Karnataka Apartments Ownership Act and Unaddressed Legal Aspects.

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1. Transfer of Property Act 1882 governs most real estate transactions. However, in 1882 when the act was first conceptualised, the concept of Undivided Share (“UDS”) was foreign as apartment buildings did not exist as they do today. Since apartment flats are stacked one on top of the other, if the conveyance or sale deed does not explicitly mention the UDS, it would result in only transfer of the flat itself, and not the land it is built upon.

2. The Karnataka Ownership Flats Act 1972 (“KOFA”) regulated the process of promotion, construction, sale, management, and transfer of the apartment until 2016 i.e. when the Real Estate Regulatory Authority Act (“RERA”) was introduced. Meanwhile, the Karnataka Apartment Ownership Act 1972 (“KAOA”) was written with the view to make apartments heritable, transferable, and mortgageable and to address aspects related to management of the property. KOFA requires the builder to register these residential flats when the minimum number of flats have been occupied as prescribed under cooperative society act or under companies act whereas registration under the KAOA is not mandatory. However, once an association is registered under the KAOA, KOFA no longer applies to them.

3. It is apt for residential flats to get registered under KAOA since it is a contemporary legislation under which the Registrar of Cooperative Societies is the competent authority to register apartment associations. To the contrary, most apartment associations have been registered under the Karnataka Societies Registration Act 1960 (“KSRA”), which was recently clarified by the Karnataka HC that KSRA applies only to organisations engaged in activities such as charity or education, not apartments. Registering under the KSRA would lead to the position that individual members from associations registered under this act may not have ownership over the land.

4. Under the KAOA, the onus of forming and registering an apartment association for the conveyance of the land ownership to the association has been put on the apartment owners rather than the builder, as registering an apartment under the KAOA is not mandatory. This has been the root cause of the issue as most apartment owners have either not formed an association as they are unaware of UDS or formed it under the KSRA. As the conveyance of the land to the association registered as per the KAOA can be done only after it has been registered, most builders have not bothered to issue the conveyance deed that would transfer the land rights to the associations. Thus, in most cases, the actual transfer of land from the promoter/landowner to the apartment owners has never taken place as per the KAOA.

5. The RERA purports to solve this issue by requiring builders to transfer the undivided proportionate title to the buyer within three months of receiving the occupancy certificate. However, despite this mandate, builders and promoters have continued to not comply with the requirement, as they have done with KOFA in the past. The Karnataka Home Buyers Forum, a collective of apartment owners’ associations, has written to the chief minister seeking urgent intervention to end the lack of clarity in the RERA.

6. No encumbrance – In some cases, even when UDS has been provided as part of sale deeds, encumbrance certificates and mutation records of the land still shows the name of the previous landowners. This leads to the issue of re-mortgaging by previous owners as the owners of the apartment do not have title ownership rights to the land.

7. The KAOA is an act almost wholly reproduced from the Maharashtra legislation regarding the same as a result of which all the legal issues and gaps in that legislation were replicated in Karnataka. However, Maharashtra now utilises the concept of deemed conveyance to overcome the gaps. E.g.: In a regular conveyance deed, the promoters or builders must willingly or voluntarily transfer the property to the apartment owners. This standard conveyance deed must be executed between the promoters and the housing society. However, it was noticed in Maharashtra that the builders or landowners were not ready to execute the deed so the Maharashtra Government came up with deemed conveyance deed under which they gave the right to the Competent Authority under the Maharashtra Ownership Flats Act 1972 (“MOFA”) wherein the authorities can sign the conveyance deed on behalf of landowners. This issue, however, continues to persist in Karnataka due to a lack of such restorative provisions.

8. Amendments to the MOFA has given huge relief to apartment owners in Maharashtra. It is about time that Karnataka takes note of the solutions of our neighbouring state and make similar amendments to resolve the persisting issues.

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