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REAL ESTATE
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Business Law Project Report
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4/2015

Hansa Nahata
2014PGP016
Kabeer Bharali
2014PGP017
Kangkan Das

Kasturi Guha Thakurta

2014PGP019

2014PGP018

Contents
INTRODUCTION........................................................................................... 2
KEY GOVERNING LEGISLATION IN THE REAL ESTATE SECTOR..................2
Key Material Legal Risks Involved..........................................................4
Legal Structure...................................................................................... 4
Contract Documents............................................................................. 5
Real Estate Regulatory Authority.................................................................6
Important Case Laws Governing Real Estate Sector....................................8
References.................................................................................................. 8

INTRODUCTION
Our initial investment would be in the commercial real estate Private
limited Company. The reason why we are in favor of Private Company is
because liability of the shareholder is limited to their share capital or the
amount that is agreed. It is also to protect and shield our self from lawsuits
and other actions against partnership. Also we are protected from
partners malpractice or legal actions that may result against the partners.
Here the shareholders appoint a director and also here the legal
compliance is also less compared to a partnership or LLP. Our assets are
also not a part of the Private limited company, which allows us to form a
real estate investment partnership without any excessive risk in hand. The
biggest advantage to selecting a private limited company is that it gives a
very strong legal identity to the entity of any organization and has the
best scope of expansion as we can raise capital from investors. As our
business is a promising business and requires a lot of funding, Private
limited company is what we are going for. Also the cost to registering is
around 20000 to 25000 but maintaining its legal obligation round the year
would be of higher cost.
We are going for a commercial real estate business over residential.
Although it would not be easier to break into, but our per-deal commission
would be higher and also the competition would be less in this regards. It
will be a smooth run for us in the commercial real estate, as we have
assumed our self as professionals in this field. As per the reports from
Cushman and Wakefield, the demand for commercial real estate is
exponentially increasing and the growth since 2010 is with CAGR 7%.
The top states that we have considered are Gujarat, AndhraPradesh,
Jharkhand, Chhattishgarh and Madhya Pradesh. As per KPMG report, they
are the states where real estate is going to boom. The state that we would
primarily be selecting is Gujarat (Ahmedabad to be specific). The state has
excellent development prospects and exponentially growing in the
property market. One of the cities in Gujarat for this development is
Jamnagar where companies like Parsvnath, DLF and Rahejas are already
setting up their real estate plans. Ahmedabad is the fastest growing city in
India for years. The population has increased and also the presence of
industrial growth. The Ahmedabad-Surat-Vadodara is considered as the
upcoming commercial real estate metropolitan cluster. We can already see
the Vadodara as the industrial canter for big major Pharmaceutical and
chemical manufacturers.
KEY GOVERNING LEGISLATION IN THE REAL ESTATE SECTOR
Governing legislations in the real estate sector:
In India real estate is governed at both the federal and state level.
Federal legislations are:
Transfer of Property Act 1882: this act governs the transfer of property
and sets out legal framework for the following types of transactions: Sales,
Leases, mortgages, gifts, exchanges, and transfers of actionable claims
Indian Contract Act 1872: this law sets out the framework for the
contracts and does not specifically include the transactions happening in

the real estate deals, but principles under this law apply to contracts
relating to real estate as well. It covers following things in particular:
enforceability of the contract, capacity, consideration and intention of the
parties
Registration act, 1908: this act sets out real estate related instruments
that must be compulsorily registered and those whose registration is
optional and states the effect of non-registration of documents whose
registration is mandatory.
Real estate (Regulation and development) Bill (Old Bill):
This bill will be applicable in both commercial and residential real estate.
From the consumer prospective, this law is going to bring;

For any change in the already allotted structural designs and

specification of the area, consent of two-third allottees is required
New fast track dispute settlement mechanism through adjudicating
officers and appellate Tribunal to hear appeals

From the companies prospective;

