areas and facilities and right to collect the common expenses to the AOA because Section 14(5) of 2010 Act provides for deemed handover of such facilities. An AOA is the controller of common areas and facilities after its registration. Despite section 14(5) of 2020 Act, AOA’s unnecessarily request and demand the promoter for the handover of such facilities.  It is only certified copies of all the documents and IFMS and sinking fund money that is required from the promoter through written agreement but common areas facilities stand transferred by the effect of law.  It shall not be out of place to mention here that the AOA soon after its registration can change security provider and other facility management service providers as it has the right to do so.  The letter notifying the builder and competent authority about the formation and registration of AOA would be without prejudice to any other right, claim or interest of the AOA against the builder which may come into the knowledge of the AOA within two years from the date of the registration of AOA, and also for another two years in case of apartments which are handed over to the apartment owners post-registration of the AOA.

4. What documents are required to be taken from the builder at the time of handover?

As per Section 4(6) of 2010 Act, it is the obligation on the builder to handover the originals of the plans and documents to the AOA which shall include but not limited to following documents:

• Completion Certificate of the project
• Occupancy Certificate, if applicable
• NOC of the Fire Department issued just before the issuance of Completion Certificate
• All maps and map sanctioning letter of the Development Authority
• Permission of the State Level Impact Assessment Committee or as may be applicable
• NOC of the Pollution Control Board
• Sewage Treatment Plant Functional Certificate
• Rain Water Harvesting Plant Operational Certificate
• NOC from the Central Ground Water Board in case of any boring in the Group Housing
• Certified copy of the Deed of Declaration
• NOC from the Mining Department for the construction of the project
• Purchasable FARs, related payment receipt
• Earth Quake Resistance , related document
• NOC from Airport Authority
• Structural Design verified from IIT or equivalent
• Lease Deed / Sale Deed of the land
• Allotment letter of land
• Lease plan and dimension plan
• Land Possession Certificate
• Documents pertaining to registration for green building
• Soft copy of the drawings (checked and working)
• Name and address of the architect and contractor
• AMC documents of all equipment installed in the Group Housing and purchase bills thereof
• Any other document as per the project or advised by the handover consultant
• Affidavit from the promoter that it has made no alteration in construction of the project post issuance of the Completion Certificate from the Development Authority
• Affidavit from the promoter declaring that there is no encumbrances either of any of the apartment owner / buyer or on the land of the Group Housing project
• Affidavit that there are  no payment due against water charges, sewage charges and electricity charges as on the date of handover
• Affidavit that the electricity line/feeder has been laid as per the Electricity Supply Code

5. How soon the handover be taken?

The AOA should make an endeavour to take handover/takeover of the common areas and facilities, right to collect common expenses, right to issue NOC on sale and purchase of second-hand apartments in the same project, sinking fund and IFMS as soon as possible after its formation and must not delay it beyond a point where less than 5% of the total apartments are left to be sold by the promoter. This is as per section 14(5) of the 2010 Act.

6. How Association can secure handover of IFMS and Sinking Fund?

AOA can call a GBM and can create charge upon the unsold apartments of the promoter. Charge created whereof shall be equivalent to the IFMS and Sinking fund.  Such process are adopted under sections 20(1) and 20(2) of the 2010 Act and then IFMS may be recovered as land revenue through the competent authority and if in case the competent authority is not helping then a contempt petition may be filed before the Hon’ble High Court for non-compliance of the Hon’ble Allahabad High Court order dated 05.01.2021 in Writ (C) No. 13298 of 2020.

7. Whether electricity security deposit is taken back by the promoter?

It may be noted that the security money deposited by the promoter either to the electricity department or before any other department is a deposit out of the money collected from the buyers, as such the promoter has no right to claim security money deposited before any department for the construction of concerned Group Housing.

8. How to deal with CAM charges of apartment owners who may have paid advance CAM charges to the promoter?

The AOA should first demand the statement of account of maintenance of the concerned Group Housing from the promoter and at the same time it should also demand proof from apartment owners who may have made advance deposit to the promoter and compile independently such records.

9. Whether AOA can terminate the contract between the promoter and other service vendors post-registration of the AOA?

 The Association shall be within its statutory limit if it appoints new vendors for various services like security, housekeeping, book maintenance, etc. soon after its registration. As per U.P. Apartment Act and specifically under section 14(5) the common areas and facilities are deemed to be handed over to the AOA.

10. What would be the effect on non-payment of CAM charges by certain apartment owners to the builder before registration of the AOA or before the signing of the handover agreement?

 The AOA is not responsible either for collection or payment of any due CAM charges to the promoter which was left unpaid by any apartment owner before the date of takeover/handover of the common areas and facilities.

11. What if builder is not handing over the common areas and facilities and is delaying the handover?

The AOA’s must always keep in mind that it is in the interest of the builder the more it can delay the handover process because firstly it is making a profit by maintaining the society and secondly it is selling off its assets (apartments, shops, etc.) which may be used by the AOA to create a charge to secure IFMS and sinking fund. Experience has shown that builders don’t handover until and unless it has sold all its inventories.

12. What role does competent authority (NOIDA, LDA, GDA, etc.) play in the handover process?

 The competent authorities like NOIDA, GDA, LDA have been conferred wide powers under the 2010 Act. Firstly, for conciliating the disputes between the AOA and builder and if in case the conciliation fails then the competent authority has the power to adjudicate the issue and pass the order on merit (Vide U.P. Apartment Act, Designarch case, Shipra Srishti Apartment case).

13. Whether the Shops in Group Housing are Common Areas and Facilities or Commercial?

As per Building Bye-laws of various Development Authorities and U.P. Apartment Act there can be no commercial establishment on a plot land use whereof is residential.  However, a Group Housing on land having mixed land user can have commercial establishments like shops.  In a Group Housing over a land having residential user (either as per lease deed or zonal plan), the shops shall be convenient shops only.  The promoter can declare the shops either as independent area or common areas but such deed of declaration should be made before sale of the first apartment in the complex.  The promoter has no liberty to submit deed of declaration as per its whims at any stage.  It should be noted that as per the Designarch judgment dated 14.11.2013 (para 66) a promoter cannot claim any independent area in the projects which were ongoing as on 14.11.2013 if deed of declaration was not submitted within 90 days from the date of order i.e. 14.11.2013. As such in case a Group Housing project of the concerned AOA was under construction as on 14.11.2013 and the promoter submitted deed of declaration 90 days after 14.11.2013 then the promoter is not entitled to claim any independent or limited common areas as he has been disentitled from claiming such independent area by the Hon’ble High Court.  Under such circumstances, an independent area declared by the promoter shall become common area and shall vest under AOA. The Ghaziabad Development Authority gad even issued public notice disentitling promoter from claiming independent and limited common areas in group housing projects of defaulting promoters. The Notices issued by the GDA are shared below 1st notice is dated 17.12.2013 and 2nd notice is dated 29.03.2014.