Status as on- 06/10/2020
The homebuyers of a real estate project may not realize it yet, but the builders are sleeping on funds which may run into hundreds of crores. Here, we are talking about the right of the homebuyers’ association to utilize the interest free maintenance security [“IFMS”].
Almost for every purchase of units in a real estate project, the consideration amount for units includes
- Basic sales price
- The amount paid towards parking space, electricity and other
- Infrastructure Development Charges (IDC),
- External Development Charges (EDC) and
- Interest Free Maintenance Security (IFMS) (which is security not consideration)
What is IFMS?
IFMS is the security which is given by the buyers to secure the maintenance and which is transferred to the association on allottees after handover the project. IFMS stands on a different footing from other charges which the homebuyer cannot be refunded. In the discussion that follows, we explain how the homebuyers’ association [“Association”] can ask the developer to transfer the amount collected as IFMS to the Association.
The builder try to hold the maintenance with tis any subsidiary company just to exhaust the IFMS.
The promoter of a real estate project is under an obligation to enable the formation of the association of the allottees as per section 11(e) of the Real Estate (Regulation and Development) Act, 2016 [“RERA”]. In order to determine the rights of the association, one must look into the Agreement for Sale Rules [“AFS Rules”] of the relevant state. The AFS Rules, in its Annexure, provides the pro forma for the Agreement for Sale to be entered into between the promoter and the homebuyer. The pro-forma clearly delineates the rights of the ASSOCIATION.
Requirement under Laws to transfer to Association
For the purposes of this article we will be relying on the AFS Rules of Haryana namely, Haryana Real Estate (Regulation and Development) Rules. Paragraph 11 of the Annexure to the aforementioned rules provide for Maintenance of the project. It states that “the promoter shall be responsible to provide and maintain essential services in the Project till the taking over of the maintenance of the project by the association of the allottees”. Furthermore, paragraph 1.8(ii) of the same Annexure provides that “the promoter shall hand over the common areas to the association of allottees”.
This means that once the project has been completed, the duty of maintenance of the project vests with Association. This further implies that the Association gets vested with the power to collect funds from the resident of a project. Not only this, by virtue of these provisions, the promoter ipso facto becomes liable to transfer the amount which remained unutilised from the IFMS account.
Our experience has shown that, till date, no Association has either questioned the builder about IFMS amount or has received such amount from the builder. In such a situation, the IFMS becomes a method for the builder to misappropriate funds. Hence every association of buyers should evaluate the refund of IFMS. It is imperative for the Association to hold the builder accountable and question their respective builders about the IFMS amount.
Disclaimer: The above article is based on the interpretation of the related laws and judicial pronouncements. The readers are expected to take legal advice before relying on this article. The author can be reached at firstname.lastname@example.org or call the IP expert at 8383011629.