REDEVELOPMENT PHASES

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Sr. No.QuestionAnswer
1We had recently floated Tender and have received proposals from 8 builders. What are the steps to be followed now up to selection of Developer?For a detailed process of Selection of Developer, you should visit www.redevelopment.info

and check out Phase 2, Stage 2.

However, here is a concise list of steps:

A: To Make First Shortlist
1. Comparative Statement of Bids
2. Joint Meetings, Negotiations with Bidders (Adherence to Tender)
3. First Shortlist

B: To Make Final Shortlist
4. Due Diligence: Experience (Projects, Clients' References)
5. Due Diligence: Financial Adequacy
6. Due Diligence: Legal
7. Final Shortlist

C: To Consolidate Final Offers
8. Visits to Bidders’ Offices
9. Visits to Bidders’ Project Sites
10. Final Joint Meetings, Negotiations with Bidders
11. Final Techno-Commercial Offers from Bidders


D: To Select A Developer
12. Presentations by Bidders: Plans & Techno-commercial Offers
13. Selection of Preferred Developer
14. Selection of Developer in SGBM (79A)
2We are in the process of selecting a Builder. He will be making a presentation in a few days. Please guide as to what questions we should ask to builder. Your Questions to the Developer should depend on what you expect from him and what you have observed thus far during the Selection Process. Generally, they may be based on the following:

1. Adherence to your Tender Conditions, especially Special Conditions, if any
2. Experience in Projects of Similar Size, Nature, DC Regulation
3. Process of Approval, TDR Loading, Clubbing with another plot, if any
4. Securities: Bank Guarantee, Area Security etc
5. Issues noticed during Technical, Financial & Legal Due Diligence, if any
6. Quality/ Delay issues observed/ reported during Site Visits, if any
7. Plans & Presentation made by Developer
8. Commercial Offer and Terms
3We have received proposals from different Developers under different Regulations (Schemes). How to select the right Developer and Regulation? Redevelopment may be undertaken under different DCPR Regulations (Schemes), the applicability of which depends on various factors such as the location, size, access and ownership of plot, age of existing building etc.

While selecting a Developer and Regulation, following crucial aspects must be considered:

1. Whether the Regulation or combination of Regulations proposed by the Developer are applicable for your type of project, whether they are currently in force and whether the Developer has any prior experience in them?

2. What is the total "FSI Potential" for that Regulation on which the Developer has based his Commercial Offer?

3. What are the Stages in which the total FSI will be loaded for approval? More importantly, how much will be loaded at IOD and whether it will "physically" secure existing members' Flats and car parks?

4. Whether your project will be "clubbed" with any other project? If yes, what is the legality and current stage of that other project? And, if your Developer defaults or does not perform, how you can salvage your project to protect the interests of your members? This is important because the progress, completion and legality of your project will depend on the other project as well.


You should carefully weigh the Risks and Benefits of such regulations before selecting your Developer and Regulation!
4What is the normal scope of services of Society's Legal Advisor for Redevelopment?"Scope of Services of Society's Legal Advisor for a Redevelopment Project"

1. Studying title documents of the Society's Land and Building, Issuing Title Certificate, if required

2. Drafting & finalizing Letter of Intent

3. Drafting/ vetting & finalizing the following documents through joint meetings with Society and Developer
- Development Agreement
- Power of Attorney
- Individual Member Agreements (PAAA)

4. Vetting draft of Bank Guarantee/ Other Security documents

5. Attending Meetings with Society's MC/ General Body

6. Advising the Society during the normal course of Redevelopment

7. Normal Legal Correspondence


Depending on additional requirements (such as obtaining Conveyance or advising on an earlier litigation etc), the Scope may be enhanced.
5Our Developer has offered a discount of 10% to existing members of our Society over his Project Launch Rate for purchase of additional carpet area, but has limited it to up to 100 SqFt per member. Is this a normal practice? It is a common practice to offer a discounted rate to existing members for purchase of additional carpet area and to limit it to a certain area (per member or aggregate for all members). But you should be careful about the following points before agreeing:

1. It should be clear whether rate is on MOFA area or RERA area.

2. Offer of discount over Developer's "Project Launch Rate" is vague
because such a discount is offered at the time of selection of a Developer or when plans are being finalized, whereas Project will be launched several months later. Therefore, you should ask for a very specific rate in Rs per SqFt.

3. You should also ask for terms of payment and whether they can be linked with terms of disbursement of Corpus by the Developer.
6After we selected a Developer as per 79A, much time has lapsed and some new facts about the Developer have also come to light. Therefore, our Society wants to go for another Developer. How should we do it? Before selecting a Developer, it is very important to do thorough technical, financial and legal due diligence and verify all his credentials.

If your Developer has not made much progress in a long period or you have recently got (and verified) some information about him which can be detrimental for your project, you may decide to withdraw/ terminate the Letter of Intent which you had issued to him. However, such a decision should be taken very carefully and only after a great deal of follow up, discussions and correspondence with the existing Developer. You should also refer to the criteria and terms of selection and expected performance of Developer which you may have mentioned in your Tender Documents and LOI.

