Is the State betraying the Apartment Owners by proposing the repeal of the Apartment Ownership Law?

Introduction

Kerala has an apartment ownership law, which is now 40 years old.  It is one of the most neglected pieces of legislation.  Thanks to the unorganized owner's community, ignorant of their rights, and the ability of the builder's associations to master the political will of the policymakers.  The state government has now taken a stand before the Kerala High Court that they have decided to repeal the Kerala Apartment Ownership Act 1983 (local law for short) as it found the local law is repugnant to the Real Estate (Regulation and Development) Act 2016 (the central law for short).  Most of the other states in the Country did not repeal similar local laws, due to the enactment of the central law.  Therefore, this article will explore the rationale behind a move to repeal the local law.  

The Background of the Proposal

The local law was born disabled as the legislation suffered an inherent defect.  The powers of the competent authority were not defined.  The law being a near complete copy of the Maharastra Apartment Ownership law, the lawmakers failed to notice that the regulatory provisions, were placed elsewhere.   The Builders of apartment buildings found it an excuse for not applying the law and providing the apartment owners its necessry protection.    Some of them even abused the situation to convert common properties in the plans and advertisements of the project to private properties.  The apartment owners on the other hand fought over more trivial issues, rather than trying to get the law enforced.

Finally, a public interest litigation was filed by a lawyer before the enforcement of the local law pointing out that the central law is capable of filling the missing element in the local law, after the establishment of the RERA Authority.  Now the state has come up with a response, saying that they propose to repeal the local law.

The conflicts of laws and the proposal for repeal

The decision to repeal the local law is based on a few recommendations made by a committee constituted to study the impact on the local law consequent to the passing of the central law.  The central and local law occupy the same field and when there is a conflict between these provisions, the central law would prevail.  

We may examine whether the conflict pointed out are real, sufficient enough to make the local law repugnant and unconstitutional.   The following are the conflicts, pointed out by the committee.

1. The central law requires the promoter to execute a registered conveyance deed of undivided proportionate tile in the common areas to the association of allottees or the competent authoirty, but the local law does not provide for such a procedure.

2. The definition of ‘apartment owner’ in local law means the person or persons owning an apartment and undivided interest in the common areas and facilities in the percentage specified and established in the declaration. But in the central law the common area of the real estate project, the entire land of the project is included in the common area.

3. In the central law, an Association of allottees shall be formed within three months of the majority of units being booked. But in the local law, the Association can be formed only after the promoter hands over the apartment.

4. Hence the local law cannot be enforced even though there an obligations under Rules framed under the central law that the promoters of apartment buildings ensure compliance with the local.

 A closer reading of these legislations would give an impression, that both could survive without falling into the trap of conflict and repugnancy. An understanding of the scope and purpose of the local and central may be helpful.

Why the proposal is flawed, and repeal a bad idea.

Let us look into the contours of the local and central law before attempting to answer this question.  The local law recognizes the right of 'apartment ownership', which is an exception to the ownership over any other immovable property.   It is an international concept, with similar laws in almost all the other Indian States.   It was brought into force after obtaining the Presidential Assent, as it draws an exception to some of the provisions of the Transfer of Property Act.  

The preamble, status of apartment ownership, and exclusion of the local law highlight the need for the effective application of the law.  It proposes a different type of ownership in the immovable properties, even though the apartment owners enjoy only a proportionate title in the common areas and facilities.

Preamble

"An act to provide for the ownership of individual apartments in a building and to make such apartments a heritable and transferable property",(Preamble of the local law -emphasis supplied)   

Status of Apartment Ownership:

“Each apartment, together with its undivided interest in the common areas and facilities appurtenant to such apartment shall, for all purposes, constitute heritable and transferable immovable property within the mean of any law for the time being in force in the State and accordingly, an apartment owner may transfer his apartment and the percentage of undivided interest in the common areas and facilities appurtenant to such apartment by way of sale, mortgage, lease, gift, exchange or in any other manner whatsoever in the same manner, to the same extent and subject to the same rights, privileges obligations, liabilities investigations, legal proceedings, and remedies and to penalty, forfeiture, and punishment as any other immovable property or make a bequest of the same under any law applicable to the transfer and success of immovable property”(Section 4 of the local law - emphasis supplied).

