1

VALUATION OF RIGHTS IN COMMON AREAS, TERRACES & PARKING SPACES

Jigesh J. Mehta
Surat (Gujarat)
B.E.(Civil), M.S. (USA), LL.B.
M.Val (ISTAR, V.V.nagar)
(F 18099)
1.

INTRODUCTION

Immovable
properties
bear
the
characteristics of heterogeneity from
various angles - such as location and
amenities, title and tenure, applicability of
Development Control Regulations (DCR)
and many other legislations, rules and
regulations. This makes valuation of
immovable properties an interesting
profession.
Practically, a valuer who
ignores these facts takes it very lightly, as
a simple multiplication of area and unit
rate and continues his practice without
any hurdle or resistance over a long
period. However, with the fast developing
economy, increasing number of financial
frauds and NPA cases, the profession of
valuation is gaining more importance and
at the same time, more and more liabilities
are being casted over the valuers. Civil,
criminal and disciplinary actions against
the valuers are rising in our country.
Reaching the value opinion and its
reporting demands great care and caution
by a valuer to safeguard the interests of
financial institutions as well as his own
personal and professional reputation.
Personal inspection of site, verification of
relevant documents and other good
practices are accepted as standard
procedure in each and every case of
valuation.
One of the most important concept that
valuers need to understand is that What
is being valued is the rights and
interests of the titleholder in the
tangible asset and not the physical

asset itself. Interest is defined as the

Right to derive benefits by use of a
property. Thus, real estate or plant &
machineries are physical concepts while
Real Property is a legal concept. This
issue is dealt in detail under IVS 230 (Real
Property Interests) and IV 310 (Valuations
of Property Interests for Secured
Lending). IVS thus defines Real Property
as all rights, interests and benefits related
to the ownership of real estate. It is,
therefore, essential for valuers to primarily
identify the type of real property interest
(superior, subordinate or right to use land
or buildings but without a right of exclusive
possession and control) of the title-holder
for the subject asset under valuation.
Absolute ownership is not practical
because the rights of titleholder are
restricted by the laws of the land. It is the
valuers task to find out the limitations
imposed by the law on the right-to-use,
how much right is reduced and the
maximum economic benefit that can be
derived after considering the effect of legal
factors.
In this situation now, ignorance cannot be
bliss in our profession but it is rather
imperative for valuers to stay abreast with
the principles that evolve from judicial
pronouncements in addition to the three
established (market, income, cost)
approaches to valuation and closely follow
the changing rules and regulations.
Thorough understanding of some of the
court judgments clears many a doubts of a
professional valuer.

Even the IBA Handbook on Real Estate

Valuation under pt. 2.4 (Standard 3 Valuation Reporting) has acknowledged
the relevance of judicial pronouncements
in arriving at proper valuation.
2.

COMMON
AREAS
DEVELOPMENT SCHEMES

COURT JUDGEMENTS

There are several case laws on the topic

of stilt parking and common areas of
society, many of which are decided by the
Consumer
Disputes
Redressal
Commissions.
Some of the more
publicized court rulings on the topic of
common areas include :

The Tamil Nadu Housing Board Vs.

Mrs. Mary Rani Immanual [Madras
High Court, 26-04-2013].

Laxmi Narayana Villa Residents

Welfare Association Vs. M/s. P.
Suryaprakash & Co. [A.P. Consumer
Disputes Redressal Commission, 24
April, 2014].

IN

Market is supreme.but valuers ought

to know whether the titleholder has a legal
right to hold the asset or a part thereof
under possession which is the subject
matter of valuation. For example, though
it may be a market norm to transfer the
area of roof-top terrace in a multistoried
building at 1/3rd the composite rate of the
flat below, it is the duty of the valuer to
ascertain whether it is legally valid to
transfer common areas such as terraces
and parking spaces. If the transfer of
such a common area is rendered void-abinitio by any court verdict, the valuer
should not assign a value to exclusive
right to use though it is passed on to a
flatholder through conveyance deed.
3.

Nahalchand
Laloochand
Vs.
Panchali
Co-operative
Housing
Society Ltd. [(2010) 9 SCC 536,
(judgement delivered by Honble
Supreme Court on 31-08-2010].

DLF Ltd. Vs. Manmohan Lowe and

others [Supreme Court, 10-12-2013].

Belaire Owners' Association Vs. DLF

Ltd., HUDA & other [Competition
Commission of India, 3-01-2013].

