All that matters in an en bloc sale
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The concept is catching up but there are no established procedures
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ALWAYS OF VALUE: Apartments can be tried for en bloc sale too.
If you have been abroad, you would have seen banners announcing "en bloc sale". The concept is catching up in India. At present, there are no separate laws or established procedures that are applicable to en bloc sale. Yet, instances of such en bloc sale are rising on a day-to-day basis.
If you are living in an apartment, especially an old one, you are likely to be involved in the process of en bloc sale. What is an en bloc sale? What are the issues that may arise? These matters would be of interest to every person living in an apartment.
Let us say that you are residing in an apartment. It has been built many years ago. It is not sufficient for your present needs. However, a lot of land is available in the apartment complex. If the apartment can be demolished and rebuilt or redeveloped, you can make it a posh, modern flat. You have the necessary resources to pursue this.
Good bargain
May be, others or a majority of others feel the same way. The condition of the apartments at large may also be such that immediate action is to be taken. A collective effort may be required. At times, the expenses required for repair may be substantial or repairs may have to be effected with the consent of other owners. What do you do in these circumstances? If all the apartment owners reach an agreement on factors such as this, one of the options will be to sell all the apartments to a willing purchaser. This will be in the best interests of all concerned as all the apartments in the complex are likely to be in the same condition. At any rate, it may always be better to sell the apartments and obtain a good bargain on the sale. This is possible if the owners decide to get together and act in the best interests of every owner other by selling all the apartments together or developing the complex by demolishing all the apartments and redeveloping this into a better and modern apartment complex. These are in the nature of en bloc sale.
Public auction
In India, the initiative is taken by one or a few apartment owners. These persons are instrumental in entering into a preliminary agreement with a builder or a developer. Often, even a plan of acquisition of all the flats are finalised by these people and it is only much later that the other owners get to know of the proposals. Even after a consensus is reached that the proposal can be put through, negotiations are done by each apartment owner at his or her own pace with no real clarity on the aspects relating to the transactions. Each negotiation may take its own protracted and whimsical course. Each owner agrees on separate terms with the builder or the developer. There is a lot of mistrust, secrecy, cash transactions and anxiety which make the dealings very tough. Often, the progress is stalled on trivial issues. Some owners also make unreasonable demands. To prevent this situation, a public auction or tender process can be resorted to.
In the whole process, legal documentation is very important and can be stated to be the anchor around which the future transactions would revolve. Normally, this is done by the purchaser's or the developer's advocate. This has to be carefully done taking into consideration the inputs and the rights and obligations of all the flat owners and the occupants concerned. The usual documentation would include a memorandum of understanding, a joint development agreement or a sale agreement and also a sale deed with each of the owners. There could also be certain collective agreements. You may have to execute Powers of Attorney. Certain compensation agreements and Rental Payment agreements may be required.
Committee of right mix
How to go about the process? A lot of confusion may prevail. . It is better to initially call for a meeting, where all the owners or their representatives are present. First the desires and options of the owners have to be discussed. If the proposal is feasible, it would be better to appoint a committee of the right mix to take up and give shape to it. The composition of the committee has to be small if progress is to be quick. It is best that there are only 3 to 5 members in the committee, to ensure the matter is taken up and disposed of expeditiously. This committee should be empowered to take up all necessary matters and have a broad understanding with builders or developers. The committee should be given written instructions and scope for negotiations on a stage-by-stage basis. The stages can be broadly categorised into pre-sale stage; negotiation stage; evaluation and finalisation stage and the closing stage. Thereafter, there has to be a monitoring stage. The entire process may be time-consuming and may require up to two years even to reach the closing stage.
The questions that may further arise would include matters such as whether a sale can be forced on an unwilling seller or sellers; or on issues of pricing; displacement, lack of faith on the builder chosen or proposed. It is best to have frank discussions on these issues. If you come together for the sale, still there may be other issues such as collection and distribution of sale proceeds. The date of delivery of vacant possession to the builder or the developer will be a critical issue.
These and other basic issues will have to be envisaged as factors that will affect the closing, finalisation or implementation of an en bloc sale.
The author is partner, RANK Associates, Advocates, Chennai.
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