A primer on the different aspects of Joint

Development Agreements
By Ayush Verma - January 23, 2021

Image source: https://rb.gy/ow0wez

This article is written by Namita N Wagh, pursuing a Diploma in Advanced Contract Drafting,
Negotiation and Dispute Resolution from LawSikho.

Table of Contents


 1. What is a Joint Development Agreement
2. What are the benefits of entering into Joint Development Agreement
3. Residential Joint Development Agreement
3.1. 1. Joint Development Agreement should be registered
3.1.1. No home loan until registration
3.1.2. Supplementary agreement to JDA
3.2. 2. Consideration
3.2.1. Taxability of JDA under Income Tax
3.2.2. GST on landowner
3.2.3. GST on developer
3.2.3.1. Liability of tax
3.3. 3. Execution of documents and stamp duty
3.4. 4. Property ownership and license to construct
3.4.1. Inheritance
3.5. 5. Cooperation between owner and builder
4. Conclusion
5. References

What is a Joint Development Agreement

Under a typical Joint Development Agreement (JDA) landowner contributes his land and enters
into an arrangement with the developer to develop and construct new projects at the developer’s
cost. Joint Development Agreements are prevalent in India as they are beneficial for both owner
and developer. Landowner contributes the land and the developer undertakes the responsibility of
obtaining approvals, property development, launching and marketing the project with the help of
his financial resources.

A real estate developer often enters into the Joint development agreement with the land owners
whereby the real estate developers are allocated with the work of developing the land. The
transaction is more or less like a barter system.

A lot of disputes arise when Joint development is made. The JDA turns out to be a win-win
situation for both the landowner as well as developer. Both of them get to capitalize on the
booming realty sector.

What are the benefits of entering into Joint

Development Agreement
Some significant benefits of entering JDA are:


 No initial investment is required for land procurement.

Partial avoidance of Stamp duty.

Fast-paced development of property as working capital is majorly required for meeting the
construction needs.

Competent Consideration for the landlord.

Residential Joint Development Agreement

According to Notification 06/2019 Central (Rate) RREP shall mean REP in which carpet area
of commercial apartments is not more than 15 percent of the total carpet areas of all apartments
in REP.

According to the Reports, Realty developer Ambuja Neotia Group has entered into an agreement
with Satya homes to jointly develop a 72 acre land parcel in Kolkata’s Rajarata locality in the first
ever mega land transaction. Ambuja Group is the Development management Partner while Satya
Group will bring in its land parcel into alliance.

Following are the important five important clauses in Joint development Agreement:


1. Joint Development Agreement should be registered
The Joint development Agreement between the builder and the landowner must be registered
in the sub registrar. It is one of the common practices to get the joint development agreement
notarized or sign it on stamp paper of Rs 200/.

If the owner retains their share of built-up area, a construction agreement has to be entered
into with the developer and the same has to be registered. The stamp duty and registration
charges would be 2% of cost of construction.

Registration of Joint development agreement is important because at macro level neither the
builder nor the landowner can dispute the terms and conditions of the JDA. Also, it provides
authenticity to the agreement.

Merely getting the documents notarized will not save you from possible consequences in
future. Besides the main document you should get a supplementary agreement registered.

Section 54 of Transfer of Property Act enacts that sale of immovable property can be made
only by registered instrument and an agreement on sale does not create any charge interest
or charge on its subject matter. (Shri Ramesh Chand vs Suresh Chand & Anr. on 9 April,
2012)

No home loan until registration

The banks do not sanction home loans on the property if JDA is not appropriately registered. In
that case, you might have to opt for other sources of finance for buying the property, which is
not the correct way out.

Supplementary agreement to JDA

It is another smart trick by the builders. The joint development agreement is executed and
registered to comply with rules and regulations. After that a separate supplementary agreement
to JDA is signed. It is either change in some of the existing clauses of JDA or additional clauses
that will form a part of JDA.


2. Consideration
There are various methods of payment of consideration. A common consideration for providing
land includes the upfront payment in form of cash/cheque to the landowner. In addition to this
the agreement should also specify as to what would happen to this payment if the agreement
is cancelled before the stipulated time period.

Other methods are sharing of gross revenue between the two (or sharing of profits), sharing
of constructed area or a combination of consideration, revenue, profits or constructed area.