Of these, the case of Nahalchand

Laloochand Vs. Panchali Co-operative
Housing Society Ltd. constitutes a
landmark ruling that developers/promoters
cannot sell parking spaces as
independent real-estate units as these
are common areas and facilities. This
implies that roof-top terraces, parking,
passages and all other designated
common spaces cannot be transferred as
separate units. Since this judgement has
direct effect on the approach to a
valuation assignment, it is the focus of this
article.
4.

NAHALCHAND
CASE

LALOOCHAND

Out of seven appeals which arose from

the judgement dated 25 April 2008 passed
by Bombay High Court, five were at the
instance of the original plaintiff and the
other two are by parties, who were not
parties to the proceedings before the High
Court or the trial Court but they are
aggrieved by the findings recorded by the
High Court as they claim that these
findings are affecting their rights.
As a promoter, Nahalchand Laloochand
Pvt Ltd. developed few properties in
Anand Nagar, Dahisar (East), Mumbai
and entered into agreements for sale of
flats with purchasers. The flat purchasers
are members of Panchali Co-operative
Housing Society Ltd.
In 2004, the
promoter (appellant) filed a suit before the
Bombay City Civil Court for permanent
injunction
restraining
the
society

(defendant) from encroaching upon,

tresspassing and/or in any manner
disturbing, obstructing, interfering with its
possession in respect of 25 parking
spaces in the stilt portion of the building.
The promoter set up the case in the plaint
that under the agreements for sale it had
sold flats in its building and each flat
purchaser has right in respect of the flat
sold to him and to no other portion. It was
averred in the plaint that each flat
purchaser has executed a declaration /
undertaking in its favour to the effect that
stilt parking spaces / open parking spaces
shown in the plan exclusively belong to
the promoter and that the declarant has
no objection to the sale of spaces by it.
The defendant (Society) traversed the
claim and set up the plea that the
promoter has no right to sell or dispose of
spaces in the stilt portion and that the
undertakings given by the flat purchasers
are not binding being contrary to law and
based on such undertakings, the promoter
has not acquired any right to sell stilt
parking spaces.
On 4-April 2007, the presiding Judge of
City Civil Court, Greater Bombay
dismissed the suit with costs.
The
promoter preferred first appeal before the
High Court which was dismissed on April
25, 2008.
The following Acts/regulations were
referred by the High Court while giving this
order:
Maharashtra Ownership Flats (Regulation
of the promotion of construction, sale
Management and Transfer) Act-1963 or
MOFA, Maharashtra Ownership Flats
(Regulation
of
the
promotion
of
construction, etc) Rules-1964 or 1964
Rules, Development Control Regulations
for Greater Bombay-1991 or DCR,
Maharashtra Apartment Ownership Act-

1970 or MAOA, The Maharashtra

Regional and Town Planning Act-1966 or
MRTP Act and Transfer of Property Act
or T.P. Act.
While dismissing the appeal, the High
Court recorded the following findings.
1.

The parking space either enclosed or

unenclosed, covered or open cannot
be a building.

2.

It is compulsory requirement to
provide parking spaces under DCR.

3.

It is obligatory on the part of the

promoter to follow DCR.
The
agreement signed under MOFA
between the developer and the flat
purchaser must be in conformity with
the model form of agreement
prescribed by State Government.

4.

The model agreement does not

contemplate the flat purchasers to
separately purchase the stilt parking
spaces.

5.

The rights arising from the agreement

signed under the MOFA between the
promoter and the flat purchasers
cannot be diluted by any contract or
an undertaking to the contrary.

6.

As soon as the corporation issues the

occupation certificate and the society
is registered, the building as well as
the stilt parking space, open spaces
and all common amenities become
the property of the society. The stilt
parking spaces cannot be treated as
open / covered garages.
It is
immaterial if the purchase agreement
does not include stilt parking spaces
in the common area of amenities.
The stilt parking space is part of
common amenities and it cannot be
treated to be a separate premise /
garage which could be sold by the
developer to any of the members of

the society or an outsider. Under

MOFA, the developers right is
restricted to the extent of disposal of
flats, shops and garages, which
means that any premises which is in
included in the Floor Space Index
(FSI) can be sold by the developer /
promoter. The stilt parking space is
not included in FSI nor it is
assessable for the corporation taxes.
7.

8.

