Over last many years I have noticed that Builders make the building but fail miserably in handing over charge of the Proposed society to the newly formed Society. Normally there is a gap of about 6 months to 2-3 years between when a builder starts giving possession of the flats to the buyers and formation of Society. During this interim period Builder starts collection of maintenance charge from the flat purchasers in the name of the Proposed Society. And separate accounts are maintained by the builder in the name of Proposed Society (PS).
But, in most of the cases, at the time of handing over possession of the building to the newly formed Society, builder does not give any accounts of the money collected and spent in the name of the PS. Also, builder ensures that there is no money left in the bank account of PS. Only thing builder hands over to the society is details of money collected and fails to give account of where and how money was spent in the PS.
Society members are faced with following practical questions
1. When does a building become ready for possession? This becomes an important question where building construction got delayed for some reason and could not be completed in time as per the time-line promised by the builder while selling the flats.
Since flats are costly and in short supply, flat purchasers insist on taking possession of the flat, moment building construction nears completion, without waiting for Occupation Certificate (OC) from the Municipal Corporation and/or Building Completion Certificate (BCC). And, in variably builder delays getting OC and BCC under one pretext or other.
2. Newly formed society wonders how to ensure that Builder obtains the OC and BCC quickly and hands them over to the Society.
If not done, flat owners occupation of flats is considered illegal and they can be evicted by law. Also, flat owners have to pay 100% extra towards the Water charges to the Municipal Corporation.
3. How to collect maintenance charges from the builder for the unsold flats? Builder invariably does not pay proportionate charges to the society. So, flat owners end up paying Municipal Tax, Electricity and Water charges for such unsold flats. That's unfair. Isn't it?
Questions of law
Above three questions raise following questions of law, for which there does not seem to any satisfactory answers from any authority or law or act.
1. Up to which date and to what extent a builder is liable to pay Municipal Tax, Water and Electricity Charges for the semi or fully constructed building? Is it date from which OC is granted or BCC date or some other date decided unilaterally by the builder?
In practice, builder decides this date and announces to buyers that flat if ready for possession and buyers will be liable to pay maintenance charges from the date of possession of the flat.
2. Which law or act governs the period between Occupation of Flats by the buyers and Society formation date?
It seems that Maharashtra Government has failed to take cognizance of this gap in Maharashtra Ownership Flats act 1963 and Maharashtra Co-operative Society Act (MCS) 1960. Both acts are totally silent on this part. So, what ever happens during this period
3. Is there any provision in the law to ensure that Builder is allowed to hand over possession of the flat only after obtaining OC and BCC?
So, what happens in Maharashtra due to this issue?
Newly formed society's office bearers invariably do not have any idea as to how to get over these problems. And in absence of any guidelines / rules / act /law seeks assistance of Society Consultants. And, in almost all cases, these consultants at best ends up giving ambiguous suggestions and advice, leading to untold suffering for the society members. And, life goes on like this in Maharashtra.
So, how to resolve the problems?
Some practical answers can be thought of if we go back to basics tenets of co-operative society.
When a building is jointly owned by several flat owners Co-operative society is formed because it offers ease of operations. So, society should collect enough money from the members to cover the common expenses and taxes payable to the government authorities.
Keeping above in view, following are common sense suggestions:
1. When the building is completely ready builder announces a date, calling all flat owners to take possession. This date would be same irrespective of when the flat owner actually takes possession of the flat.
2. Flat owners become liable to pay proportionate outgoings to the PS from this date. For unsold flats builder would become liable to contribute to the PS. As and when such flat is sold builder would stop and new buyer would start paying outgoings to the PS.
3. For the period of Proposed Society, builder would estimate expected outgoings per flat considering municipal taxes, water & electricity charges and common expenses like security, building insurance etc. It would be fixed in such a way that at the end of year there would not be any balance in the name of PS.
4. Builder would maintain, prepare and present accounts of the PS every year, till society is formed. In case monthly outgoings would require revision, such changes would be communicated by builder to all PS members.
5. When society is formed, builder would present audited accounts of PS and hand over all original bills/ papers/documents to the society including OC and BCC.
