The impact of Covid-19 on RERA 2016 was known when the World Health Organization declared this disease as a pandemic on 11th March 2020. As it was a situation completely unpredictable wherein everyone was restricted to their homes, many sectors were affected adversely including the Real Estate due to the sudden declaration of pandemic. Along with these sectors many contracts and agreements had to bear the impact due to non-performance of such obligations and applicability of the Force Majeure clauses.
Force majeure event is regarded as an event which is not avoidable or out of the hands of humans, such as “act of God”. Some of the common examples of Force Majeure events are floods, tornados, earthquakes, landslides and it may also include man made events such as terrorist attacks, wars etc.
When the pandemic was struck, the real estate promoters had to abide by their contractual obligations made to their allottees and along with these obligations, there were certain statutory responsibilities imposed by the Real Estate (Regulation and Development) Act 2016 which were supervised by the Real Estate Regulatory Authority of every state respectively.
The main objective of the central legislation Real Estate (Regulation and Development) Act 2016, is to bring uniform categorized platform for the Real Estate sector wherein all the issues regarding the Real Estate sector can be brought in and solved rather than filing suit before the District Courts. The Act also aligns the interests of allottees and promoters within its ambit.
The Act aims at providing speedy justice and relief to its aggrieved parties, mostly the allottees due to the actions of the buyers or promoters. The common reliefs provided under the RERA are refund for delayed possession by the builder, breaking monopoly of builders, dispute resolution, amending the one-sided terms of the contract between allottees and buyers. The current situation of force majeure has taken a serious hit on the real estate market and hence there are certain changes and relaxations granted by RERA to the affected parties.
Impact of Covid-19 on the Real Estate Sector
There has been grave impact on the Real estate sector since the world went into pandemic zone wherein no one was allowed to step outside their homes, unless it was for essential goods. Many of the sectors shifted to online modes, but real estate is one of those unfortunate sectors which cannot move online, as the entire work is on field. Some of the effects of covid-19 over the sector are-
- The date of possession given between the lockdown periods had to be shifted due to non-completion of work in flats and buildings and no compensation could be granted to the allottees for their extended period, as the builders were facing huge losses.
- The under construction flats got further delayed due to non-availability of labour, materials, transportation problem, working on half work force etc. Many restrictions and policies were introduced even after the lockdown phase, which led to slower pace of work.
- India is a labour intensive, but majority of the labour force got displaced and returned to their native places during lockdown and refused to come back, as there was no surety with regard to safety measures taken after the pandemic. Apart from that, multiple government schemes such as MNREGA, PM Gareeb Kalyan Anna Yojana provided for the basic needs of such labour force or the time being and hence they would not risk their lives, by moving again to different cities for earning livelihood.
- The real estate sector was already financially stressed and with pandemic, it led to further downfall of liquid funds among the buyers as well as the allottees or future buyers.
- The prices of the stocks available with the builders will be lowered for fetching liquidated funds for their forthcoming projects in the plan.
- The liquidity of the builder is further at stake, because prior to the pandemic the allottees wither opted for full refund along with interest amount or opted for delayed possession along with compensation amount. But post pandemic people are not in favour of moving to different houses and would ask for full refund with interest affecting the liquidity of builders.
- After experiencing the lockdown and pandemic situation, people (prospective buyers) have got reluctant to book under developing projects, as they are afraid of delayed possession and prefer ready to move in flats or houses.
- Even after the situation normalizes, it will take time for the real estate market to surge the economy as the resources will take time to come back to its ordinary form of working, the restrictions will also be lowered one after the other. Due to this, the builders will again be penalized for delay in possession which will have negative impact on the sector.
Hence, these were the impacts of Covid-19 on the real estate sector, and how things will take time to get back on track and normal functioning.
Is Covid-19 a Force Majeure event under RERA?
It has been the primary question of discussion, that whether Covid-19 will be considered as Force majeure event under the RERA 2016. Section 6 of the RERA envisioned the force majeure condition and stated that registration granted may be extended by the Authority on an application made by the promoter in case of force majeure event. The section was further explained stating that expression “force majeure” will include a case of war, flood, fire, drought, cyclone, or any other calamity which is caused by nature affecting the regular development of the real estate project.
So, even though the explanation does mention “other calamity caused by nature” it doesn’t specify or define the meaning of “calamity” in the Act anywhere. However, the Ministry of Finance had considered Covid-19 as natural calamity and recognized the pandemic as force majeure event. But Section 6 will not be invoked immediately after the declaration of pandemic, the promoters shall make an application to the Authority for extension of registration.
