On August 7, 2018, the Bombay High Court passed a judgment in the case of Lavasa Corporation Limited v. Manju Narendra Joshi (C.A. No. 791 of 2018) in relation to the Real Estate (Regulation and Development) Act, 2016 (“RERA”).

Issue:

In the said case, the issue adjudicated was, inter alia, whether the provisions of RERA would apply in case of an agreement to lease or not?

Brief facts

An agreement of lease was executed between the parties for a period of 999 (nine hundred and ninety nine) years, with lease premium being 80% (eighty percent) of sale price and annual rent being Re. 1 (Rupee one). Since possession was delayed by approximately 5 (five) years, the lessee approached the adjudicating authority under section 18 of RERA.

Arguments advanced by lessor:

On behalf of the lessor it was contended that since the impugned agreement was an 'agreement of lease' and not an ‘agreement for sale’, the provisions of RERA would not be applicable. The definition of ‘promoter’ under section 2(zk) of RERA was relied upon by the lessor, as it contemplates a person, who constructs or caused to be constructed an apartment ‘for the purpose of selling’. Reliance was also placed on the definition of 'allottee', under Section 2(d) of RERA, which specifically provides that allottee does not include a person to whom plot, apartment or building is ‘given on rent’.

Judgment:

It was held by the Hon’ble Bombay High Court that the impugned agreement to lease must be read as a whole to ascertain the intention of the parties and its mere title or nomenclature cannot determine its real nature. Various clauses in the said agreement, especially the period of lease and the consideration amount clearly indicate that it was an agreement to sale and not an agreement to lease. Further, all the terms and conditions of the said agreement were pari materia to the terms and conditions of an agreement, which is executed under the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963 for sale of property.

Reliance was placed on the judgment of the Supreme Court in the case of R.K. Palshikar (HUF) v. CIT, M.P., Nagpur and Bhandara, 1988 (172) ITR 311, wherein it was held that lease for a period of 99 (ninety nine) years would amount to transfer of capital assets. A judgment of the Madras High Court was also relied upon, which held that a lease for a period of 99 (ninety nine) years is an alienation as a sale, and mere use of the word 'lease' or the fact that a long term is fixed would not by itself make the document in lease.

The definition of 'allottee', under Section 2(d) of RERA was also discussed, which includes persons to whom allotment has been made ‘(whether as freehold or leasehold) or otherwise transferred by the Promoter’. Thus, it includes not only the freehold plots, but also the leasehold plots.

The intention of RERA, as highlighted by the Supreme Court in the case of R.S. Raghunath v. State of Karnataka, (1992) 1 SCC 335 was also looked at, which was to protect the interest of consumers who have invested substantial amounts in real estate projects. 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 RERA would stand frustrated.