Redevelopment Agreement Flaws - Article 3

3. Process of Preparing Redevelopment Agreement with Developer

Earlier, in most redevelopment projects the small time builders used to approach the Society secretaries or chairman to offer a proposal for redevelopment & without required technical scrutiny of provisions proposed & with loosely worded agreement the Societies used to handover their premises to such builders, who ultimately used to drag these projects endlessly or redevelop the property with substandard quality of work & materials, many times indulging in FSI violations, without obtaining occupation certificate & without payment of compensations promised.

Govt Directive 79(A)

After receiving complaints from members of such Societies the Govt of Maharashtra, appointed a study group & on the basis of its report, introduced directives on 3^rd January 2009, under section 79(A) of Maharashtra Co-op Societies Act for redevelopment of building of co-op housing society. These directives have framed the regulations for redevelopment of buildings of co-operative housing societies. These regulations provide guidance regarding, convening meeting for redevelopment decision, appointment of PMC (Project Management Consultant), responsibilities of PMC, scrutiny of tender, selection of Developer, agreement to be entered into with Developer etc.

PMC’s Role

PMC’s role in the redevelopment project is pivotal considering, PMC’s responsibilities, i.e. preparing Project (Feasibility) Report, prepare tender forms and invite tenders, scrutinise tenders & prepare comparative statement, guide the Society to enter into agreement with the selected Developer. PMC’s services can also be continued to monitor the actual construction work till completion of the building & rehabilitation of members. However, this article is limited to the role of PMC till finalising the Developer in the redevelopment project where redevelopment is planned to be carried out by engaging the Developer, who is expected to offer the alternate permanent accommodation with certain additional area free of cost to the Society members. The PMC’s role for monitoring the Developer’s construction work till completion of project & PMC’s role for self-redevelopment projects shall be discussed separately.

Why do we need Project (Feasibility) Report?

Here, it should be particularly noted that, the PMC activities i.e. preparing Project (Feasibility) Report, Tender form & converting tender into agreement, are interlinked & interdependent. At very initial stage the PMC has to prepare the Project (Feasibility) Report. The function of Project (Feasibility) Report is thought to be only to gauge the feasibility of the project. Whereas, it is actually to be used prepare the tender form (which in turn shall be converted as the redevelopment agreement) to freeze the requirements mentioned in tender form, of expected Corpus Fund/ Hardship Allowance & other compensatory amounts such as shifting out & shifting in charges, rent of temporary alternate accommodation including broker’s charges considering the rent escalation of 10% per year for redevelopment duration considering allowable extension period. These figures are assessed by the PMC after accepting the suggestions / recommendations of members of the society and entered into Project Report to gauge the feasible free additional carpet area expected to get to members of the society. Based on this Project Report data, all these compensations are fixed (not to be changed) in tender by keeping open either additional free carpet area or corpus fund (choice based on suggestions / recommendations of members of the society) for quotation and freezing all other compensations while inviting the tender. This means, the tenderer developer has to quote only for the offer of either additional free carpet area or corpus fund, which is essential to make the tenders transparently comparable while scrutinising & preparing comparative statement. The directives under section 79(A) has also mandated this requirement under its para 8(c). This is required particularly considering that the additional free carpet area has to be expressed in percentage above the existing carpet area owned by each member of society & all other compensations/ requirements can be expressed in certain amount.

Where PMC may err in calling quotations?

It has been observed that many PMCs, who are habitual of inviting item rate construction contracts, err on this aspect by inviting quotations for each & every compensation/ requirement, which makes such tenders incomparable at the time of making comparative statement. This error also reflects the ignorance of PMC about the uses of Project Report. It was pointed out to me that, some PMCs make this error knowingly, so that, the absence of transparency in comparison & scrutiny of tenders allows them to recommend (push?) the selection of their favourite Developer(s).

Here, it is also to be remembered that, the compensation of rent is to be based on suggestions of the members of the society and are generally based on the rate of rents in adjoining area of the society building. If such aspects are kept open for quotation, the lower rent rate offer will not be acceptable by the society & higher rent rate will ultimately influence final total offer. The rent amount can never be made quotable in comparable format considering that the rents have certain escalation every year, includes brokerage & has to be offered till the rehabilitation, which can extend beyond mentioned time period. Hence, the rent amount requires to be estimated in Project Report on above basis considering certain buffer period of allowable extension & needs to be mentioned in tender on` per month’ basis with escalation details per year including brokerage per year & mentioned to be payable till the rehabilitation of the society members in permanent alternate accommodation.

Tender to be converted into the Redevelopment Agreement

Since all the details i.e. all the requirements, quantities, available provisions, terms & conditions, specifications etc are required to be mentioned in the tender to get the correct quotation from the tenderer, the tenders are always in the format of the contract agreement & at the time of the acceptance, the tender is converted into the contract agreement. Usually the building construction contract agreements are prepared, invited & concluded by Architects/ PMCs. Hence preparing Redevelopment Tender & finally converting it to Redevelopment Agreement has also been the responsibility of PMC. The govt directives 79A, recognise this ability of PMC & hence do not prescribe for any requirement of legal adviser in this aspect. Though many societies tend to hire legal adviser for preparing redevelopment agreement which is not required considering that the tender document is itself to be converted into redevelopment agreement. Hiring both entities i.e. PMC as well as legal adviser to prepare the redevelopment agreement may cause the possibility of creating contradictions in tender & redevelopment agreement which may favour the Developer in case work goes in dispute. At the most the redevelopment agreement can be got vetted from the legal adviser to ascertain its legal validity particularly regarding clauses like termination of agreement, liquidated damages etc. Also the legal adviser can be hired to prepare the draft of the power of attorney to be given to the developer to represent the society while carrying out the construction & the agreements of the members individually with the developer for the permanent alternate accommodation. However, the power of attorney, should be carefully worded, particularly not allowing the developer to use it to mortgage the property/ society land to raise the capital. The format of both these documents shall also be made part of the tender document to avoid any dispute at later stage. It should be mentioned that, if any term(s) mentioned in these documents contradict with the contents of the redevelopment agreement in any way, the terms mentioned in redevelopment agreement shall always supersede & hold good in such circumstances.