Appointment Of Project Management Consultant

v     An appointment letter to Architect and Project Management consultant.

The Secretary of the society will give within 15 days from the date of Special General Meeting the appointment letter to the Architect and project management consultant. The Committee will enter into contract, based on the terms and conditions and scope of work approved by special general meeting with Architect and Project management consultant.

v     The initial work to be undertaken by architect /Project management consultant.

(a)    To survey the land and building of the society.

(b)   To obtain the information as to conveyance of the Land & Building in favour of the society.

(c)    To obtain information about availability of FSI/TDR based on the prevailing Rules and Regulations of Government and as per type of ownership [of Land, Rules and regulations of MHADA/SRA/BMC if the Land is under these categories.

(d)   To prepare a realistic feasibility report, after considering suggestions, recommendations, objections and directions of members of the society made by them in special General Meeting, giving details of availability of areas available for residences commercial, open space, garden, parking and specification of construction of Building.

(e)    The Project Management consultant/Architect to submit within two months from date of their appointment, the Report to the committee of the society.

v     Work after obtaining Feasibility Report of Redevelopment of Building.

(a)    In receipt of the feasibility report, the Secretary of the Society shall convene a Special General Meeting, of the members to consider the Feasibility Report of Architect/Project Management Consultant. Notice in respect of the afore said meeting indicating the date, time and place, shall be displayed on the Notice Board of the society. It may be circulated to all the members. The said notice shall also intimate to the members that the copy of the said report is available at the office and the said report shall be kept for inspection in the office for 8 days before the date of the special General Meeting. The notice intimating availability of report shall also invite suggestions on the report within eight days of the date of notice. The acknowledgement of notice by members shall be kept in the office of the society.

(b)   The Secretary of the society shall send seven days before the date of joint Special General Meeting, suggestions received from members to the Architect / Project consultant for their consideration.

(c)    At the abovementioned joint Special General Meeting of members, architect and project consultant, there shall be an over all consideration of suggestions and recommendations of members. The opinion of the architect shall also be considered. Any required changes shall be made and approved. The Special General Meeting shall approve the Feasibility Report by the majority. The Special General Meeting shall fix the date, time and place of the meeting for considering and finalizing the tentative draft of tender and notice of tender. The Special General Meeting will direct competitive tenders to the Architect and Project Consultant in which emphasis shall be placed on carpet area, corpus fund and other technicalities. Tender shall be invited from well-known experts and experienced developers. Members may give names of developers at the meeting. The Secretary will obtain a detailed report from the architect and Project Consultant on the tenders.

v     To display List of tenders

(a)    The Secretary shall display on the notice board the list of tenders received on the last day of date of receipt of Tenders.

(b)   15 days after the last day of receiving tenders, the secretary of the society shall be allowed to remain present at the meeting where members of the society who so desire may remain present the meeting as observers. Received tenders shall be opened at the meeting in the presence of Architect/project Consultants and/all within mentioned persons present at meeting. The Architect Project, Management Consultant shall scrutinize all the received tenders and prepare a comparative table, which shall provide details of bidders who have bid in the tenders, their quality, reputation, experience competitive rates with other terms and conditions offered by them. Out of these bidders, if they are more than, at least 5 or less than 5 if they are less the 5 bidders, the bidders shall be short listed from all the bidders who have made bid in the tenders. They shall be presented the Special General Meeting for approval at next Special general Meeting the short listed bidders shall be invited to this meeting.

Convening Special General Body Meeting - Part-II

Part II

As directed in Previous Blog, within 8 days of the receipt of the Requisition Notice from the members, the Secretary of the Society shall convene a meeting of the managing Committee to take note of above notice and shall convene within one month a special General Body Meeting and send the said notice with Agenda to all the Members with 14 clear days notice in advance. Their acknowledgement receipt for the notice and Agenda shall be kept in the office of the Society.

Before convening the Special General Body Meeting, the Managing Committee of the society, shall obtain the panel of Architects and project consultants prepared by State Govt. or local self Govt. and call 5 Architects project consultants from the said panel who are well conversant with re-development and building and experts in the field with a request to prepare a Redevelopment Project Report and submit quotations to the society. The said quotations and Project Reports shall be kept before the special General Body meeting.

The following Agenda shall be discussed in the Special General Body Meeting and the decision shall be taken on the following various issues.

(a)    To take primary decision on redevelopment after considering suggestions and demands of members.

(b)    To appoint an expert and experienced Architect and Project Management Consultant (PMC) from the panel of State Government/Local Government and to finalise the scope of their work with the terms and conditions of their appointment.

(c)    To outline in detail the working procedure, in respect of Redevelopment of the Societies buildings.

     To receive written suggestion regarding the redevelopment of the Building.