Mr. Tanmay Mehta appearing for the

promoter favoured the concept that
promoter has right to sell stilt parking
space to outsiders. The stilt/covered/
open parking spaces do not figure as
part of common areas and facilities in
any project and remain within the
contractual, legal and fundamental
rights of the promoter to dispose of
the same in the manner in which he
proposes and his customers accept.
If stilt parking spaces are treated as
common
areas,
then
the
proportionate price for the same
would have to be paid by each flat
purchaser, irrespective of whether he
requires the parking space or not and
there may be situations where the
number of parking spaces will not be
equal to the number of flats and thus,
a person who has paid proportionate
price for the common parking space
may find himself without parking
space, even though he has paid for
the same. In any event, the promoter
undertakes that the parking spaces
shall be sold only to persons
purchasing the flats in the same
housing project.
Mr. Pravin K. Samdani, learned
senior counsel for one of the
appellants,
viz.
Maharashtra
Chamber
of
Housing
Industry
adopted a different line of argument.
He submitted that it is wholly

irrelevant
whether
stilt/podium/
basement/covered car park attracts
FSI or not, but the only relevant
criteria is whether the promoter has
listed it as a part of common area or
not and if he has not done so then it
is sellable. If he has listed it, then
every flat purchaser is proportionately
required to contribute for the same.
9.

On the other land, learned senior

counsels for the society strongly
supported the view of the High Court.

Relevant Provisions of MOFA:

S.3 (2)(m) - A promoter shall, when the
flats are advertised for sale, disclose inter
alia in the advertisement the following
particulars, namely :(i)
the extent of carpet area of
the flat including the area of
the balconies which should
be shown separately;
(ii) the price of the flat including
the proportionate price of the
common areas and facilities
which should be shown
separately, to be paid by the
purchaser of flat; and the
intervals
at
which
the
installments thereof may be
paid;
(iii) the nature, extent and
description of the common
areas and facilities;
(iv) the nature, extent and
description
of
limited
common areas and facilities,
if any.
(n) sell flat on the basis of the carpet
area only:
Provided that, the promoter may
separately charge for the common
areas and facilities in proportion to the
carpet area of the flat.

Sec.3 (1) of MAOA defines common areas

and facilities as follows:-

Thus, the essential elements of a valid

contract enforceable by law, include:

3 (f)

1)

Common areas and facilities

unless otherwise provided in the
Declaration of lawful amendments,
there to means
(1)

The land on which

building is located;

the

(2)

The foundations, columns,

girders, beams, supports,
main walls, roofs, halls,
corridors, lobbies, stairs,
stairways, fire escapes and
entrances and exits of the
building.

(3)

The basement, cellars, yards,

gardens, parking areas and
storage spaces, elevators,
tanks, pumps, motors, fans,
compressors, ducts and in
general all apparatus and
installations
existing
for
common use.

The promoter has no right to sell any

portion of such building which is not flat
within the meaning of section 2 (a-1) and
the entire land and building has to be
conveyed to the organization; the only
right remains with the promoter is to sell
unsold flats. It is, thus, clear that the
promoter has no right to sell stilt parking
spaces as these are neither flat nor
apartment or attachment to a flat.
5.

INFERENCE

As per section 10 of The Indian Contract

Act-1872, all agreements are contracts if
they are made by free consent of parties
competent to contract, for a lawful
consideration and with lawful object, and
are not expressly declared to be void
under the Act.

Offer and Acceptance of atleast two

parties;
2) Intention to create legal relationship;
3) Free consent;
4) Lawful consideration;
5) Capacity or legal competency of
parties to contract;
6) Legality of object, i.e. object of
agreement should not be unlawful;
7) Certainty of meaning the terms of
agreement must not be vague,
ambiguous or uncertain;
8) Possibility of performance terms of
contract must be capable of being
performed and not impossible;
9) Legal formalities - The agreement
must comply with the necessary
formalities as to writing, registration,
stamping etc. if any required in order
to make it enforceable by law.
The application of these tests to a
conveyance deed will lead the valuer to
check the legality of transfer of common
areas as mentioned in the documents.
6.

CONCLUSION

As Paul Barter analyses in his post on

www.reinventingparking.org dated 2nd
September 2010, this ruling should not be
misunderstood that unbundling of parking
has been forbidden completely or
charging for parking has been outlawed.
The cost of parking for residential and
commercial units is often passed on to the
occupants indirectly through the rent or
purchase price ("bundled") rather than
directly through a separate charge. For
example, a three bedroom unit might
come with two parking spaces included in
the purchase price or rent. This means
that tenants or owners are not able to
purchase only as much parking as they
need, and are not given the opportunity to

