Urbanization has accelerated the migration of people to the nearby
Cities in search of jobs and other means of livelihood. This has increased the
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 a number of families in a small space. But, vertical
development of land requires heavy investment which in turn has led to joint
venture.
Joint
Venture (JV):
Joint venture is joining of hands. The words "Joint Venture" is described in the dictionary as "a business activity by
two or more people or companies working together".
As stated above, vertical development of land
comprising of number of flats requires a lot of money, manpower,
expertise, experience, which an individual cannot undertake. Many a time an
individual may own some land, but may not have funds to fully exploit it.
Similarly, a Builder/Developer, who has a resource, may need some land to
employ his resource profitably. Thus, 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 the construction of an independent house, the group housing
or construction of apartments is more complicated, requires approval from
various Agencies like; Water Supply Board, Sanitary Department, Power Supply
Board and Airport Authorities.The project requires to be approved by Banks for
Finance.Joint Venture Agreements, clearly stipulate the duties and
responsibilities of each of the parties.
In order to avoid spending huge amounts for procurement of
property, the Developers venture into joint development activity 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.
Joint
Development Agreements:
The Developer or Builder enters into an Agreement with the Owner
of the land 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 is contained in the J V Agreement?
The Agreement contains the particulars, like the commitment of the
Promoter to construct it as per the approved plan and specifications as
approved by the local Authority; possession date, price to be paid by the Purchaser
and the intervals at which the installments are to be paid specifying the stage
of construction; 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 the undivided interest in the common areas and
facilities appertaining to the apartment that is agreed to be sold;a statement of the use for which the
apartment is intended. Copies of the title certificate issued and a copy of the
approved plan and specifications, a list of fixtures and amenities including the
provisions for lifts to be provided for the flat that is to be sold should be
attached to the Agreement.
A Promoter, while he is in possession and when he collects from
persons who have taken over flats or are to take over flats sums for payment of
out goings, 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 Registration of
this Agreement is not compulsory. If the Developer meets the above
requirements, he is well protected and can start construction work. But in case,
the Developer commits any breach of the contract, the defence under Sec. 53 A
cannot be availed.
Apart from 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 Transfer of Property(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 the examination of the property of the Land Owner, the Developer
offers to him his offer for development of the property. This offer basically
consists of the percentage of the built up area which shall be offered to the Owner
towards cost of the land and the amount of security deposit that will 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 the 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 the 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 Land Owner 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 and Land
Owner and the Builder pays the first portion of the refundable advance to the Land
Owner.
Along with the Joint Development Agreement, the Land Owner also
gives a Power of Attorney to the Builder to apply for various approvals required
for construction and also to sell the portion of the area coming to the Builder's
share. All the procedures and formalities and 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 Land Owner. Once the
plan is ready and approved by the Land Owner, the same is submitted for
approval of 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 Land Owner.
After taking possession of the land, the Builder proceeds to demolish the old
building if any and get 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 falling to the Builder's
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 Land Owner's share, they may
like to retain some apartments and sell the balance. The Land Owner, 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 Land Owners apartments and pass on the proceeds to
the Land Owner as and when the same is received from the Buyers. When the land Owners'
flats are sold and a payment is received, the Land Owner will register these
apartments in favour of the Buyers.
On completion of the project, the apartments being retained by the
Land Owner are handed over to him and the advance, which was given by the Builder
at the time of commencement of the project, is refunded back. The Builder and
the Land Owner will facilitate formation of a Flat Owner 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 favor of the Purchaser. Many Joint
Venture Agreements are supported by Power of Attorney executed by the Owner in
favour of the Developer for the development works and enters into an Agreement to Sell and a Sale Deed to the extent of Developer's
share after completion of the total building.
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