Cessed Building Redevelopment Projects in Mumbai: Developer may lose bank guarantee if
it fails to complete project within 5 yrs

Cessed building redevelopment

Developer may lose bank guarantee if


In a bid to expedite the city's cessed building redevelopment projects, the state housing ministry has issued fresh guidelines. In these newly framed guidelines, there is a provision to impose a fine on the bank guarantee deposited by the developer if it fails to complete the project within five years. Meaning, now every developer has to deposit 10 per cent of the project cost of existing market value as bank guarantee/nationalised bank fixed deposit receipt to the Mumbai building Repairs and Redevelopment Board (MBRRB) for five years. MBRRB is an undertaking of the Maharashtra Housing and Area Development Authority (MHADA).

According to the new rule, it is mandatory to deposit the bank guarantee amount before demolishing the structure. However, if the builder fails to complete the project before the expiry of the bank guarantee and further fails to renew the same, then it will have to pay a fine of 12 per cent every year for the first three months and later 18 per cent till the completion of the project work.

Interestingly, the new guidelines have been formulated to give a much-needed push to the stalled/incomplete cessed building redevelopment projects. However with the said leeway though it MBRRB has a provision to impose a fine but it also allows the developer to renew the bank guarantee period so it can carry out the project beyond the expected timeline. Arun Dongre, Chief Executive Officer (CEO) MBRRB replied, "This provision of extension to the project in lieu of fine on bank guarantee will be allowed in exceptional cases only. Like for instance, the developer may want some more time for project completion due to some technical reasons /challenges he faced while carrying out the redevelopment. It will not be allowed for all builders. Besides, the new guidelines are more stringent. As previously there was no provision to hold builders/developers responsible for their failure."

Apart from depositing bank guarantee, the builders/ developers are also required to deposit the rent of tenants initially for one year in an escrow account, and as the project progresses more than two years of rent need to deposited subsequently. Moreover, a Standard operating procedure(SOP) has been drafted directing said developers about how much work is required to be completed in the expected period. Also, they are required to submit an updated report to the board and a vigilance committee will be set up to check the work regularly, the government notification stated.

In city, there are about 14,000 cessed buildings dated back to the pre-Independence era and at present, in dire need of redevelopment. Cessed buildings are those on which one pays a cess or tax, used as a repair fund. These buildings are mainly owned by private landlords and regulated by the Bombay Rent Control Act.

(To receive our E-paper on whatsapp daily, please click here. We permit sharing of the paper's PDF on WhatsApp and other social media platforms.)

Free Press Journal