save money by using fewer parking

spaces. The alternative is to unbundle
parking - rent or sell parking spaces
separately, rather than automatically
including them with building space. This
is not only more equitable, but can also
reduce the total amount of parking
required for the building.
The instant ruling of Supreme Court just
outlaws one specific kind of unbundling,
viz. only the option of buying and selling
parking separately as real-estate. But
other options are still open, e.g. managing
parking as 'common areas' is compatible
with having a system of parking permits
for occupiers at a charge. The bottom line
is that the developers of residential
apartments or commercial buildings must
hand the parking areas over to the
management organization (such as the
'housing society'). Building management
committees (but NOT the developers) can
still unbundle parking and charge for it if
they choose to. Such committees will find
that charging/unbundling is a useful way
to manage conflict over their on-site
parking.
Summarily, the Apex Court rules that the
promoter has no right to sell any portion of
the building which is not a flat, and the
entire land and building has to be
conveyed to the association/society. But
as columnist Divya Malcolm explains in
her article of 9-12-2013 in MoneyLife, this
does not mean that everything else, other
than a flat, is a freebie. The correct
interpretation being that builders cannot
independently
sell
to
outsiders
common areas and facilities nor can they
extract additional sums from the
purchasers for purported sale of such
common areas and facilities the price
stated in the Agreement to Sell as per the
provisions of Ownership of Flats Act

being inclusive of the proportionate price

of the common areas and facilities.
One should remember that no agreement
or declaration executed can override
the law of the land. According to Section
23 of the Indian Contract Act, the object
is considered lawful unless it is forbidden
by law or is fraudulent or involves or
implies injury to the person or property of
another or is immoral or is opposed to
public policy.
Legality of Object is a significant element
of a valid contract that has to be minutely
considered vis--vis court judgements that
are referred in valuation exercise.
Many a times developers/promoters get
transfer deeds for built units inked by
purchasers including conveyance of open
roof-top terrace above top floor flat /
parking spaces or other common areas, or
do not convey undivided share (UDS) in
land either partly or fully with the malafide
intention to transfer it after future
development (authorized or unauthorized)
or due to legal constraint. A valuer should
not simply estimate value for the
extent/area mentioned in the sale deed,
but rather first determine whether the area
transferred is lawful because only then
will that transfer be a valid contract in the
eyes of law. If common areas which are
meant for the joint use of all occupants of
the project is transferred to an individual
buyer, it amounts to an unlawful act and
when challenged in court of law, the
possession of such common area would
have to be delivered to the society. It is
generally an accepted fact that market is
supreme and therefore value has to be
determined considering market norms;
however, the valuer has to first test the
validity of contract/sale agreement. For
example, developer may be selling open
terrace at one-third the rate of the builtup

area of flat and that may be the market

trend/behavior, but since terrace is a
common area in technical parlance, a
valuer should not consider it in valuation.
Similarly,
basements
approved
as
household storage (exempt from FSI as
can be deciphered from approved plan)
are also meant for the common use of the
residents of the building and cannot be
transferred to an outsider.
The
understanding of
landmark judicial
decisions gives the valuer an insight to
analyse the validity of conveyance deeds
so as to arrive at the correct estimate of
market value.
Every challenging situation can usually be
addressed primarily by the application of
Ten Commandments of valuation. viz.

4 factors legal, economic, social,

physical/technical;

4 ingredients utility, scarcity,

transferability, demand/supply;

Value means Present Worth of

Future Benefits, and

In any valuation exercise of

tangible assets, what is valued is
not the tangible thing but the rights
and interests arising out of
ownership and/or use of tangible
assets.
7.

ILLUSTRATIONS

The application of the principles that

evolve from the above discussed
Supreme Court judgement can be lucidly
understood by considering three typical
examples of valuation for immovable
properties.

The author can be contacted on

jigeshj@yahoo.com

Example 1

Valuation of only self-occupied Ground floor in lowrise commercial building

(on 475.36 sq. m. freehold land) approved as parking in basement + ground
floor and offices on upper five floors.

Front View of building

Ground floor

1.

Floorwise Area of construction.

2.

Adherence to Sanctioned Plan. Construction at site is according to sanctioned plan and

Whether building-use certificate Building-use Certificate is issued by Surat Municipal
obtained?
Corporation vide TDO no.40 dtd.28-06-2010.

3.

Deviation from sanction plan/ Ground floor is approved as parking space (similar to
building byelaws and legal issues.
basement) meant for the common use of the occupants

Basement (103 ht.)

Ground floor (10 ht.)
First floor
(10 ht.)
Second floor (10 ht.)
Third floor
(10 ht.)
Fourth floor (10 ht.)
Fifth floor
(10 ht.)