And it is equally important that you also do thorough due diligence of the new prospective Developer and specify clear terms of his expected performance so you do not run into similar situation once again.
7Ours is a 30 years old Society with 84 flats. Original agreements of 25 members show purchase of stilt parking along with flat. Now, for Redevelopment, the Developer has offered one free stilt parking to each of 84 flats. The members who had purchased stilt parking are now asking for additional parking or compensation from the Developer. Please advise.For a technical understanding of the situation, you may refer to your old approved plans (preferably at the stage of Occupancy Certificate) and check whether those 25 locations were indeed approved as Car Parks.

If the original agreements of such members establish that they "own" the stilts car parks, they may expect some additional benefits as compared to other members. Such benefits may be internally agreed among the members before floating Tender and then specified in the Tender Document itself or they may be negotiated with the developers in the final shortlist, before selecting one from among them.

The present DCPR has already laid down clear rules for the no. of car parks for each flat as per its proposed carpet area (2 car parks for carpet area of minimum 90 SqM). This fixes the total no of car parks which can be approved without paying additional premium. Sometimes accommodating more car parks in a plan can also be a challenge due to the size/ shape of plot, restrictions on permissible height, high commercial/ retail utilization on ground floor etc.

If you have already selected your Developer, this demand of 25 members should be negotiated with your Developer for additional car park or some monetary compensation as may be Techno-commercially feasible. In most cases monetary compensation is found to be more practical. However, such compensation should be reasonable (not equivalent to the cost of a new car park), else it will reduce the financial viability of your Project significantly and adversely impact the benefits of other members.
8We are a CHS of 40 members staying in a G+6 building constructed on a 2204 SqM plot. We have received Redevelopment proposals from many developers and almost decided on one based on his credentials and commercial offer.

However, recently he has informed us that approved plans of 2 floors of our building cannot be found in BMC records and therefore he has to reduce his commercial offer to us.

How to proceed further in this situation?		Occupancy Certificate and approved plans at that stage are important documents for Redevelopment. You should have checked their availability through your PMC or otherwise right in the beginning and before floating your Tender or approaching Developers. They can be searched in the records of BMC, water department or such other sources.

For Redevelopment, the most important plan is the general layout which contains layout of buildings, FSI statement (Proforma A), details of road setback, reservations etc (if any) and statement of built up or carpet areas and car parks. Therefore, whether the absense of approved plans of a couple of floors can affect the commercial feasibility of your project and, if yes, to what extent will depend on the specific information which you already have with you.

If you have not yet selected your Developer, you should discuss this point with ALL developers in your final shortlist together with your PMC and get a better understanding of the situation. You should select your Developer only thereafter.
9Our Society has selected a Developer after due diligence of his existing company. However, now he wants to undertake our project in a Special Purpose Vehicle (SPV) and has requested us for a formal approval. What are the pros and cons of doing Redevelopment through an SPV?Sometimes, developers use their brand to acquire new projects but prefer to execute them through a Special Purpose Vehicle (SPV). Such an SPV may be in form of a Limited Liability Partnership (LLP) firm or a Private Limited Company. It is usually created specially for a specific project and has a separate legal identity as compared to its parent company. From the Society’s angle, the pros and cons of this arrangement are as below:

Pros:
1. All financial transactions pertaining to your project will happen through the dedicated account of that SPV only. This will enhance clarity and tracking of your project.
2. Your project will be registered with MahaRERA in the same SPV. This will ensure that the funds collected by Developer from his buyers will be deposited with the SPV only and will be used for your project only.
3. If the Developer's parent company or his other SPVs suffer financial crisis or go bankrupt, legally your SPV will be shielded.

Cons:
1. SPVs are normally formed with very little assets. Therefore, the biggest risk is when the Developer abandons the project or defaults on the rental/corpus payments or commits any breach of contract. In such a case, you can raise such issues with the SPV only (being an independent legal entity) and not with the parent company or its promoters. Such an SPV may then become a "Shell Company". Therefore, it is very important to carefully go through its Memorandum and Articles of Association.
2. If the SPV runs out of funds, the Developer will not be able to honor his financial commitments to you (rent/ corpus) and fund the construction work. Recovering rent/ corpus from a bankrupt SPV can be extremely difficult.
3. Developer may offer you a Corporate Guarantee to cover your financial risks. However, unless it is drafted very carefully, it will be very difficult and a long drawn exercise to enforce it if the SPV defaults.

10Our Society's Chairman has resigned citing time constraints. However, our MC has still not accepted it. Fresh election will be due within 6 months. We have already received sealed bids from some developers. Can the Secretary and other MC members open the bids and start interacting with the Bidders to understand their proposals? In a Redevelopment Project, the members of Society are represented by its Managing Committee (MC). The process of Redevelopment is conducted by the MC under the guidance of the PMC but the important decisions are taken only by the members in SGMs. For this purpose, MC should share important information and documents received from the Bidders and PMC with the members from time to time and in a transparent manner.

After the bids are opened, PMC should prepare and submit a Comparative Statement of Bids or Bid Evaluation Report to the Society. Thereafter, MC may use them and start interacting with the Bidders to understand their proposals and progressively shortlist them. Therefore, in my opinion, you may continue with such interactions even if your chairman has resigned, but only after taking such a decision in an MC Meeting. Meanwhile, you should appoint a new Chairman at the earliest.