Prior approval before the launch and advertisement

Mandatory deposit of fund- A deposit of around 70% as notified by
the government to ensure timely completion and prevent fund
diversion. This amount has to be kept in a separate bank account
Registration of the real estate project and real estate agent and also
disclosing of mandatory information
There is also a restriction of taking any advance from the buyers
more than 10% without written agreement and also the full refund
in case of delay of projects
Liability/Penalty- Imprisonment of 3 years or penalty up to 10% due
to misleading information

Apart from these state laws are also applicable like Gujarat town planning
and urban development Act, 1976. This law covers in great detail all the
information regarding how to go about the construction of buildings in the
commercial or residential real estate. For example whom to apply for the
mandatory approvals, specifications regarding how to go about
construction what to do and what not.
Key Material Legal Risks Involved

Legal Structure
To set up a private company limited in India we have to go through these
simple steps;
1) We need to first apply for a Designated Partner Identification Number
(DPIN), which can be done by filing e-Form for acquiring the DIN.
2) We would also then need to acquire your Digital Signature Certificate
and register the same on the MCA portal.
3) Thereafter, we need to get the private limited company name approved
by the Ministry Of Corporate Affairs. Once approved,
4) Register the company by filling forms which comes under the private
company act
5) Submission of Documents to ROC and Payment of Fee
6) Obtaining Certificate of Incorporation
7) Obtaining a Permanent Account Number
8) Obtaining a Tax Account Number
9) Get registered under Shops and Establishment Act
10) Get registered for VAT at the sales tax office
Contract Documents
A construction contract
combination:

basically

consists

of

four

documents

in

1. DRAWINGS - graphic representation of the work to be performed

consisting of a site, foundation, floor, roof, elevation, and crosssection plans. They show the location, character, dimensions, and
details of the work.
2. SPECIFICATIONS - written description of the work to be performed
consisting of product identification, types of finishes, and standards
for performance
3. AGREEMENT - identifies the parties to the agreement, the date,
payment schedule for the work, the basic commitment of the Trade
Contractor to construct the described project in accordance with the
Drawings and Specifications, the schedule on which the work is to
be performed, and the signatures of the parties
4. CONDITIONS - detail the rights and obligations of the Owner, Trade
Contractors, and those activities, which will be shared by mutual
agreement. All parties will want to be familiar with all the WRITTEN
REQUIREMENTS of an enforceable contract
a. Business Documentation - The legal business name,
address and business owner, or legal representative, should

b.

c.

d.

e.
f.
g.

h.
i.

be
stated.
Indicate
license
numbers,
professional
certifications, proof of bond to cover work performed, proof of
occupational insurance
Contract Price - How much will be charged? Does the price
include sales tax or not? Who is responsible for getting the
permits and scheduling inspections? Is the price fixed on
drawings and specifications, or cost plus a percentage with
an estimate, or based on an hourly fee? Can you break the
work into phases of completion?
Schedule of Payments - How are you going to pay? Is there
going to be a down payment or retainer fee paid? Are there
going to be progress draws? Will you utilize a voucher
system? Is the balance due on completion of work? How long
after substantial completion of work is final payment due?
Terms of Payments - How do you determine substantial
completion of work: when the permit is issued or signed off or
some other more definitive date? Will a notarized waiver of
lien be required? Will dual signature checks be utilized? How
often will the lender's representative visit the site to verify
progress?
Building Codes. Who is responsible for conformance of
drawings and specifications to the building code?
Change Orders. How will changes to scope of work be
documented?
Disputes and Remedies. If there is a misunderstanding,
how will it be resolved? How will legal fees be paid? Can you
terminate the relationship without paying penalties or
additional fees to a designer or contractor?
Warranty. What kind of warranty is being offered for
products and services?
Scheduling. Whose responsibility is it to schedule the work?
If the workplace is not ready at each phase of construction,
then who takes responsibility?