Although, there are certain states mentioned below, who took the current situation into consideration and affected the construction work adversely and permitted certain allowances and delay in possession. They are-
In order to save the efforts of government and ensure the completion of MahaRERA registered projects, the MahaRERA decided that for all the registered projects where the completion date, revised completion date or extended completion date expired on or after 15th March 2020, the period of validity for such registrations shall be extended by 3 months.
Further, all the time limits for the compliances of RERA 2016 and rules and regulations made thereunder which were due in March or April or May 2020 will be extended to 30th June 2020.
The Karnataka Real Estate Authority has vide its circular dated 4th April 2020, passed orders for extension of the period of validity for registration of such projects by period of 3 months where completion date, revised date, or extended completion date expires on or after 15th March 2020 and simultaneously extended the time limits of all statutory compliances of RERA which were due in March or April or May 2020.
- Tamil Nadu
The circular dated on 6th April 2020, TNRERA has extended the completion period and the registration validity for 5 months from 15th March 2020 and the statutory compliances of RERA dated from March to June 2020 were shifted till September 2020.
The Gujarat Real Estate Authority has permitted the promoters of the projects with the completion date from 1st April 2020 and 31st March 2021, to apply for extension of their project end dates. The application fee for such registration was also waived by the Gujarat RERA due to pandemic conditions and for benefit of builders. Even the submission of quarterly project reports and project end compliances as per the Gujarat RERA was extended till 7th May 2020.
Hence, these were some of the states where the State RERA had actively given extensions to the builders as per the need of the market and it should be noted that the Act makes provisions for extension of registration under Section 6 of the Real Estate Regulatory Act 2016, in case of Force Majeure event but the provision doesn’t mention anything with respect to extending of the timelines committed to an allottee by the builder for handing over the possession of any flat or unit. It doesn’t mention about the extending timelines for payment of the purchase price by the allottee.
Moreover, the extension of registration in terms of Section 6 of the Act doesn’t affect the terms of agreement or contract that is entered by the promoter and allottee and commitments made in such agreements shall be adhered to by both the parties against each other.
Recent trends and developments in the RERA
There are certain trends and developments seen in the RERA post the pandemic situation. For instance around 48,000 cases were filed with the RERA Tribunal were solved after the inception of UP RERA coming into action. The working of every state RERA has been speedy, but the execution part of the judgment still lacks.
Then there were many judgments from the judicial authorities rectified their mistake of one-sided terms of the builder buyer agreement which favored the builders more, and used it to harm the allottees.
The allottees have regained their faith in judiciary after the advent of RERA and Adjudicating Authorities as speedy justice and relief is being granted to the aggrieved allottees against the intimidating builders.
The Alternate dispute resolution system introduced via RERA 2016 has made it easier for the allottees to opt for redressal before the Real Estate Regulatory Authorities rather than filing suit before the courts. And in the present scenario, post pandemic virtual hearings have taken place to help out the allottees by providing them with relief. The concept of virtual hearings has led to safety as well as justice in the best way possible.
The government even amended the definition of Epidemic disease through the Epidemic Diseases Amendment Ordinance 2020, this amendment was sought after 123 years from the enactment of the Act. Lastly, covid-19 was considered as the Force Majeure event for the execution of contract post the covid-19 crisis, under the pretext that the force majeure clause was mentioned in the agreement or contract of the parties.
Therefore, real estate is one such sector which was struck hard by the pandemic and the fact that it cannot be shifted to online mode of work, was one of the biggest limitation of this sector. Everything came to a standstill when the lockdown was proposed in the nation. In order to surge the real estate market, there are some areas which should be focused upon.
The builders should try and bring maximum labour back into the sites by providing them extra wages and incentives, along with safe working conditions and proper security. As stated above, the promoters and builders will be given reasonable extension periods to complete their incomplete sites. But if the delay is beyond that reasonable extended period, then the builders will be held liable for compensation to the allottees and if they are able to give their allottees houses within the stipulated time, then it might help the builders achieve their client’s trust back.
It is suggested that RBI should lower their repo rate and make it mandatory for the banks to pass these benefits to the customers who might show their interest in the real estate again with the backing of banks. Liquidity among the allottees is essential, because if there will be no increase in the demand then, supply will automatically drop. This will further lead to depletion of real estate sector.
RERA has given certain relaxations from the compliances for residential projects and waived the repayments such as interest components to the builders in order to retain the liquidity of builders and developers for 3 months and thereafter as per the specific requirements of the projects. There should be classification of stressed projects from the stable ones and accordingly the lending rate should be fixed as per the working condition of such projects.
This article is authored by Rhea Banerjee.