RERA And Commercial Units : Do Office Buyers Have The Same Protection As Homebuyers
Introduction : The Real Estate Regulatory Authority is a statutory board which came into existence through the Real Estate (Regulation and Development) Act, 2016. The sole purpose for the formation of RERA was to regulate the Real Estate sector, maintain transparency in Real Estate transactions and investor protection by mandating accountability. It acts as a safeguard for the investors. RERA was formed mainly to protect homebuyers. While RERA is often associated with homebuyers only, the term “allottee” as per section 2(d) of the act covers a much broader category of buyers of commercial units, including offices, shops, showrooms, etc. In terms of protection it is not just restricted to homebuyers, commercial buyers are covered too. Before the implementation of RERA, there were loopholes such as lack of information, misuse of public funds, lack of accountability and transparency in the real estate sector.
India’s commercial real estate market has seen a significant rise in the past decade. The demand for commercial real estate, including IT parks, co-working spaces, business hubs, retail centers, and mixed-use developments, has driven both corporate and individual buyers to acquire commercial properties.
As a result, office spaces are no longer purchased only by big corporations but also by small businesses and individuals as an investment and capital spending or to set up their operations. However, given the high value of such purchases, it is essential to have legal provisions that offer buyers protection. The main question that has been raised is whether purchasers of commercial units can access equal rights, protections, and remedies as residential homebuyers do in terms of the Real Estate Regulatory Authority. Although it would seem that commercial real estate is included in this law, there are some contradictions in the courts regarding the treatment of commercial versus residential buyers. In this article, we will review the details of law in regards to commercial buyers, the level of protection they require, recent developments and court rulings and their practical impacts.
Legal Framework Governing Commercial Units under RERA
As per the preamble to RERA, apart from regulating and promoting the real estate sector, the law also aims to protect the purchasers of residential property. To emphasize, the protection extends to all categories of real estate transactions covered by the Act.
Definition of “Apartment” as per section 2(e) of the Act
A significant consideration in respect of the application of RERA is given by section 2(e) of the Regulation which provides that an “apartment” includes “a portion of an immovable property comprised in a building or a part of a building, which is separately demarcated and used or intended to be used for residential or commercial purposes.”
It will be seen that by the express wording of this definition, offices, shops, showrooms and other commercial buildings or places fall within the definition of “apartment” and are therefore subject to the jurisdiction of RERA. This consideration is important because it shows that commercial buildings were specifically intended to be covered by RERA. If Parliament had intended that RERA should be confined only to residential buildings it would not have used the wording which it did use.
Definition of “Allottee” Under section 2(d)
As per Section 2(d), an allottee means any person to whom a plot, apartment or building has been allotted, sold, or otherwise transferred by a promoter.It is pertinent to note that both residential and commercial plots are included in the definition and there is no distinction made in allottees against residential and commercial purchasers. Thus, a person buying an office, showroom, or any other commercial property from a promoter will also be treated as an allottee and he or she will be entitled to claim all the rights and remedies available to allottees under the Act.
Registration Prerequisites for Commercial Projects
Sections 3 and 4 of RERA mandate the registration of qualifying real estate projects before they can be advertised, marketed, booked, or sold. These provisions apply equally to commercial projects. Before registration, developers must disclose: Details of the promoter; Approved plans and layouts; Completion schedules; Project specifications; Status of approvals; Encumbrances affecting the property; Financial information relating to the project.These disclosures are intended to enable informed decision-making and reduce the risk of misrepresentation.
Financial Safeguards and Escrow Mechanism
One of RERA’s most important protections is in Section 4(2)(l)(D). According to this section, promoters must deposit seventy percent of the amount received from allottees to a certain project in a separate bank account. The amount can only be withdrawn from the deposit to cover land and construction costs of the property.
This is a critical protection for commercial property buyers because it is the same level of protection as for residential property buyers. Additionally, this measure minimizes the danger of promoter default since there will be no misallocation of the funds.
Agreement for Sale and Contractual Protection
RERA’s Section 13 states that a promoter cannot accept more than ten percent of the amount of the apartment or building for sale without signing an agreement for sale. An agreement outlines terms such as possession of the property, allottee’s payments, rights and obligations of the parties, compensation in the case of default, and many other important issues. All those terms create a solid basis for contractual relationships between promoters and allottees and protect buyers’ interests.
Legal analysis: Are Commercial buyers really the same as home buyers
Statutory Equality
A plain reading of RERA suggests that commercial purchasers are entitled to the same protection as residential home buyers. The definitions of “apartment” and “allottee” are wide enough to cover commercial property, and the rights and remedies granted to allottees in sections 18 and 19 are identical, regardless of whether the apartment is a commercial or residential unit.
The End-User versus Investor Distinction
While the statutes may state otherwise, in practice, there is a growing trend for tribunals to make a distinction between genuine purchasers and investors. A person who purchases an office to conduct their business may be seen as different from an investor who buys several commercial properties to resell them at a higher price. This difference has raised several questions in connection to refund claims and compensation cases. Housing has a particular place within social welfare legislation. The courts have acknowledged that the deprivation of a home, despite being an essential constituent of personal life, does not always possess the same weight as other goods and services. The commercial transaction, on the other hand, is viewed by courts as something intrinsically linked to economics. As such, even as commercial buyers are protected by RERA, their cases may be subjected to increased scrutiny by the authorities.
In practice, this may mean that although the same remedies are available, the circumstances under which they can be claimed may be more difficult to establish. When it comes to remedies, residential and commercial buyers’ claims are treated differently. Whereas the latter may be viewed by the court as an investment, the former is seen as a necessity. As such, commercial buyers may find that redress through consumer courts is not always available to them, as transactions entered into for commercial reasons are no longer considered consumer purchases. Therefore, RERA may be the only recourse available to office buyers, as their claims would not be covered by other consumer protection laws.
