Wednesday, July 15, 2015

JOINT VENTURE IN DEVELOPMENT AND CONSTRUCTION OF BUILDINGS




Urbanization has accelerated migration of people to the nearby cities in search of jobs and other means of livelihood. This increased influx of population to the cities has in turn caused the paucity of residential accommodation. The employees prefer to have accommodation near to their job centers to avoid wastage of time in commuting, resulting in vertical growth of city instead of lateral growth. Vertical growth saves lot of land and can accommodate number of families in a small space. But, vertical development of land requires heavy investment; which led to joint venture.


Joint venture is joining of hands. The dictionary describes the joint ventures as “a business activity by two or more people or companies working together”. In land development also, two or more people or companies work together.

As stated above, vertical development of land comprising number of flats requires lot of money, manpower, expertise and experience which an individual cannot undertake. Many a times, the owner of the land may own lands, but may not have funds to fully exploit its potential. Similarly, the builder/ developer who have the resources may need land to employ his resources profitably. Both the owner and developer join hands to develop the land. In order to avoid disputes, misunderstandings in working, both the parties reduce the terms and conditions into writing. This is called ‘Joint Venture Agreement’.

Unlike construction of independent house, the group housing or construction of apartments is more complicated. It requires approval from various agencies like water supply board, sanitation department, power supply board, Airport Authorities and of course  approval of plans. The project requires to be approved by banks for finance. Joint venture agreements clearly earmark the duties and responsibilities for each of the parties. 

In order to avoid huge amounts to be spent for the procurement of the property, the developers venture jointly with land owners through joint venture agreements, develop the property and hand over certain number of flats to the land owner. The number of flats / apartments given to the land owner depends on the prevailing market value of land in that area at the time of project commencement. 


The developer or builder enters into an agreement with the owner of the land and it is known as Development agreement or Joint Development Agreement or Joint Venture Agreement. An immovable property for development may be either vacant land or land with structures thereon.

A developer or builder enters into an agreement with the owner for purchase and development of the land. The development agreement contains obligations and rights of land owners and builder, like obtaining statutory permissions, ratio of sharing the developed property between owner and developer, process of finding prospective purchasers and funding the project, time duration of completion and penalties for violation.

WHAT CONTAINS IN THE J V AGREEMENT?

The agreement contains the particulars like the liability of the promoter to construct it as per the approved plans and specifications approved by the local authority; possession date, price to be paid by the purchaser and the intervals at which the installments for the full payment are to be made specifying the stages of construction; the precise nature of the body to be constituted of the persons who would take the flats; details regarding the common areas and facilities specifying the percentage of undivided interest in the common areas and facilities appertaining to the apartment agreed to be sold; a statement of the use for which the apartment is intended; the copies of the title certificate issued and a copy of the approved plans and specification, a list of fixtures and amenities including provisions for lifts to be provided/provided for the flat to be sold should be attached to the agreement. 

A promoter, while he is in possession, and where he collects from persons who have taken over flats or are to take over flats, sums for payment of out goings even thereafter, has to pay all out goings until he transfers the property. The outgoings would include ground rent, municipal and other local taxes, taxes on income, water charges, electricity charges, revenue assessment and interest on any mortgage or other encumbrances, if any. 

One should also ensure that the area of the apartment has been mentioned in the agreement. It is also mandatory for the developer/promoter to convey the land in favour of the society/association of flat owners /Condominium /Company within a stipulated time.

REQUIREMENTS:

The development agreement must be in writing and the registration is not compulsory. If the developer meets the above requirements, he is well protected and starts construction work. But in case the developer commits any breach of the contract, this defense under Sec.53A cannot be availed.

Apart from the equities, the developer would have a right against a subsequent transferee of the property with notice of the developer’s right or a gratuitous transferee of the property under Sec.40 of the TP Act but not against the transferee for consideration and without notice of the rights of the developer against the property.

PROCEDURE FOR JOINT DEVELOPMENT

After examination of the property of the land owner, the developer offers him for development of the property. This offer basically consists of the percentage of the built up area which shall be offered to owner towards cost of the land and the amount of security deposit that would be paid. This security deposit is a refundable advance which has to be refunded back to the builder on successful completion of the project.

The percentage of area offered to the owner is arrived at after taking into account several factors such as cost of the land, cost of construction, escalation in cost of construction, cost of obtaining approvals for the building, marketing and administrative expenses and most importantly the selling price of apartments in that area.

If the offer is attractive, the land owner will give his acceptance and hand over a copy of the title documents to enable the builder to get the same verified by his Advocate.

If the Builder’s Advocate approves the title, a draft copy of the Joint Development agreement laying down the terms and conditions of the development is given to the landowner for his approval who generally gets it vetted by his Advocate.

If the draft of the Joint Development agreement is found to be okay, the same is prepared and prescribed stamp duty is paid. This agreement is signed by the Builder & landowner and the builder pays the first portion of the refundable advance to the landowner.

Along with the Joint Development Agreement, the landowner also gives a Power of Attorney to the Builder to apply for the various approvals required for the construction and also to sell the portion of the area coming to the Builder’s share.

All the procedures & formalities & costs for approvals are taken care of by the BUILDER.

The Builder then gets the plan prepared by an Architect, taking into account the requirements of the landowner. Once the plan is ready and approved by the landowner, the same is submitted for approval to the Government authorities.
After the plans are submitted and approved, the builder takes possession of the land from the owner. At this stage, the balance portion of the refundable advance is paid to the landowner.

After taking possession of the land, the builder proceeds to demolish the old building if any and prepares the site ready for commencement of work.
On receipt of the approval, the builder commences the construction and marketing of the project.

As and when the apartments coming to the builders share are sold, the proceeds are received by the builder in stages and the builder will register the apartments in favour of the buyers.

Out of the apartments coming to the landowner’s share, they may like to retain some apartments and sell the balance. The landowner can decide to sell his apartments initially or sell the same when the building is 50% over or when it is nearing completion or after completion. Based on the requirement, the builder will sell the landowners apartments and pass on the proceeds to the landowner as and when the same is received from the buyers. When the landowner’s flats are sold, and a certain percentage of payment is received, the landowner will have to register these apartments in favour of the buyers.

On completion of the project, the apartments retained by the landowner are handed over to them and the advance which was given by the builder at the time of commencement of the project is refunded to him.

The builder, land owner will facilitate the formation of Flat Owners Association and hand over the title documents to the Association.

RIGHTS AND OBLIGATIONS OF A DEVELOPER:

As per Sec. 54 of the Transfer of Property Act, an agreement for sale does not create any interest in the property in favour of the purchaser though the consideration is paid partly or fully unless and until a deed of transfer by way of sale or lease is executed in favour of the purchaser. Many Joint Venture agreements are supported by Power of Attorney executed by owner in favour of developer for the development works and entered into agreement to sell and sale deed to the extent of developer share after completion of the total building.


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