The Members can submit to the committee their suggestions and recommendations for the project and also the names of known expert Architects and Project Management consultants eight days before the date of the meeting. However, these names shall be from the panel prepared by the Govt. /Semi Govt. / Localised/Govt. who shall have then” letter of consent of willingness to work for the project”.

     Decision to be taken at special general body meeting

Quorum for the special General Meeting shall be ¾ of the total numbers of members of the society. If there is no quorum the said meeting shall stand adjourned for eight days and the adjourned Meeting shall be convened accordingly. If there is no quorum at the adjourned special General Meeting it shall stand dissolved assuming that members are not interested in the redevelopment of the society’s building.

If there is requisite quorum present at the Special General Meeting as directed above, the meeting shall take congnisance of all suggestions and recommendation objections and directions given by the members for redevelopment of the building. They shall be recorded in the Minutes of the Special General Meeting with their names. The Special General Meeting, thereafter will take primary decisions in principle regarding the redevelopment programme and its implementation by passing a resolution by ¾ of the majority of the members present at the meeting. After passing the resolution as said herein, the special General Meeting shall decide issue as under:

(A) To finalise terms and conditions along with scope of work for appointment of an Architect and Professional Project consultant from the panel of State    Govt./local self Govt. who will be entrusted with re-development work.

(B)  To present programme for redevelopment of the building to the members.

     Proceeding of Special General Meeting

The Secretary of the Society will prepare the proceeding of the Special General Meeting and will circulate copy of the said proceeding to all members within 10 days. He shall keep the acknowledgement of members in the office for receiving minutes. Copy of the same shall be sent to the Registrar’s office of Co-op. societies of the concerned ward where the society is registered.

English Version of Directive under section 79A of the MCS Act and Rules Housing Societies in Maharashtra by Chief Secretary Co-operation Government of Maharashtra

Part I

Maharashtra Government Order No SAGRUTO 2007/case No.554/14 (s) Co-Operative Marketing and Textile Division. Dated 3^rd Jan. 2009.

Whereas the – development of building belonging to Co-operative Housing Society is in progress on large scale in the State of Maharashtra, there are a large number of complaints received from the members in respect of the management. The nature of the most of the complaints received in respect of redevelopment of building of housing societies are as under:

1.         The members are not taken into confidence in the process of redevelopment.

2.         No transparency in the process of Tender.

3.        Arbitrary appointment of Architect.

4.        Gross Violation of provisions of MCS Act, 1960 and Rules, 1961.

5.         No Coordination between Architect & Project Consultants.

6.         No planning in process and Redevelopment.

7.        No proper method is being followed while finalizing the Tenders.

8.    No uniformity in contracts entered into with developer.

Whereas there is no uniform and firm policy in deciding the above complaints and at different levels and to deal with various complaints received, in order to have a consultation with the respective authorities working in the field, the Commissioner for Cooperation and Registrar of Cooperative Societies Maharashtra State, Pune has appointed a study group under the chairmanship of joint Registrar Coop, Society. CIDCO. The said study group in consultation with all concerned in the field unanimously opined that there should be guiding Rules for re-development of building of co-op. housing societies.

Therefore as per the section 79 A of the MCS Acct, 1960, the Government has passed the following order in respect of redevelopment of buildings of co-operative societies. It shall be treated as “Co-operative Housing Societies Building Redevelopment Directives.”

     Demand for a special General Body Meeting

Note of suggestions and implications of the said project and to take members not less than ¼ of the total numbers of members of the cooperative Housing Society must give a requisition notice for convening a special General Body Meeting of members to the secretary of the society and the Managing Committee duly elected and constituted as per byelaws of the Co-operative Housing Society to consider aspect of redevelopment of building of the co-operative. Housing Society after taking policy decisions on various terms and conditions about the redevelopment of building of the society.

Redevelopment of Building/s by Landlord

v     General

A landlord may consider redevelopment of existing cessed building/s to his advantage and in turn tenants/ occupiers will also get benefit. If the landlord has his own resources both financial and technical he can embark upon redevelopment on his own. The landlord may give a right of redevelopment of the building/s which is in dilapidated condition with the right to sell additional units. The landlord may be an individual/s, an HUF, a partnership firm, a company or a trust. If the landlord is a Public charitable trust it has to get permission from the Charity Commissioner. The advantage to landlord (co-operative housing society), developer and tenants/occupiers (members) are almost the same as discussed in the first chapter. The tenants/occupiers may from their association to get the best out of redevelopment arrangement and protect their rights. The association may be registered.

v     Development with authority to sell

Here the landlord enters in to an agreement with the developer for redevelopment of the property with an understanding that the present tenant’s occupiers will get the same area in the newly constructed building as they were occupying in the building prior to redevelopment or may be some extra area. The developer gets right of sale (on ownership basis), of additional units/flats in the redevelopment building/s. the land with newly constructed building will be conveyed directly to a co-operative housing society on completion of the project.