=
=
=
=
=
=
=

219.375 sq. m.
158.32 sq. m.
158.32 sq. m.
158.32 sq. m.
158.32 sq. m.
158.32 sq. m.
158.32 sq. m

of the upper five floors of the building.

therefore be conveyed separately.
4.

Approach to valuation.

It cannot

As pronounced by the Honble Supreme Court in the

case of Nahalchand Laloochand Vs. Panchali Co-op.
Housing Society Ltd., parking space falls in the ambit of
common area which the developer is obliged to provide
to all the occupants of the building in proportion to the
area of individual units. It is not an additional area that
the developer is authorized to sell it to a
member/purchaser or to an outsider.
Ground floor (approved as parking space) is part and
parcel of the building and it cannot be a separate
premises available for sale/transfer.
Therefore,
valuation report for ground floor approved as parking
cannot be issued for secured lending purpose due to
restrictions imposed by Supreme Court on its transfer as
a separate unit.

Example 2

Valuation of self-occupied topfloor flat with exclusive roof-top terrace in

posh highrise residential campus of 23 apartments with superior amenities.
View of campus

View of roof-top terrace

1. Project details with amenities and 23 highrise apartment buildings with parking in
special features.
basement, foyer and parking space on ground floor and

flats on 11 upper floors.

Basement of all the buildings along the periphery of this
complex are interconnected. A huge open space in
central portion of the complex has a garden with gentle
slope on the roof slab of the common utility structure
(centrally air-conditioned) having a banquet hall, a
childrens playspace (hall), gents gymnasium, ladies
health club, senior citizens recreation hall. A swimming
pool is provided in central part of the utility area. A Jain
temple is also constructed in the campus.
2. Flat under consideration

1950 sq. ft. (Carpet Area of 11th floor)

+ 320 sq. ft. room and 1575 sq. ft. open area @ terrace
Internal layout of the flat consists of living room, dining
with pooja space-storeroom and internal steps to terrace,
guest room, kitchen with attached washplace, southeast
bedroom with attached toilet & corner balcony,
southwest bedroom with attached toilet & corner
balcony, parents (west) bedroom with attached toilet.
Terrace floor has one room with attached toilet besides
the staircabin and a separate toilet.
Specifications of finishes are of superior quality. This
campus has, by far, one of the best amenities in town.

3. Adherence to Sanctioned Plan/ B.U.C. is obtained for construction upto 11th floor.
building byelaws. Whether building- Terrace floor room is not approved and hence excluded
use certificate (BUC) obtained?
from this valuation.
4. Deviation from sanction plan/ Terraces over the roof of the apartment (excluding
building byelaws and legal issues.
terrace attached at flat level) are meant for the common

use of residents of the whole building and cannot be

transferred to any flatholder(s) for their exclusive use.

10

5.

Approach to valuation.

Example 3

The decision of The Honble Supreme Court (in the case

of Nahalchand Laloochand Pvt. Ltd. vs. Panchali Co-op.
Housing Society Ltd. pronounced on 31-08-2010)
indicates that the sale of common spaces in apartment
buildings is prohibited. The Apex Court has clarified
that basement/cellars/terraces in apartments are also
included in the definition of the term common areas of
building and developers cannot sell such common areas.
The right to exclusive use of terrace above 11th floor flat
is therefore not considered in valuation.

Valuation of self-occupied basement in lowrise apartment in walled city area.

View of building

Basement under consideration

1. Neighbourhood details.

Densely populated residential with wall-to-wall

construction. One of the noteworthy aspects is the
presence of numerous wholesale traders in
medical/pharmaceutical/surgical items in this area
occupying ground floor as well as basement premises
along major streets.

2. Basement under consideration.

400 sq. ft.

(Carpet Area)

3. Adherence to Sanctioned Plan/ Built-up area of construction (more than 25 years old) is
building byelaws. Whether building- according to sanctioned plan. Basement is approved as
use certificate (BUC) obtained?
household storage.
4. Deviation from sanction plan/ Basements in residential apartments of walled city are
building byelaws and legal issues.
approved as household storage but used commercially.
5.

Approach to valuation.

The Apex Court (in the case of Nahalchand Laloochand

Pvt. Ltd. vs. Panchali Co-op. Housing Society Ltd.) has
clarified that basement/cellars in apartments are also
included in the definition of the term common areas of
building and developers/promoters have no right to sell
such common areas.
The bank is advised not to consider this basement
property as a security towards loan and rather obtain a
legal opinion in view of this judicial decision.

11