LONG TERM LEASE OF 999 YEARS IS THE SAME AS ‘SALE’, RERA IS APPLICABLE: HON’BLE BOMBAY HIGH COURT

1. BACKGROUND

• In the recent case of Lavasa Corporation Limited v. Jitendra Jagdish Tulsiani and Ors., the Hon’ble Bombay High Court had to adjudicate on an interesting issue falling under the realm of Real Estate (Regulation and Development) Act, 2016 (“RERA”):

Whether the provisions of RERA were applicable in case the Developer instead of allotting apartments to the purchasers on sale basis, allotted them under ‘Agreements of Lease’ for an unusually long period and where the basic elements of the lease were as under:-

1. the lease was for a period of 999 years,
2. the lease rent was only Rs. 1 per annum,

• The Allottees had paid consideration to Lavasa almost, to the extent of 80% of the sale price, and also paid stamp-duty and the registration charges.
• In the said case, the Developer had failed to complete the project and hand over the possession of the apartment on time to the allottees, and it was argued by it that, – as the flats allotted by it were given under a ‘lease’ transaction and not by way of ‘sale’, provisions of RERA which imposed penalty on the Developer on account of delay in giving of possession were not applicable.
• The Court held that, – such a type of ‘Agreement of Lease’ was actually an ‘Agreement to Sell’ and taking into consideration the object of RERA of providing comprehensive, effective and speedy remedy to the persons who have invested large sums of money for having a home, the provisions of RERA were equally applicable to the long term leases; or, where the substantial amount of consideration is already obtained by the Developer.

2. FACTS OF THE CASE

• The Respondents-Allottees were bonafide purchasers of their respective apartments in the projects/buildings, in a township scheme of Lavasa in Pune. The allottees were given flats not under a transaction of ‘sale’, but under ‘Agreements of Lease’ where in the flats were leased out to the allotees for the period of 999 years. The Allottees had paid consideration to Lavasa almost, to the extent of 80% of the sale price and the lease rent was only Rs. 1 per annum. They also paid substantial amount towards the stamp-duty and the registration charges.
• As per the ‘Agreements of Lease’ executed between the parties, the project was to be completed and the possession of the apartments was to be handed over to the Allottees within a period of 24 months. However, after waiting for 6 to 7 years for getting the project completed and after making several enquiries with Lavasa about the progress of the said project, the Allottees found that there were no chances of the project being completed in a near future. Hence, after Lavasa registered itself with the RERA, the Allottees approached the ‘Adjudicating Authority’ under the Maha RERA with an application, under Section 18 of the RERA, for compensation with interest for every month of the delay in handing over possession of the apartments and for various other reliefs, to which they are entitled under the RERA.
• Before the Adjudicating Authority, Lavasa challenged the very applicability of the provisions of the RERA to the ‘Agreements of contending inter alia that, the Respondents are the ‘Lessees’, as the ‘Agreements’ entered into between the parties are clearly the ‘Agreements of Lease’ and not an ‘Agreement of Sale’. Therefore, such ‘Agreements of Lease’ being specifically excluded from the ambit of the RERA, the Adjudicating Authority under the RERA has no jurisdiction to entertain the complaints.
• The Adjudicating Authority held that,

1. the definition of the ‘Allottee’, as given in Section 2(d) of the RERA, does not include a person, to whom such plot, apartment or building, as the case may be, is given “on rent”.
2. The definition of the ‘Promoter’, as given in Section 2(zk) of the RERA, includes only the person, who has constructed or caused to be constructed a building or apartment for the “purpose of selling” and thereby excluding from its purview the “purpose of lease”.
3. In this case, as admittedly, the ‘Agreements’ executed by the Appellant with the Respondents are the ‘Agreements of Lease’, such ‘Agreements’ cannot fall within the purview of the provisions of RERA. Consequentially, Maha RERA had no jurisdiction to entertain the present complaints or the dispute and, accordingly, dismissed the complaints for want of jurisdiction.