v     Right and obligation of a developer

A developer has rights as well as obligations qua the owner as well as qua the flat purchasers in an arrangement was the property to be developed remains the property of the owner in the records and the developer develops the property even though the ownership of property in government records remains unchanged.

v     Qua the purchasers/society/company

As stated earlier, in a development agreement the owner agrees that the developer shall construct the building(s), sell the flats and property will be conveyed by the owner and the developers (as confirming party) to the purchasers or the Society/Company formed by them. A question arises as to the legal position when the developer raises money from the intending purchaser, must perform the same duties and is subject to the same liabilities and disabilities as if he were a trustee of the property for the person for whose benefit he holds it.

Further, the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, sale, Management and Transfer) Act, 1963 (MOFA) defines ‘Promoter’ in wide and explicit terms to include the lessor who constructs or causes to be constructed the building which includes a developer or builder of flats for the purpose of selling them to other persons. The provisions confer a fiduciary capacity or fiduciary obligation on the promoter for the benefit of the flat purchases. Therefore, when an owner or developer decides to develop a property by construction, propose to sell flats on ownership basis and ultimately to convey it to the Society/Company, the owner or developer, as the case may be assumes a fiduciary capacity at the time of entering into an agreement for the sale of flats and receiving consideration from the flat purchasers.

v     Document with tenants/occupiers

An agreement is entered into between the landlord and tenants/occupiers in individually wherein all the terms and condition are given. The tenants/occupiers have to surrender their flat/unit to the landlord or his nominee for redevelopment. The tenants/occupiers will get alternative accommodation/rent for the period until the new flat/units are ready for occupation, the actual area plus extra area if agreed etc.

Stamp Duty

      Stamp Duty

In redevelopment there are two modes of consideration (a) Extra Space and (b) Alternative accommodation attracts stamp duty.

      (a) Extra Space

When a building is redeveloped, stamp duty equivalent to 1% of total market value of the property has to be paid for additions made to the existing structure. This means members of the redeveloped building of a society, who have received a little more apace in the “extra space” given by the developers while using TDR. After payment of the stamp duty, the same is required to be registered with the Sub-Registrar on a payment of 1% of the market value or Rs.30,000 whichever is less. The current Ready Reckoner available determines the market value.

The above provision for payment of Stamp duty is provided in Article 5 Schedule 1 of the Bombay Stamp Act, 1958 introduced w.e.f. 7.2.1990.

Further as per Article 48(g) of Schedule 1 of the Bombay Stamp Act, 1958 the P.O.A. attracts Rs.100 Stamp Duty to be paid if the Stamp duty on the development agreement is paid appropriately.

      (b) Alternative Accommodation

The agreement for alternative accommodation between the builder and the flat owners also attracts Stamp Duty as per Article 25(d) of the Schedule 1 of the Bombay Stamp Act, 1958.

[A] For the area given by the developer equivalent to the area owned prior to redevelopment the cost of construction provided in the Ready Reckoner will be considered at the market value.

[B] For any additional area given to the member the market value will be calculated as per the Ready Reckoner value or the consideration of old area provided in the Ready Reckoner.

If an old building (built prior to 1940) in Mumbai city is redeveloped, stamp duty up to a maximum of 5% is levied on the capital value calculated based on the cost of construction plus 100 months rent. If a building in the suburbs is redeveloped, the stamp duty as per the current market rate registered in the Ready Reckoner is calculated on the extra space provided by the developer in each flat. The Bombay Stamp Act, 1958 has provision for a duty of 1% of the total value of the property redeveloped. The duty is liable to be paid as per the agreement between a builder and the housing society. This duty is in addition to that for the existing structure.

Note: A recent amendment, the Bombay Stamp Duty Act provides for levy of 5% Stamp Duty on Cost of Immovable Property mentioned in the Power of Attorney and also 5% duty on the Development Agreement between the Builder and the land owner.

      Property Tax

The tax is based on what is known as ‘Rateable Value’. The parameters for the same are decided by the B.M.C. for new flats, current rateable value will be applied, which is bound to be much higher than the former rateable value and consequently the property tax will be higher.

