Urbanization
has accelerated migration of people to the nearby cities in search of jobs and
other means of livelihood. This increased influx of population to the cities
has in turn created paucity of residential accommodation. The employees prefer
to have accommodation near their job centers for obvious reasons. This has
resulted in vertical growth of cities instead of lateral growth. Vertical
growth saves lot of land and can accommodate a large of number of families in a
limited space. But, vertical development of land requires heavy investment
which an individual cannot generally invest and thereby the joint venture
activities.
What is meant by Joint Venture?
The words
"Joint Venture" is described as "a business activity by two or
more people or companies working together". Many times an individual may
own some land, but may not have funds to fully exploit it. Similarly a
builder/developer who has resource may need some land to employ his resource
profitably. For vertical development of land which comprises of a number of
flats lot of money, manpower and expertise are necessary all of which an
individual cannot possess. Moreover, unlike in the case of construction of
independent house, the group housing or construction of apartments is more
complicated. It requires approval from various agencies like water supply
board, sanitary department, electric power supply board, Airport Authorities,
Pollution Control Board, Survey Department, Telephone Department, etc. The
group housing project also has to get through a much stricter compliance of
procedure for obtaining project loans from the banks.
Thus, for a joint venture project, the owner
and the developer join hands to develop the land for the benefit of both. To
avoid the likely disputes, misunderstandings between them and for smooth
completion of the project, they enter into a Joint Venture Agreement wherein
details of the terms and conditions are spelt out in unambiguous terms. The
development agreement must be in writing and needs registration.
What does a Joint Venture Agreement
contain?
A Joint
Development Agreement generally contains the intention of the parties to
develop the land, sourcing of funds, time schedule for completion of the
project, apportionment of the developed property/flats between the land owner
and the builder, commitment of the promoter for adherence of the statutory
requirements, expenses to be borne for getting the statutory permissions of the
competent authority, finding the prospective purchasers, common areas and
facilities specifying the percentage of undivided interest in the common areas
and facilities available to each flat owner, type of use of the apartment
building, penalties for non-adherence of the terms and conditions by the
parties etc. In short, the Joint venture agreements clearly stipulate the
duties and responsibilities, obligations and rights of land owner and the
builder.
Procedure for joint development:
After
examination of the property of the land owner, the developer puts forth his
intention to develop the property. This offer basically consists of the
percentage of the built up area which shall be offered to owner towards cost of
the land and the amount of refundable or nonrefundable security deposit to be
deposited by the developer with the land owner. The percentage of area or flats
offered to the owner is arrived at after taking into account several factors
such as cost of the land, cost of construction, escalation in cost of
construction, cost of obtaining approvals for the building, marketing and
administrative expenses and most importantly the selling price of apartments in
that area.
If the offer is attractive, the land owner
will give his acceptance and hand over a copy of the title documents to enable
the builder to get the same verified by his Advocate. If the builder's Advocate
approves the title, a draft copy of the Joint Development agreement laying down
the terms and conditions of the development is given to the landowner who
generally gets it vetted by his Advocate before giving his consent.
Upon
finalization of the Joint Development agreement, the same is registered upon
payment of the prescribed fees. This agreement is signed by both the builder
& land owner and thereupon the builder pays the first installment of
refundable security deposit to the landowner. Along with the Joint Development
Agreement, the landowner also gives a Power of Attorney to the Builder to
enable him to apply for various approvals needed for the construction of
apartment building and to sell the apartments falling to the share of Builder.
The builder
gets the plan prepared by an Architect taking into account the requirements of
the landowner. Once the plan is ready and approved by the landowner, the same
is submitted for approval of the Government authorities. All the procedures,
formalities and costs for approvals are taken care of by the builder. After the
plans are submitted and approved, the builder takes possession of the land from
the owner. At this stage, the remaining balance of refundable advance is paid
to the landowner. On receipt of the approval of the competent authority, the
builder commences the construction and notifies for public the availability of
flats for sale.
Builder's
share of apartment will be registered on completion of the building in favour
of the purchaser. In respect of the apartments falling to the share of the land
owner, the land owner may retain some apartments and sell the balance according
to his wishes. The landowner may sell his apartments when the construction of
the building is nearing completion or after completion or even earlier to this.
The builder can sell the landowners apartments after the consent of the land
owner and pass on the consideration to the landowner as and when the same is
received from the buyers. When the landowner's flats are sold and full payment
is received, the landowner will register these apartments in favour of the
buyers.
On completion of the project, the flats
retained and unsold by the landowner are handed over to him. The security
deposit deposited by the builder will be refunded to him. The builder and the
land owner will facilitate the formation of a Flat Owner's Association and upon
formation of such an association, the title documents of the property will be
handed over to the Association.
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