• When Respondents-Allottees challenged this order of the Adjudicating Authority before the Maharashtra Real Estate Appellate Tribunal, the Appellate Authority, however, after perusal of the ‘Agreement of Lease’ as a whole and after considering the object and purpose of the RERA, was pleased to hold 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 Appellate Tribunal also held that, the Appellant has got itself registered under the provisions of the RERA and, therefore, now it is precluded or estopped from contending that the provisions of the RERA are not applicable thereto. The Appellate Tribunal therefore set aside the orders passed by the ‘Adjudicating Authority’ and held that, the provisions of the RERA are applicable even in case of ‘Agreement of Lease’ and the Maharashtra Real Estate Regulatory Authority had jurisdiction to entertain the complaints filed by the Allottees.
• Lavasa challenged the order passed by the Appellate Tribunal in the Honorable Bombay High Court.

3. JUDGMENT OF THE HONORABLE BOMBAY HIGH COURT

Concurring with the Judgment of the Honorable Real Estate Appellate Tribunal, the Honorable Bombay High Court held as under:

Agreement to Lease of 999 years is actually an Agreement of Sale

• Based on a holistic reading of the entire ‘Agreement of Lease’, it was apparent, that it cannot be termed or treated as an ‘Agreement of Lease’, but, in its real purport, it is an ‘Agreement of Sale’.
• The very fact that more than 80% of the entire consideration amount is already paid by the Respondents to the Lavasaand the lease premium agreed is only of Rs. 1/- per annum is self-speaking to prove that, in reality, the transaction entered into by the parties is an ‘Agreement of Sale’ and not an ‘Agreement of Lease’; though it is titled as such.
• In an ‘Agreement of Lease’, the ‘Lessee’ does not pay more than 80% of the consideration amount towards the price of the said apartment. In an ‘Agreement of Lease’, the rent cannot be Rs. 1/- per annum only, for such an apartment, market rate of which is more than Rs. 40 lakhs. In an ‘Agreement of Lease’, parties do not pay the registration charges and stamp duty on the market value of the said apartment. The ‘Agreement of Lease’ also cannot be for such a long term for ‘999 years’. This long period of lease in itself is sufficient to hold that, it is not an ‘Agreement of Lease’, but, in reality, an ‘Agreement of Sale’.
• The law is well settled that the nomenclature of the document cannot be a true test of its real intent and the document has to be read as a whole to ascertain the intention of the parties.

The definition of the term “allottee” should not be construed in a restrictive manner and is deemed to include leaseholders in cases where transaction was actually not a lease by essentially of the nature of a ‘sale’

• Though the definition of the word “Allottee”, as given in Section 2(d) of the RERA, does not include a person to whom such plot, apartment or building, as the case may be, is “given on rent”, it must be remembered that, the definition of the term ‘Allottee’ includes even when the plot sold is a “freehold or leasehold”. To that extent, it has to be held that, the definition of ‘Allottee’ also includes the ‘Lease Agreement’, though it may not include such Agreement, when the apartment is in its real sense given purely on rent and it is, in reality, an ‘Agreement of Rent and Lease’ and not, in effect, a transaction of sale.
• The intention of RERA was to protect all those persons, who have invested substantial amounts in the real estate projects. Hence, they are required to be called as ‘Consumers’ or ‘Allottees’. If they are excluded from the definition of ‘Allottee’ and thereby from the protection given under the Act, by giving restrictive meaning to the term ‘Allottee’, the very object of the Act would stand frustrated.
• The Lessees had already invested more than 80% of the consideration amount of the said apartment in the Real Estate Project of Lavasa. Their interests in the project undertaken are that of the ‘Allottees’, who have entered into such ‘Agreements’ for the purpose of purchase of the said flat/apartment.
• The Developer-Promoter may, by executing the ‘Agreement’ with the nomenclature as the ‘Agreement of Lease’, can very conveniently escape from the clutches of the provisions of this Act. When the Legislature has stated in the definition of the term ‘Allottee’ that it does not include the person, to whom the plot, apartment or building is “given on rent”, the intention of the Legislature was only to exclude pure ‘Agreements of Lease’ or the ‘rent’, as the Lessees therein have not invested the substantial amount, like purchase price, of the apartment in completion of the project.

