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The real estate sector is one of the largest contributors to the economy and job market. The Confederation of Real Estate Developers’ Associations of India has projected that it will be valued at USD1.3 trillion by 2034 and reach USD5.17 trillion by 2047. This success owes much to the Real Estate (Regulation And Development) Act, 2016 (RERA act), which was enacted to regulate and promote the real estate sector by protecting the interests of consumers and providing an efficient dispute resolution mechanism.

The RERA act defines an allottee in relation to a real estate project as a person to whom a plot, apartment or building has been allotted, sold, whether as freehold or leasehold, or otherwise transferred by the promoter. This includes a person who subsequently acquires the allotment through sale, transfer or otherwise but does not include a person to whom such a plot, apartment or building is given on rent. It defines a real estate project as developing a building or a part of a building as apartments, converting an existing building or a part of it into apartments or the development of land into plots or apartments to sell some or all of the apartments or plots or the building.

Reading these provisions together, it may be inferred that the RERA act does not apply to real estate projects in which the developer grants a lease of the plot, apartment or building. Consequently, none of the provisions of the RERA act will apply to a lease transaction. However, the use of the term leasehold in the definition of allottee and the view taken by real estate regulatory authorities (RERA authority) in some states has caused ambiguity as to whether the RERA act applies to lease transactions. If the act does apply to all leasing transactions, it will be very cumbersome and inimical to the interests of the commercial leasing subsector. This matter has come before various courts and RERA act tribunals.

The Bombay High Court in ruled that the “law is well settled that the nomenclature of the document cannot be a true test of its real intent and document has to be read as a whole to ascertain the intention of the parties”. Thus, excluding long-term leases from the applicability of the RERA act defeated its fundamental objective.

The Maharashtra Real Estate Appellate Tribunal in Nagpur Integrated Township Private Limited v Sujit Chandankhede and Ors, observed that “a lease for longer period is as good as lease in perpetuity and amounts to as much alienation as sale”. A long-term lease or an allotment entered into by way of an agreement to lease will therefore fall under the RERA act. However, transactions involving an agreement merely to rent the apartment or building will not be considered a transaction of sale, and the provisions of the RERA act will not apply.

Similarly, in Marg Properties Limited v TM Arunachalam, the Tamil Nadu real estate appellate tribunal held that the definition of allottee in the RERA act also included the leasehold rights if they were long-term, such as a term of 99 years.

The Maharashtra RERA authority has decided that long-term leases fall within the ambit of the RERA act. However, premises given on a leave and licence basis or on a short-term lease not exceeding five years are not covered under the RERA act. The Delhi RERA authority has appeared to decide that commercial projects fall under the RERA act and must be registered. Such registration is mandatory even though the developer intends to lease the area and not sell it.

While RERA authorities in some states have discussed the applicability of the RERA act to leasing transactions, the views of RERA authorities in other states may differ. Any transaction described as a lease but being in the nature of a sale should not oust the application of the RERA act. However, transactions involving rental payments in a short-term lease may be excluded from the requirement to comply with the RERA act.

It is imperative to establish clear guidelines as to whether the RERA act applies to long-term lease transactions. This should be done through an amendment to the legislative framework of RERA vide a notification or circulars, to avoid ambiguity. This will enable all stakeholders to clearly identify when the RERA act applies, depending on the nature of the lease granted, and will remove the opacity of this matter.

Shrutikirti Kumar is a partner and Aman Gupta is an associate at Shardul Amarchand Mangaldas & Co