Exclusion of the local law

Upon the exclusion of the property from the provisions of this Act, the property shall be deemed to be owned in common by the apartment owners, and the undivided interest in the property owned in common which shall appertain to each apartment owner shall be the percentage of undivided interest previously owned by such owner in the common areas and facilities.

The central law and its preamble

The Central law came into force on 1.5.2017.  The regulation and the promotion of the real estate sector is the very purpose of the law, it never intended to create any new rights, either for the allottes, or promoters of the real estate projects.  

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.

The interesting part is that the local laws are preserved and the central law reiterates that the application of any other laws is not barred.  In the above background we will examine whether the conflicts pointed out are real or misconceived.  

The conflict and the legal position.

Conflict No. 1

"The central law requires the promoter to execute a registered conveyance deed of undivided proportionate tile in the common areas to the association of allottees or the competent authoirty, but the local law does not provide for such a procedure"

The central law provides for the transfer of title, with a proviso preserving the local laws.  This provision for registered conveyance deed of undivided proportionate title in the common areas to the association of allottees or the competent authority would apply to the plots and buildings, but may not to apartment ownership in condominium-type of apartment buildings.  The preservation of the local laws is specifically intended to protect apartment ownership, as there is a specific reference to it in the standard form of agreeemnt for sale annexed to the Kerala Rules. 

Conflict No. 2

"The definition of ‘apartment owner’ in the local law means the person or persons owning an apartment and undivided interest in the common areas and facilities in the percentage specified and established in the declaration. But in the central law the common area of the real estate project, the entire land of the project is included in the common area."

The declaration does not create any new rights.  The right of the apartment owners stems from the agreement for sale and the title deed.  The nature of the right conveyed to the apartment owner, includes the proportionate undivided title in the entire project property,  as specified in the 'status of the apartment ownership' mentioned above.  The declaration is just documentation of the private areas common areas and other facilities, and other relevant details contained in the floor plans and title documents.  The registration of the declaration would enable the preservation of such information for future use.

Conflict No. 3

"In the central law, an Association of allottees shall be formed within three months of the majority of units being booked. But in the local law, the Association can be formed only after the promoter hands over the apartment."

The formation of the Association under the the local law would be complete when the promoter as the sole owner executes and registers the declaration and when a bye-law as provided is submitted before the competent authoirty.  The finding that an apartment ownership association can be formed only after handing over the apartments is flawed.  The position is fortified by reading the statutory obligation of the Secretary or the managing committee to forward the declaration and deed of the apartment to the local sub-registrar for registration, which suggests that the secretary and the management committee could function before the declarations and the deed of apartments are registered.

Conflict No. 4

"The local law cannot be enforced even though there is an obligation under Rules framed under the central law that the promoters of apartment buildings ensure compliance with the local law"

The conflicts nos 1 to 3 pointed out by the committee, are based on a wrong understanding of the law.  Therefore, the committee should have recommended compliance with the local law, rather than suggeting a repeal, given the establishment of the regulatory authoirty under the central law.

Conclusion 

It is an admitted position that the local law to protect apartment ownership was born disabled due to the lack of regulatory provisions to compel the promoters to execute and register declarations as sole owners, for its application.  The failure of successive governments to identify the defect promptly and to take corrective measures for the last more than 40 years questions the credibility of their intentions.  

The present decision to repeal the law, on unsound grounds, would add insult to injury to the apartment owners, constituting a large section of society.  The need of the hour is to ensure compliance of the local law, with the existing regulatory mechanism of the RERA Authoirty and to make suitable amendments to remedy the defect and to restore the protection of apartment ownership in the state.