Virtual Office Spaces Treated As Intangible Property, Fall Outside RERA's Scope: Uttar Pradesh REAT

The Uttar Pradesh Real Estate Appellate Tribunal has held that non-lockable or virtual office spaces fall outside the ambit of the Real Estate (Regulation and Development) Act, 2016. It ruled that the law governs physical real estate units and does not cover such intangible investment interests.

The tribunal consequently set aside U.P. RERA's directions requiring Bhutani Group to execute conveyance deeds, hand over possession and pay delay interest.

The ruling was delivered by a tribunal comprising Judicial Member Sanjai Khare and Technical Member Devindar Singh Chaudhry.

The tribunal ruled, "Having regard to the provisions of the Act, virtual space is not considered to be covered under the Act, 2016, which primarily regulates sale and purchase of physical real estate units in a building, and does not explicitly address intangible digital property like virtual space."

"The property law principles, such as, exclusivity, transferability and enforceability still struggle to apply to virtual property because of their intangible nature. As per the terms and conditions of the agreement, the allottee of a virtual space is promised a proportionate share of lease rent payable in future which is not akin to handing over/taking possession of a unit earmarked by boundaries for which the buyer/allottee has paid an amount to the promoter. It is, therefore, not within the purview of the Act, 2016. The dispute, is of a civil nature pertaining to investment, whereas, Act 2016 deals with builder-buyer relationship with regard to delivery of physical possession of the unit to the allottee or with withdrawal from the delayed project as per provisions of Section 18 of Act, 2016. The allottee can take remedy for breach of the terms of the agreement before an appropriate forum in accordance with law," it added, explaining its rationale.

The dispute arose from bookings made by Diograzia Realcon in Bhutani Group's Alphathum project at Sector 90, Noida, between November 2017 and January 2018. The company booked multiple office spaces under agreements that promised assured returns.

In the leading matter, the parties executed an agreement on January 16, 2018. It related to a 532 sq. ft. office space for a total consideration of about ₹34 lakh. Possession was contractually due in July 2021.

Diograzia Realcon alleged that Bhutani Group had offered possession without first obtaining the required occupancy or completion certificates. It approached U.P. RERA seeking possession of the allotted units, delay interest, protection against penal interest and payment of assured returns under the agreements.

U.P. RERA directed Bhutani Group to execute conveyance deeds, hand over possession, and pay delay interest at MCLR plus one per cent.

Diograzia Realcon challenged those directions before the appellate tribunal. It sought possession only after occupancy or completion certificates were obtained. It also sought delay interest at 18 per cent, assured returns and compensation of ₹10 lakh for mental agony and harassment.

Since all eleven appeals arose from the same project and raised identical issues, the tribunal decided them through a common judgment.

Diograzia Realcon argued that Bhutani Group remained liable to continue paying assured returns until lawful possession was offered after obtaining the required occupancy or completion certificates.

Bhutani Group contended that the allottees had invested in non-lockable virtual office spaces to earn assured returns. It argued that such undemarcated and intangible units fell outside the scope of the RERA Act.

The tribunal accepted that objection. It observed that non-lockable office spaces are undemarcated and unidentified portions of a larger commercial unit. They cannot be separately possessed or exclusively enjoyed by individual allottees.

The tribunal observed,"Virtual space is a share in a large commercial physical space which is divided and sold into number of small spaces/parts to the buyers, therefore, independent physical possession cannot be given to any specific buyer. It is somewhat similar to a company offering shares through 'Initial Public Offer' (IPO). Similarly, an investor is free to sell/transfer virtual space at any point of time just like any other property."

The tribunal distinguished lockable office spaces from non-lockable or virtual office spaces. It observed that lockable office spaces confer exclusive physical possession, whereas virtual office spaces merely represent an investment interest.

The tribunal held, "The virtual/cybernated/automated/unlockable/office space means an investment in a non-lockable area or space in a real estate project. Virtual space is as good as another commercial property, though, intangible. The difference being that investor/allottee is given possession for the lockable (tangible) office space, whereas, the virtual property is the space that gets registered in the name of the investors' but does not get physical ownership/possession of the space allotted."

On the claim for assured returns, the tribunal held that such arrangements were independent commercial transactions intended to attract investors. It ruled that they fell outside the scope of RERA.

The tribunal observed, "Piecing the threads together, therefore, so long as money is 'raised' under a real estate agreement, with sole motive of profit, such an agreement between the developer and home buyer are 'commercial' in nature, both parties have 'commercial' interest on the investment and return thereon."

Having held that the complaints were not maintainable under the Act, the tribunal ruled that U.P. RERA lacked jurisdiction to grant relief relating to possession, delay interest, or assured returns. It accordingly set aside the regulator's orders.

For Appellant (Diograzia Realcon Pvt. Ltd.): Advocate Ms. Pushpila Bisht.

For Respondent (Bhutani Group): Advocate Sri Abhishek Shukla.