The landowner and developer often share the profit in a ratio of 60:40. However this may
vary based on location of property. If the land is very costly then split up would be usually
more in the favour of the landowner, i.e. a greater number of flats handed over to the land
owner.


Taxability of JDA under Income Tax
The income arising to the developer under JDA, in form of the sale consideration of his share in
developed property is considered as his business income and is taxed as per the applicable
provisions. On the other hand, the amount received by the landowner either as a percentage of
sales consideration or as a percentage of build-up area in developed property is considered as
Capital Gains in his hands. But this calculation of Capital Gains is the most controversial part
where consideration is in the form of build of area.

GST on landowner
The land owner is liable to charge 18% GST on supply of development rights [S.No. 16(iii)
of Notification No. 11/2017-CT(R) dt. 28.06.2017].

GST on developer

Liability of tax

The builder is required to charge GST on supply of flats @12% (18% less 1/3 value of
land) according to the reports in mint “All Capital Gains in development agreement are not
taxed”.


3. Execution of documents and stamp duty
To be valid as evidence in court, the Joint Development Agreement and general power of
attorney must be executed on stamp paper of an appropriate value. If the title is being
transferred by the Owner to the developer (before the sale of flats to the end user, that will
depend upon how the transaction and consideration is structured) a proper deed of
conveyance will be required, which will also need to be stamped. The Stamp duty varies from
state to state.

The project plan is developed by the developer taking into consideration the municipal
corporation rules of the city. You will need to obtain necessary approvals from relevant
authorities just like in the case of any other independently constructed project.

If the Joint development agreement is unregistered and for the said document sufficient stamp
duty is not paid then the petitioner cannot by way of notice direct the respondent to execute
general power of attorney and registered joint development agreement that was not agreed
between the parties. The matter will be referred to the arbitrator as per Arbitration and
Conciliation Act 1996. The matter to the Arbitrator and also appointment of Arbitrator is not a
dispute. The decision of the arbitrator must be final and binding on both the parties. (N.D
developers, PVT.LTD v. Bharathi and others.)

4. Property ownership and license to construct

The developer himself does not buy property/land from the owner. The developer is not the
transferee or buyer of the flats as per Transfer of Property act 1882, under the Joint
Development Agreement. The sole ownership lies with the owner of the land, but the land
owner grants the developer along with development rights, a license to enter the land for the
purpose of development but not as a transferee or buyer. The license or authority to enter the
land is typically given by way of power of attorney issued in favour of the developer.

This power of attorney without permission can be revoked by a person granting it unless as
part of discharging contractual obligations. In such cases revocation would lead to breach of
contract.

Once the plan is approved, the owner would get an allocation agreement recording the
contractual areas which compromises his shares and area going to the developer.


Inheritance
It is very normal for land owners to transfer rights/title in the property to their family
members under family settlement. Such transactions are executed through GPA. In other
scenarios, the landowner requests the buyer to transfer money to a family member. The
reason for such scenarios is “Inheritance”. The land is inherited in almost all cases.

5. Cooperation between owner and builder

For the purposes of transfer of the constructed space by the builder, the cooperation of the
owner is highly essential. Once the construction of a flat is constructed and occupancy right is
granted by the competent authority to the owner, the owner will himself execute the sale deed
in favour of the flat buyers.

The developer will have the right for specific performance which shall be specifically
enforceable in a court of law if the landowner fails to cooperate with the developer in
selling/leasing the build-up space on the land. However, in case of breach of trust of a
development agreement, the landowner would have the right to revoke the power of attorney.

Conclusion
The Hon’ble Finance Minister Under Atma Nirbhar Bharat movement announced on 13th May
2020 various measures for relief and credit support related to businesses to support Indian
Economy’s fight against COVID-19.

Relief to Real estate project: State governments are advised to invoke the force majeure
clause under RERA. The registration and completion date for all registered projects will be
extended up to 6 months and may be further extended by 3 months based on the state’s
situation. Various statutory expenses under RERA will also be extended concurrently.

Entering Joint development agreement not only saves the owner from hassles of converting
property, but also helps the developer to save money on purchase of land, which is usually a
substantial part of project cost. However, while buying a property built on the basis of such an
agreement, it is always advisable to a buyer to keep an eye on defects, if any, in the JDA,
fraud by landowners and chances of unsanctioned loans in future.


References
Taxability of JDA – to know more click here

Property ownership and licence and corporation between owner and developer – ipleaders

Case laws – Indian Kanoon and case mine

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