Current Scenario and Recent Developments
Expansion of Commercial Real Estate
India’s commercial real estate sector is witnessing explosive growth, driven by rising urbanization, increasing foreign investment, a thriving start-up ecosystem, and the need for offices, among other factors. As a result, there has been a sharp rise in disputes relating to commercial real estate developments.
Recognition of Commercial Purchasers
Recent decisions of RERA authorities and appellate tribunals have consistently held that commercial units are indeed covered by the Act. Office buyers, showroom buyers, and retail unit owners have approached RERA for the first time to seek remedies against defaulting promoters.
Interaction with Insolvency Proceedings
The interaction of RERA with the Insolvency and Bankruptcy Code has also helped the recognition of commercial allottees. Courts and TPRAs have increasingly referred to the definitions in the Act to identify purchasers as creditors in default.
Relevant Judicial Pronouncements
M/s Newtech Promoters and Developers Pvt. Ltd. v. State of Uttar Pradesh, 2021
The Supreme Court reiterated the pro-consumer orientation of RERA and underscored the wide powers available with RERA authorities for the protection of allottees. The tribunal noted that the remedies available to purchasers under the legislation are extensive, and by virtue of the same, RERA has been conferred as a specialized agency for the adjudication process.
Anand Sonbhadra v. Anuradha Sethi
On interpreting the very definitions provided under RERA, the tribunal concluded that commercial units like offices and showrooms would be covered by the term apartment. Therefore, the tribunal further held that the purchaser of commercial units would also be entitled to the benefits provided under the Act.
Everlike Real Estate & Developers Pvt. Ltd.
This ruling has widened the definition of “apartment” and “allottee” to interpretatively extend RERA’s jurisdiction over commercial property buyers.
Emerging State RERA Jurisprudence
Some state RERA regulators are beginning to distinguish between legitimate commercial buyers and speculators, taking cognizance of transactions in which buyers have no intention to occupy the property. The trend indicates a pro-purchase bias, with many RERA forums favoring bona fide buyers while scrutinizing allegedly speculative transactions more closely.
Way Forward and Practical Implications
For Office Buyers Commercial purchasers should:
Check that the project is registered at the relevant RERA portal
Review project disclosures and approvals,
Consider project possession timelines
Conduct title due diligence
Carefully review the agreement for sale.
For Businesses Purchasing Office Space: Businesses purchasing office space for possession and use should consider carefully project timelines and remedies for delay.
For Investors: Investors should ensure that they have documented evidence of the purpose for which the property is being purchased, and be prepared to provide this if a refund or compensation is sought.
For Developers: Developers should be aware that commercial property sales are not exempt from RERA. They must comply with disclosure, registration, refund and possession rules just as for residential projects. The risk of dispute, damage to reputation, and financial loss can be minimised by undertaking proper legal diligence reviews, and ensuring that contracts are drawn up and executed with care.
Conclusion
While RERA is primarily a buyer protection law, it should be noted that several provisions apply to both residential and commercial property purchases. The definition section of RERA includes offices, shops, showrooms, or other commercial places in the definition of an apartment. As a result, most of the protections for purchasers apply to commercial real estate as well. The registration process, obligations of the seller, escrow deposit, refund procedures, compensation, and dispute-resolution procedures are all applicable to commercial property buyers. Even though most of the protections for purchasers apply to commercial real estate, the courts and regulators are sometimes distinguishing between buyers making purchases with genuine commercial intent from investors making speculative purchases. As a result, while homebuyers are able to take advantage of the social-welfare benefits provided by the law, commercial buyers may have to navigate a more challenging legal landscape to secure similar protections.
Author: Aastha Singh in case of any queries please contact/write back to us via email to content@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney
Endnotes
Real Estate (Regulation and Development) Act, 2016, §§ 2(d), 2(e), 3, 4 and 13. Sections 2(d) and 2(e) use broad definitions of “allottee” and “apartment”, expressly encompassing commercial units such as offices, shops, showrooms and godowns. Sections 3 and 4 prescribe project-registration and disclosure requirements, while § 13 restricts a promoter from accepting more than 10% of the cost without first entering into a written agreement for sale.
M/s Newtech Promoters and Developers Pvt. Ltd. v. State of U.P., (2021) 10 SCC 1. The Supreme Court examined the statutory scheme of RERA and recognised the authority of RERA adjudicatory bodies to grant appropriate reliefs to allottees, including refund and interest in cases falling within § 18.
Pioneer Urban Land and Infrastructure Ltd. v. Union of India, (2019) 8 SCC 416. The Supreme Court considered the status of real-estate allottees under the Insolvency and Bankruptcy Code, 2016, and recognised that amounts raised from allottees have the commercial effect of borrowing for the purposes of the Code. The judgment also discusses the statutory definition of “apartment”, including residential and commercial premises.
Anand Sonbhadra Resolution Professional v. Anuradha Sethi, 2024 SCC OnLine NCLAT 1153 (NCLAT, 8 May 2024). The NCLAT considered the relationship between the RERA definitions of “allottee” and “apartment” and the IBC framework, noting that the definition can encompass unit owners and commercial property owners.
Everlike Real Estate & Developers Pvt. Ltd. v. Mohit Goyal, CA (AT) (Ins.) No. 978 of 2024, order dated 2 July 2024 (NCLAT). The NCLAT considered a claim involving commercial shops/units and discussed the breadth of the RERA definitions of “allottee” and “apartment”, observing that the statutory framework does not distinguish between a unit purchaser using the property for personal purposes and a purchaser acquiring multiple units for commercial purposes in the context under consideration.
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