      Permission to builder for construction of additional floors

As per Sections 45 and 48 of Income-tax Act, 1961, the amount received by a society from the builder for permitting him to construct additional floors on existing building of the society by utilizing TDR/FSI belonging to him is not chargeable to tax since there is no cost of acquisition to the society. Om Shanti Co-operative Housing Society Ltd. V. ITO ITAT ‘C’ Bench, Mumbai

Cessed bldgs in island city to get 2.5 FSI

Ref: TOI Dt:16/07/2010

Mumbai: Cessed buildings in the island city falling under Class C (constructed after 1960) will get the benefit of 2.5 floor space index (FSI). There are 1,270 such buildings. The decision was taken at a meeting held by chief minister Ashok Chavan in Vidhan Bhavan on Thursday. 
    The government will have to make amendments to the development control rules and the Mhada Act as well. There are 16,104 cessed buildings in Mumbai. Of these, 13,307 are in A category, 1,474 are in B category and 1,270 are in C category. 
    At present, the old cessed buildings in category A get 2.5 FSI or they have to accommodate the old residents which form rehabilitation component and get incentives FSI ranging from 50% to 70% of the area rehabilitated, whichever is higher. 
    In case of B Class buildings, the developer does not get much. He has to rehabilitate the old tenants and gets the incentive FSI of the 50 to 70% of the rehabilitated area. 
    In C Class, the FSI is just 1.33 per cent. 
    “However, many of them were constructed in a period when there was a cement shortage. The average life of any building in Mumbai is about 40 years and these buildings have detoriated. Hence it is very essential to give them the benefit. The CM has decided to include C class buildings in 33(7) scheme,’’ said a senior state official.

Corpus Fund

Most of the redevelopment agreements provide for the payment of ‘corpus fund’ by the developer to the society for meeting the further cost of maintenance of the flats owned by the members. This ‘corpus fund’ absolves the members from payment of the maintenance in future. This fund is paid by the developer as a consideration for the grant of the development rights .

  Members

·         Under a typical redevelopment arrangement, a developer agrees to provide the following to each of the members of the society:-

(a)    Temporary Alternative Accommodation- TAA or rent

(b)   Compensation for inconvenience

(c)    Funds to meet municipal tax liability in future

(d)   Permanent Alternative Accommodation-PAA

(e)    Additional area

(f)    Compensation for furnishing

(g)   Provision of household amenities

·         The tax incidence of each of these receipts in the hands of the members requires consideration. One view of view of the matter is that everything that is received represents the consideration for the permission to develop and therefore, will from part of the sale consideration in computing the capital gains. The other view is that each item should be considered independently for deciding the incidence of tax thereon.

·         The receipt of TAA, free of cost, during the period of development allows the member to reside therein without incurring any expenditure, out of pocket, which he would otherwise have been required to meet for his residence. This benefit flows from the agreement for development and therefore apparently is construed as a part of the consideration and may be taxed as the capital gains, provided a ‘transfer’ by the member is presumed.

·         If the same is treated as a substitution for personal expenditure, it may treated as it would have been in the nature of revenue income.

·         The other possibility is that the same be treated as compensation received for putting up with the inconvenience during the period of development and may be held as a capital receipt not liable to tax. The case for tax free receipt is stronger in a case where the members continue to reside in the same premises while additional construction is taking place over the existing building and the members receive compensation for putting up with the inconvenience.

·         The treatment shall not be different where the members receive the rent in cash for TAA and make their own arrangement for residence during the development period. An added issue in this alternative is the possibility of deduction for the rent paid out of the said rent received and the treatment of balance, if any. 

·         To pay the maintenance charges of the new premises is the obligation of the member. This obligation is sought to be met, fully or partly, out of the income of the corpus fund received from the developer. This corpus fund or a lump sum amount, received directly, by the member becomes the absolute property of such member with complete right of disposition over such property. This property is received under the agreement for grant of development rights and therefore should from part of the consideration received for transfer of such rights provided a transfer by the member is an accepted position.

·         Ordinarily in a scheme of reconstruction, a member receives the new premises in the reconstructed building in place of the old premises in the old building. The rights of the developer to demolish the old premises and of the member to receive the new premises are recorded in an agreement for grant of the permanent alternative accommodation. A question that arises for consideration is the liability to capital gains tax on such a transaction. The transaction shall be regarded as a transfer in as much a it involves surrender of a capital asset or rights therein for a valuable consideration. Accordingly, the capital gains will have to be computed as per the provision of sections 45 to 55 of the Act. The other view is that no transfer takes place on such a transaction. The member continues to be owner of the premises and that no transfer takes place, in view of the fact that the new premises represent nothing but the reconstructed premises without involving any transfer of ownership of the old premises to the developer.

·         The position will not be different even where the member receives a large area in the new premises, provided the view that there is a transfer is accepted.

·         The related issue concerns the eligibility for exemption u/s 54, on account of reinvestment of the said capital gains. The benefit of s. 54 shall surely be available subject to compliance of other conditions of the said section, including the requirement relating to purchase within the prescribed period and of the holding of the new premises, again for the prescribed period. In case of surrendering the commercial premises, the possibility of the benefit u/s 54F may be explored where the new premises happen to be residential premises. Genuine difficulties may arise for transfer of residential premises in consideration of the new commercial premises, in cases, where the old premises were not used for commercial purpose.