Real Estate Regulatory Authority

The Real Estate development & housing construction was largely the
concern of the government till the 1980s with very few private-promoters
and a highly unregulated industry. After the liberalization of the economy in
the 90s, encouragement was given to growth of the private sectors in
construction business, and the sector today is estimated to be contributing
substantially to the nations GDP. It can be often seen that consumers often
being unable to procure complete information, or to enforce accountability
against builders and developers in the absence of effective regulation. The
Real Estate (Regulation and Development) Bill, which was pending since
2013, is a pioneering initiative by govt. to protect the interest of the
consumers, to promote fair-play in real estate transactions & to ensure
timely execution of the projects.
The Bill provides for a uniform regulatory environment to protect consumers
interests, help the speedy resolvases of the disputes and ensure proper
orderly growth of the real estate sector. The Bill contains provisions of the
registration of real estate project & registration of real estate agent(s) with
the Real Estate Regulatory Authority of India, functions and duties of

promoter and allotter established during Real Estate Regulatory Authority,

help to achieve the objective of the Govt. of India to provide Housing for All
by 2022, through enhanced private participation, establishment of a Real
Estate Appellant Tribunal, punishment for offences and the penalties. The
revised bill has included many provisions to protect the buyers, which
includes an additional window to approach consumer courts for consumer
related grievances. The main green-signals approved in the Bill are The Residential, Commercial & Industrial projects are to come under
the regulators jurisdiction
Regulator to clear the real estate related cases within 60 days
Buyers will be able to approach consumer forums
50% payment by the buyers to be deposited in escrow account for
that project, which was less than 70% provision by UPA
The dilution provisions were deleted since they were found to be
redundant. The designated agency to enforce law is the regulatory
authority and there are adequate measures to check the builders including
the option to cancel their registrations and handing over the project to the
consumers.
The provision of the cost of land accounts for about 25% to 50% of projectcost and the developers would majorly have already paid this amount in
advance even before the start of a project. Also, the ongoing projects that
are yet to receive completion certificates have been brought under the
purview of this new bill and such projects will need to be registered with
the regulator within three months.
The penal provisions under the proposed law includes payment of 10% of
the project cost for non-registration and 10% of project cost or 3 years of
imprisonment or both, if the regulations are still not complied with. Wrong
disclosure of information or for the uncomplimentary with the disclosures
and requirements the punishment is payment of 5% of project cost will be
imposed on the realtors.
Real Estate Regulatory Authority positive and negative aspects Pros
Residential, commercial & industrial projects are to come under the
authoritys jurisdiction
The concent of 2/3rd allotteess are required for change in plans or
designs
Builder will have to rectify the structural defects within two years
Authority shall have to clear cases within 60 days
Buyers will be able to approach consumer forums
All ongoing projects irrespective to starting date will fall under this
jurisdiction
Proper regulation of the real estate agent
Punishments like Fine & jail for non-registration of projects and
cancellation of registration
Cons
50% payment by the buyers will have to be deposited in an Escrow
account for a particular project against earlier provision of 70%
during UPA regime

The clause involving the punishment of on powers of appellatte

tribunal to punish director, manager, secretary or other officer of a
company is deleted
No checking on part of the antecedents of developers while
registering of the projects
No blacklisting of firms, if they defaulted in two earlier projects

Important Case Laws Governing Real Estate Sector

DLF case where Supreme Court ordered the company to pay a sum of 630
cr. because of the abuse of the market dominance. The case was filed by
the flat buyers association of two DLF projects in Gurgaon- DLF park
palace and the Belaire in the competition commission of India in 2011. The
reason given by buyers was delay in the project completion and increase
in the number of floors over the planned number before .

References
http://www.hindustantimes.com/business/world-bank-dubs-gujarat-the-bestindian-state-for-doing-business/story-A5uHixZeGhdu2dheb2TMzH.html
Page 2
http://madaan.com/incorporate.htm#Pvt
Page 2
http://moneyplantconsulting.net/blog/2015/04/25/how-to-set-up-a-legalstructure-of-your-start-up/
Page 2
http://www.ownerbuilder.com/contract-documents.shtml
Page 4
http://pib.nic.in/newsite/PrintRelease.aspx?relid=118039
Page 5