REAL ESTATE LAW

Development of immovable properties as a builder is big business in our country in view

of the great demand for residential and commercial premises. Formerly the matter posed
no great complications and the owner of lands used to sell their immovable properties by

making an Agreement of Sale and later on executing Conveyance deed or Sale Deed.
Now a days Joint development is a popular method of development of property. Here, an
owner of a site and a developer come together to enter into an arrangement to develop a
property jointly.

This way, it suits the needs of both the parties. The owner of the site does not have to get
into the trouble of constructing the property, nor has he to arrange for funds for
construction. At the same time, the builder gets access to land and does not have to raise
money for purchase of land. The builder need not block his funds and in fact can use his
resources for a number of projects simultaneously. A site owner usually gets 30 to 40
percent share and the balance goes to the builder.

Development Agreement

It is an agreement between an individual and a construction company, city or builder to

develop a parcel of land for the individuals personal or commercial use.

The Real Estate Development Agreement involves the submission of a Development Plan
by the Developer to the Owner of the property. The development plan sketches out the
project and lays down the ground rules of the build, such as the time frame, property

limits etc.
Once the owner approves the Plan, the Developer may start work on the project. The
Agreement contains details regarding the responsibilities of the Developer and Owner,
provisions regarding subcontracting, details of the work to be carried out in different

phases, etc.
Further, the Agreement stipulates the duties pertaining to the keeping of books and

records, insurance, cash flow projections, etc.

The developer has to develop a detailed plan for Owner's review and approval. The Plan
should be made in accordance with the specific requirements of the owner regarding the

development of the property. The Owner can review the plan within a stipulated period

and return to the Developer for any modifications.

Developer shall create, maintain and deliver the accounts, records and reports pertaining
to the Agreement. Prior to commencing work, the developer has to discuss with the
Owner about matters relating to land use entitlements affecting the Property. Developer
may delegate or subcontract portions of its obligations to architects, engineers,

expediters, market researchers and consultants.

However after coming into operation of the Urban Land Ceiling and Regulation Act it
was no longer possible for the owners to sell the open and vacant land as these were
barred for transferring vacant or open land within the meaning of the said Act. In this way
the development agreement became popular and insertion of sub clauses (v) and (vi) in
section 2(47) and amendment of Section 45 from time to time enlarging the meaning of
'transfer' helped in popularizing the concept of Development Agreement in the

metropolitan cities.
Generally the owner of the plot may not have the sufficient resources to develop the
property on his land but entrust the task of development to a builder or developers to an
established builder thereby retaining the legal ownership and possession of the land in his
name. The owner of the land gives a license to the builder to enter his land and develop it.
When the flats are finally constructed and the land ceases to be vacant within the
meaning of the expression used in the ULC act, the owner executes a conveyance deed in
favour of the Developer or his nominee which is normally co operative society or a

Limited Company.
If the agreement is worded carefully, it may not amount to transfer as contemplated in
sec269UA of Income tax act. The Development Agreement help to postpone the
incidence of levy of capital gain tax to the later period. The Development Agreements are

also beneficial from the point of view of the Stamp Act.

In case the owner of a site decides to develop the property on his own, he will have to
arrange for funds, look for a builder, monitor the construction and go through all the
associated formalities. The cost of land constitutes a major portion in the cost of
development. It is difficult to get finance for the entire cost of a site. An owner has to
block a lot of his own funds before he can get any returns. The option of joint
development saves on all these requirements for both the parties. The practice is being

followed both by small and large builders without exception. The builder and the owner
of the site develop the property on a joint venture basis. The land owner enters into a joint
development agreement with a builder. The land is provided by the owner. The builder
constructs the flats.

A certain percentage of the area is earmarked for the owner of the site. The owner is
entitled to dispose off the constructed property delivered to him under the joint
development agreement. The owner may also decide to retain his share of the built up
area, or may sell it off at a later stage without any involvement of the builder. The other
flats are sold by the builder directly.