Lease Transactions Under RERA

Real estate is one of the largest industries in India. In the past two decades, the real estate sector has seen a boost in the country, in terms of the quantum of development (commercial and residential properties) and the price of properties. In spite of the same, real estate has remained the most unregulated of sectors, with every State having a different law to regulate properties. Hence, there was no single superior legislation, which would govern this industry.

The absence of a specific, stringent law for this industry led to exploitation of buyers of the property, by the developers. For example, there could be excessive delay in construction and handing over possession of property, biased/arbitrary contracts, deduction in the usable area of the property by developers, and a lack of transparency in the sector, and such like. Due to these issues, the Government of India, introduced a central legislation viz. the Real Estate (Regulation and Development) Act, 2016 (Act) to regulate the real estate industry, resolve the issued faced by buyers and bring transparency in this sector. All the States have been mandated to form the Real Estate Regulatory Authority for the implementation of Act and form rules and regulations under the same.

The purpose of Act is as follows:

An Act to establish the Real Estate Regulatory Authority for regulation and promotion of the real estate sector and to ensure sale of plot, apartment or building, as the case may be, or sale of real estate project, in an efficient and transparent manner and to protect the interest of consumers in the real estate sector and to establish an adjudicating mechanism for speedy dispute redressal and also to establish the Appellate Tribunal to hear appeals from the decisions, directions or orders of the Real Estate Regulatory Authority and the adjudicating officer and for matters connected therewith or incidental thereto.

In recent times, there have been some disputes in relation to the jurisdiction of the Real Estate Regulatory Authority (RERA) and the applicability of the Act to lease transactions. There were two schools of thought: one stated that the Act is solely for the purpose of the efficient sale of the real estate project, hence, it does not extend to lease transactions; and the other stated that long term leases should be a part of the Act, as long term lessees have similar rights to that of buyers of the property.

Section 105 of Transfer of Property Act, 1882 states that the lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms.

Section 2(d) of the Act defines the allottee to be a person to whom a plot, apartment or building, as the case may be, has been allotted, sold (whether as freehold or leasehold) or otherwise transferred by the promoter, and includes the person who subsequently acquires the said allotment through sale, transfer or otherwise but does not include a person to whom such plot, apartment or building, as the case may be, is given on rent.

Maha RERA has clarified (in answer to Question No. 6 in Additional FAQs issued by Maha RERA), that the wording in Section 2(d) “has been sold (whether as freehold or leasehold) or otherwise transferred by the promoter” indicates that the long-term lease falls within the ambit of the Act. However, the premises given on leave and licence basis or on short-term lease not exceeding five years are not covered under the Act. Hence, all long-term leases (of more than five years) and perpetual leases will be covered under the Act.

Further, by an Order dated March 15, 2018 passed in a complaint filed by Jitendra Jagdish Tulsiani against M/s. Lavasa Corporation Ltd. & Anr. and RERA, at the Maharashtra Real Estate Appellate Tribunal, Hon’ble Justice K.U. Chandiwal, held that Maha RERA has the jurisdiction to entertain the complaint of the Appellant (who has entered in a transaction of lease with the developer for 999 years) on its merits. He further stated that, “Even if Lavasa is a township involving various types of transaction including providing for sale for villas or hotels however that by itself will not exclude the transactions entered into with the Appellant from the rigor of applicability of RERA Act and in particular registration by the respondent Lavasa itself, submitting to jurisdiction of RERA Authority.”

The aforementioned clarification issued by Maha RERA and the order passed by the Maharashtra Real Estate Appellate Tribunal has inflated the jurisdiction of Maha RERA and applicability of the Act to long-term lease transactions.

The Bombay High Court in an appeal filed by Lavasa Corporation stating therein that Maha RERA provisions were not applicable to apartments acquired by way of a lease and that the term ‘agreement of lease’ read along with the definition of ‘promoter’ under the Act would not include ‘lessor’. The Bombay High Court vide its order dated August 7, 2018 held that “Merely because the legislation excluded allotment, when given on rent, it does not exclude long-term lease. That would be defeating and frustrating the objective of the Act.

There are various properties that are granted on lease for a period of 99/999 years. Now these transactions will fall under the ambit of Act.