Blanket extension to Real Estate Projects in light of COVID-19 pandemic: Ex facie arbitrary and untenable in law

The Ministry of Housing & Urban Affairs, Government of India, vide an office memorandum dated May 13, issued an advisory for extension of registration for real estate projects due to “Force Majeure” under the provisions of Real Estate (Regulation & Development) Act, 2016 [RERA Act].

The office memorandum states that the registration of all real estate projects whose completion date, revised completion date, or extended completion date expires on or after March 25, 2020, may be automatically extended by 6 months with a further extension of 3 months. It also provides for extending the timelines for statutory compliances under the RERA Act.

The reasons stated to substantiate this decision are the COVID-19 pandemic, the nationwide lockdown since March, the reverse migration of labourers, and the break in supply chain of various construction materials.

The memorandum states that a meeting of the Central Advisory Council constituted under the Act was held on April 29 and various recommendations given by the Council were accepted by the ministry and thus implemented in the office memorandum. The memorandum also states that the regulatory authorities of Maharashtra, Tamil Nadu, Uttar Pradesh and Gujarat had already granted extension to real estate projects by 3 to 5 months.

It also states that the Ministry has come to the decision to extend registration after taking into account the interests of various stakeholders. However, this decision, on the face of it, seems to be a result of lobbying and pressurizing. mainly by the real estate developers’ associations. The real estate sector is already reeling under tremendous strain due to great backlog in completion of projects and unsold inventory due to exorbitant prices coupled with the slowdown and decreasing consumption in the Indian economy.

On many fronts, the real estate regulatory authorities are lagging behind in execution and implementation of the orders passed in many disputes. This has led to a lack of confidence in the dispute resolution process as conceptualized under the Act.

There are many consumers (“allottees” as defined in the Act) who have still not received the possession of their apartments even after a substantial amount of time has passed after the promised date of completion. Standstill projects have compounded the problems of the developers as well as the consumers, since the interest-cum-compensation payable to the consumers for delayed possession is often not met by the developers due to a crunch in liquidity.

Now, it would be apt to analyze the advisory issued by the Ministry of Housing affairs in light of Section 6 of the Act. Section 6 of the Act provides for extension of registration of real estate projects which are registered under Section 5 of the Act. It would be beneficial to reproduce the section here:

“6. Extension of registration

The registration granted under section 5 may be extended by the Authority on an application made by the promoter due to force majeure, in such form and on payment of such fee as may be prescribed:

Provided that the Authority may in reasonable circumstances, without default on the part of the promoter based on the facts of each case, and for reasons to be recorded in writing, extend the registration granted to a project for such time as it considers necessary, which shall in aggregate, not exceed a period of one year:

Provided further that no application for extension of registration shall be rejected unless the applicant has been given an opportunity of being heard in the matter.

Explanation. – For the purpose of this section, the expression “force majeure” shall mean a case of war, flood, drought, fire, cyclone, earthquake or any other calamity caused by nature affecting the regular development of the real estate project.”

The section clearly states that the extension is to be granted only on an application by a promoter and not suo motu or automatically, as stated in the advisory. The proviso to the section further provides that the extension has to be granted to a project based on the facts of each case. This is very important, as the proviso clearly lays out that the extension cannot be a blanket extension or across the board but should be specific and peculiar to every individual project.

The explanation to the section provides the contours in which the expression “force majeure” is to be understood and applied. Whether the COVID-19 pandemic falls under the expression of “force majeure” is a matter of discretion of the authority and cannot be decided based upon the advisory or directions of the Central Advisory Council formed under the Act.

The section clearly contemplates that granting an extension is a discretionary power of the authority. The power is to be exercised keeping in view the application made by the promoter and the facts of each case. Thus, even a cursory reading of the section gives us an impression that the advisory issued is ex facie arbitrary and not tenable as per Section 6 of the Act.

There is one more catch in the advisory which has been overlooked. It states that those projects that have received revised completion date or extended completion date for their registration are eligible for registration. This flies in the face of Section 6, which states that extension for a project shall not exceed one year. So, if a project has already received an extension of 1 year and if that project again receives suo motu extension as stated in the advisory, it would be patently untenable in law.

Now let us see the reasons given in the advisory for the extension in registration of the real estate projects. The main reasons are the nationwide lockdown, the reverse migration of labourers and break in supply chain. These reasons seem to be unconvincing.

The advisory states that projects which would be completed on or after March 25 are eligible for this extension in registration. The nationwide lockdown was initiated on March 25. Till the end of March, there was neither break in supply chain nor any reverse migration of labourers. Thus, the human capital and material supply was uninterrupted till this date.

Moreover, a project which would near completion in March would be substantially completed and the adequate contracts for the completion of the project and the materials required for the completion would be taken care of. Thus, it makes no sense to give suo motu extension to projects which would be completed in March. It would only add to the misery of the consumers who are facing delay in possession of their apartments and would be a handy excuse on the part of the developer to not meet his obligations.

Another important question surrounding the extension of registration of real estate projects is one which deals with compensation as conceptualized in Section 18 of the Act. This section provides that an allottee (consumer) is entitled to receive interest for every month of delay in handing over the possession of the apartment by the developer and is also entitled to withdraw from the real estate project.

Now, would the extension granted to real estate projects deem that this period of extension would exclude the period to be calculated for delay in possession? If answered in the affirmative, it would be detrimental to the rights of the consumers, as they would have to suffer both delay in possession of the apartments as well as lesser compensation.

The Ministry of Housing Affairs, through its advisory, seems to be piggy backing on the COVID-19 pandemic to salvage the strained real estate sector at the cost of consumers.

The author is an Advocate practicing at the Bombay High Court.