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Case Study: PROVISIONS OF RERA WOULD BE APPLICABLE TO LONG TERM ‘LEASE AGREEMENTS’ by Lavasa WHERE SUBSTANTIAL INVESTMENT IS MADE: BOMBAY HIGH COURT

In a recent pronouncement, the Bombay High Court has held that provisions of the Real Estate (Regulation and Development) Act, would apply in case of agreements styled as ‘Agreement to Lease’ will apply in case of agreements styled as ‘agreement of lease’ when the lease period is long and when the ‘lessee’ has paid a substantial amount as consideration.

A single bench of Justice Shalini Phansalkar Joshi passed the ruling while hearing appeals filed by the Lavasa Corporation, which is developing a township project near Pune, registered under the Maharashtra Real Estate Regulatory Authority (RERA) and dismissed second appeals filed against orders passed by the Maharashtra Real Estate Appellate Tribunal that held that though the ‘Agreements’ between the parties are titled as ‘Lease Agreements’, in effect, they are the agreements of absolute sale and therefore the provisions of the RERA will be applicable.

The appeals were filed by  Lavasa Corporation, challenging orders passed by the Maharashtra RERA’s appellate tribunal holding that the regulatory authority’s provisions were applicable to the three persons who had taken apartments in Lavasa through agreement of lease which was challenged by Lavasa Corporation by this appeal in the High Court of Bombay. The company in its appeals had claimed that provisions of RERA would not apply in cases of agreement of lease and that the definition of promoter under the regulatory authority would not include lessor. Lavasa argued in the High Court that the relationship between the company and the persons was that of lessor and lessee and there was absolutely no sale or transfer of title of the apartments.

However, the Court, while rejecting the arguments contended by Lavasa Corporation, held that since Lavasa was a project registered under RERA, the Act's provisions would apply to it and hence RERA had the jurisdiction to hear and decide complaints of people seeking compensation for delay in possession of three flats in the Lavasa township booked on a 999-year 'agreement to lease' for which 80% of "purchase price" had been paid. It added that the adjudication officer under MahaRera, the state's real estate regulatory authority could decide complaints for compensation for a delay of six to seven years in possession of these apartments.

Justice Phansalkar Joshi said that the legislative intent could never have been to exclude long-term lease as it would defeat the purpose of the law, with developers executing agreements of lease and conveniently escaping the clutches of the Act’s
provisions. “Merely because the legislation excluded allotment, when given on rent, it does not exclude  long-term lease. That would be defeating and frustrating the objective of the Act,” the judgement underlined.

Observing that the intention was only to exclude rent because lessees in those cases would not have invested substantial amounts like the purchase price, the court added that one could not exclude persons who had paid 80 per cent of an apartment’s purchase
price, and also that a 999-year lease agreement was as good as sale of the apartment. It further said that the three persons in this particular case could avail remedy provided under Section 18 of the Act, seeking compensation. “Depriving them of the remedy available under Section 18 of the Act is as good as allowing the unjust enrichment on part of the appellant (Lavasa),” the order stated.

As reiterated by the court, the objective of RERA is to protect consumers, the persons who invest their hard-earned money by entering into an ‘agreement’, which is in the nature of purchase of the apartment itself. Mere nomenclature of the document as
‘agreement of lease’ will not in any way take away the rights given to them by the statute. Further, the main purpose of RERA is to ensure accountability on the part of the real estate sector and to provide a comprehensive, effective and speedy remedy to
persons who have invested large sums of money to have a house of their own.

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