Telangana RERA Says Additional Floors Cannot Dilute Agreed UDS, Directs PBSR To Compensate Buyers

The Telangana Real Estate Regulatory Authority (RERA) on 5 October held that a general clause permitting additional construction cannot allow a developer to reduce the specific undivided share of land promised to homebuyers.

A Bench comprising Members Laxmi Narayana Jannu and K. Srinivasa Rao directed PBSR Developers Private Limited to compensate homebuyers of its 'Smondo Gachibowli' project for reducing their agreed undivided share of land. It observed:

“A general reference to the terms of the agreement cannot be read as a licence to deprive the purchaser of a quantified ownership right that forms the very subject matter of the conveyance.”

Cherukuri Hema and Cherukuri Vijaya Chandar purchased Flat No. B-1109, measuring 1,400 square feet, in PBSR Developers' Smondo Gachibowli project for Rs. 72.42 lakh on 24 October 2016.

The Agreement for Sale dated 9 January 2017 gave the buyers an undivided share of land (UDS) measuring 431.15 square feet (40.05 square metres), representing 0.243% of the property. It set 31 December 2017 as the possession date, with an extension until 30 June 2018.

PBSR Developers received approximately 90% of the consideration but failed to deliver possession, obtain the Occupation Certificate or register the flat.

In 2017, the developer obtained approval to increase the construction from the originally contemplated 16 upper floors to 20 upper floors (G+20). The additional construction triggered a dispute over the buyers' land share, with the developer claiming that it could reduce the UDS to accommodate the additional floors.

The buyers approached the Authority under Section 31 of the Real Estate (Regulation and Development) Act, 2016, seeking compensation for the reduced UDS, possession, registration and delay interest.

PBSR Developers relied on Clauses 5 and 12 of the agreement to contend that the clauses permitted additional construction and a consequent variation in the land share. It attributed the delay to rainfall, strikes, the COVID-19 pandemic, financial difficulties and litigation involving the Rolling Hills House Owners Association.

Rejecting the developer's interpretation, the Authority held that the “development rights and ownership rights in an undivided share of land are legally distinct concepts and cannot be conflated.”

The Authority clarified that approval for G+20 floors did not permit dilution of the agreed 431.15 square feet of UDS. It held that the developer must recognise the land share attributable to the originally agreed 16 floors and compensate the buyers for any difference in value. It added:

“The Respondent, having collected consideration that included the value attributable to the agreed UDS, cannot unilaterally retain a portion of the land component while simultaneously retaining the consideration paid therefor. Such conduct would amount to unjust enrichment.”

Separately, the Bench found that PBSR Developers violated Section 11(4)(a) of the Act by failing to obtain the Occupation Certificate and Section 4(2)(l)(D) by diverting project funds to address the liquidity crisis of its holding company, Patel Engineering Limited.

It also rejected the developer's unexplained increase in the agreed price from Rs. 72.42 lakh to Rs. 81.35 lakh, holding that unilateral account statements could not override the original agreement. It directed PBSR Developers to compensate the buyers for the difference between the promised and actual UDS, obtain the Occupation Certificate, deliver possession with the agreed amenities and register the sale deed within 60 days of possession or issuance of the certificate, whichever is later.

Further, the Authority awarded 10.70% annual interest on the amounts paid from 30 June 2018 until actual possession, excluding specified COVID-19 extension periods. It directed the buyers to pay the outstanding contractual balance and the Rs. 4,99,850 possession-linked instalment upon possession and registration.

Accordingly, the RERA disposed of the complaint, noting that the said non-compliance could attract further penal action.