The provisions of the Act are required to be construed and interpreted keeping in mind these ‘Objects and Reasons’ of the Act

• The RERA assures completion of project in time-bound manner. The main object is to ensure accountability on the part of the Real Estate Sector and to provide a comprehensive, effective and speedy remedy to the persons, who have invested large sums of money for having a home of their dreams. The very enactment of the Act was found necessary, because it was noticed that all over the country in large number of projects, the Allottees did not get possession for years together. Huge amount of money was found locked in. Hence, to suppress this mischief and to provide effective remedy to the consumers, this law was enacted.
• Once it is accepted that the Act was legislated to bring some discipline, professionalism, transparency and standardization in all the projects of real estate sector, then the mere nomenclature of the document as ‘Agreement of Lease’ will not in any way take away the rights given to them by the statute, as the same would be result in frustrating the very object of RERA.
• The Hayden’s Rule of Suppression of Mischief needs to be applied with full force and if that Rule is applied, then the provisions of the RERA are required to be held as equally applicable to the long term leases, like the present one of “999 years”; or, where the substantial amount of consideration is already obtained by the ‘Developer’. Then the definitions of the terms ‘Allottee’, or, ‘Real Estate Project’, or, even that of ‘Promoter’, are required to be interpreted in that context and not in isolation.

Registration of the Project with RERA is one more reason to penalise Lavasa for the delay

• Lavasa itself has registered this project under the RERA and accepted its liabilities under the Act.
• If the Lavasa has registered itself under the RERA, it follows that Lavasa has submitted itself to the jurisdiction of the RERA. Now Lavasa cannot contend that the provisions of Section 18 of the RERA are not applicable to it, as the ‘Agreements’ executed with the Respondents are ‘Agreements of Lease’ and not an ‘Agreement of Sale’.
• By registering itself under the RERA and availing the benefits, which were available under the RERA, Lavasa cannot approbate and reprobate.

Even though registration under RERA could have been obtained only for a part of the project, the fact that Lavasa voluntary registered the entire project under RERA, it had to face consequences under RERA

• By volunteering to register itself under the RERA, Lavasa has surrendered itself to the jurisdiction of the Adjudicating Authority, established under the RERA. The option was available to the Lavasa to register only part of the project and not the entire or part of the project, in respect of which the ‘Agreements of Lease’ are executed. The Lavasa had not exercised that option. Without any qualification or reservation, Lavasa has registered the entire project with RERA. Lavasa cannot, therefore, contend that, the Adjudicating Authority established under the RERA has no jurisdiction to entertain the complaints filed by the Allottees under Section 18 of the said Act.
• The provisions of the RERA cannot be bifurcated in the sense that, only in respect of certain aspects, the Lavasa can avail benefit of the said Act; by registering itself and as per its convenience, whenever Lavasa has to comply with the obligations therein, it can raise contention that the provisions of the RERA are not applicable, because it is an ‘Agreement of Lease’.

4. QUICK COMMENTS

• The judgment of the Honorable Bombay High Court is a big aid and relief to the home buyers who are allotted flats under similar arrangements of long term leases which are commonly used at the time of sale of villas / chalets in township projects in Maharashtra.
• While in this case the lease period was of 999 years, the principle may also apply for leases for a comparatively shorter duration or in other alternate conveyancing structures where major portion of the consideration is paid to the Developer. A question may however arise whether long term leases where major portion of the consideration is not paid upfront will be looked at the same way.
• The judgment may be used as a precedent to support an argument (in non-RERA matters) that an Agreement of lease for perpetuity is the same as a Sale transaction.