Here we are assuming that builder gets OC and BCC before Society is formed. If not done, what happens is any one's guess. Please note that above mentioned solution is meant to minimize disputes among society members and builder over the accounts of the PS. In case, any member of the PS or builder has not paid his portion of outgoings society could try to recover the same from the erring member by a mutual discussion. If not resolved, suitable resolution can be passed during the First General Body meeting of the newly formed Society.
But, what happens when builder does not give audited accounts of the PS?
Particularly, I am going to narrate here one case study where flat owners got duped by a builder in Mumbai.
In 2003, one builder announced plan to make a 7 storied building with basement parking and gymnasium, brochure stating thus:
Building construction was going on and 3 floor had already come-up. One buyer went and decided and booked a flat on 5th floor of the building. Money was paid to the builder in four installments and agreement was signed and registered in July 2003.
And, after few months buyer learnt that there is some dispute and matter has gone to Bombay High Court and court gave stay order on construction. Matter was fought in the court for 2-3 years and builder did out of court settlement. And construction restarted and builder quickly completed 5 floors and he offered the flat for possession to the buyers. Builder promised that he will complete remaining 2 floors at the earliest, after getting permission from the municipality. So, many buyers moved in to the building in about Sept-Oct 2006. Builder collected 1 years maintenance charges at the time of giving possession.
In 2007, builder got permission for rest of the building and to the buyer's amazement constructed 8 floors on one wing and 6 floors on other wing. When buyers protested builder showed them the agreement and said we are entitled to make modifications, as required. Major construction got over in Sept-Oct 2008 except some amenities like Gymnasium in the basement etc. After that builder kept on giving promise of getting Occupation Certificate in few months but has failed to get the same till date.
Builder started sending maintenance bills to the occupants from 1st Oct 2007 in the name of the proposed society. When flat owner asked him clarification for this date, they were told that he has decided to collect maintenance from this date and those who occupied the flats earlier would not be charged any maintenance because building was not completed.
Loss of Peace for the Flat Owners
In 2012, flat owners noticed that municipal corporation pasted notice on the building entrance saying Municipal Tax is not paid to the tune of about 35 lakhs. If it is not paid in short time, building will be auctioned. Flat owners approached builder and asked for explanation as to why Municipal Tax was not paid when flat owners were paying the maintenance charges. After much discussions flat owners realized that unless they take matter in hand, building could get auctioned. So, flat owners got together, met municipal officers and made payment of the municipal taxes through the proposed society's account.
After tax matter got settled flat owners realized that they have no option but to form society on their own. And they formed Society in Aug 2012. When builder was asked for the audited accounts of the proposed society he promised but failed to give the same. During first meeting Chairman, Secretary, Treasurer and 2 members were selected by the body.
Upon follow-up builder gave details of maintenance charges collected from each member and details of Electricity and Water charges. And society found that only Rs.5,000/- was there in the proposed society's bank account.
Problems among new Society members
In Dec 2012, society members received a notice for payment of maintenance arrears. Upon some checking they realized managing committee had decided to levy maintenance charges from date of possession (Sept-Oct 2006) to Sept 2007. Reason behind such a move was explained thus: society does not have any corpus and one society consultant advised them to collect money this way. Members protested by collectively writing a letter to the society saying following:
1. Society has right to collect money from members only from 1st Aug 2012 onwards. Past arrears, if any should be based on audited accounts presented by the builder. In absence of audited accounts and no bills raised by the builder for this period, they are not liable to pay any arrears.
2. Money if required should be collected by selling open parking space (this was decided in first AGM) and demanding maintenance charge from the builder for the unsold flats.
In March 2013, instead of giving any written or verbal reply, managing committee sent a letter written by a builder saying following:
a. Bills raised from 1st Oct 2007 by the proposed society were only and exclusively on provisional basis.
b. Possession letter signed by flat owners society clearly stipulated that society dues would be paid from the date of possession.
1. Members are not sure as to what is the correct way to decide date of payment of society dues because when they took possession of the flats in Sept-Oct 2006 only 5 floors were ready. Remaining floors got ready only in Sept-Oct 2008.
2. Members feels that they got in to trouble because members have got divided in two groups. One group feels that those who have taken possession in 2006 should pay up 1 years maintenance; and other group feels cheated because builder had clearly given assurance to people that maintenance will be collected from Oct 2007 only.
What would you suggest to resolve this issue and establish peace and harmony among divided flat owners?