In a 2010 judgment, Nahalchand Laloochand Pvt. Ltd. v. Panchali Co-operative Housing Society Ltd., the Hon’ble Supreme Court rejected the argument of a real estate development company that they are not entitled to sell garages or stilt parking areas as separate flats to owners who intend to use it as parking facilities. A bench of Justices A K Patnaik and R M Lodha, ruled that builders or promoters cannot sell parking areas as independent units or flats as these areas are to be extended as “common areas and facilities” for the owners. Also, the Court said that the developer is only entitled to charge price for the common areas and facilities from each flat purchaser in proportion to the carpet area of the flat.
Background – General Practice
As per the general practice in the market, the developer, by the agreement of sale, sells only the ‘flat’ and the purchaser has rights in respect of only the flat and no other portion of the building. This is exactly what had been agreed to between the developer Nahalchand Laloochand Private Limited and the flat purchasers of Panchali Co-operative Housing Society Ltd.Each flat purchaser had executed a declaration to the effect that stilt parking spaces/open parking spaces shown in the plan exclusively belong to the promoter and that the Society had no objection to the sale of such spaces. However, this was later argued by the Society as being contrary to law. When the dispute arose, the developer approached the Bombay Civil Court seeking “permanent injunction restraining the Society from encroaching upon, trespassing and/or in any manner disturbing, obstructing or interfering with its possession in respect of 25 parking spaces in the stilt portion of the building”.
The City Civil Court dismissed the suit. The developer preferred first appeal before the High Court which was also dismissed. The Developer then filed an appeal with the Supreme Court.
What is a Flat?
The Court examined the provisions of Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963 (“MOFA”) to determine whether open or stilt parking spaces can be sold to purchasers separately, because the answer to the question would lie in the basic interpretation of what is a Flat. As per Section 2(a-1) of MOFA, “Flat” is defined to mean a separate and self-contained set of premises used or intended to be used for residence, or office, show-room or shop or go down or for carrying on any industry or business and includes a garage. the premises forming part of a building is included in an apartment.
Apart from the statutory definition, a Flat means a set of rooms comprising an individual place of residence within a larger building or a self-contained set of rooms, structurally divided and separately owned or let from the rest of a building, which for the most part consists of other flats separated in like manner.
Therefore, for a `Flat’ to be within the meaning of the definition in Sec. 2 (a-1), it must be a separate unit conforming to the description capable of being used for one of the purposes given in the definition. Separateness of one premises from another premises physically and also in use or intended use for one of the uses specified in the definition clause containing the necessary facilities for self-contained accommodation is sine qua non for a unit being covered by the definition of `Flat’ occurring in Section 2(a-1).
Also, the Court has categorically stated that the meaning and significance of the bracketed portion “(and includes a garage)” should be seen in the context given to the word `Flat’ which is a true indication of intent of the legislature. The phrase `and includes a garage’ in the bracket does not bring in `garage’ by itself within the meaning of word `Flat’.
If a standalone `garage’ was intended by the legislature to be a `Flat’ as per the meaning of Section 2(a-1), that could have been conveyed by use of the expression `or garage’ after the word `business’ in the same breath as preceding uses. The bracketed phrase is indicative of the legislative intention to include a `garage’ as an attachment to a flat which satisfies the contents of Section 2(a-1).
If a stilt parking area is a garage?It had to be determined whether a stilt parking area would be counted as a garage. The definition of a garage is not provided in the MOFA. Hence, English language definitions needed to be looked into. The Oxford English Dictionary explains `garage’ as a building for housing a motor vehicle or vehicles or an establishment which sells fuel or which repairs and sells motor vehicles. The Webster Comprehensive Dictionary explains the word `garage’ as a building in which motor vehicles are stored and cared for.
The Development Control Regulations for Greater Bombay, 1991 define two expressions, `garage-private’ and `garage-public’ in Regulations 2(47) and 2(48) respectively. According to these Regulations, `garage-private’ means a building or a portion thereof designed and used for the parking of vehicles and `garage-public’ means a building or portion thereof designed other than as a private garage, operated for gain, designed and/or used for repairing, serving, hiring, selling or storing or parking motor-driven or other vehicles.
The developer had argued that open parking space amounts to a `garage’ within the meaning of Section 2(a-1). However, the Court disagreed with this argument and said that a person buying a flat for residence or one of the uses mentioned in Section 2(a-1) will not really think that open to the sky or open space for parking motor vehicles is a garage. “The word `garage’ may not have uniform connotation but definitely every space for parking motor vehicles is not a garage. A roofless erection could not be described as a garage. What is contemplated by a `garage’ in Section 2(a-1) is a place having a roof and walls on three sides. It does not include an unenclosed or uncovered parking space.”
Hence, the Court stated that while stilt area may be usable as a parking space but for the purposes of MOFA, such portion could not be treated as garage. For the purposes of MOFA, the term `garage’ must be considered as would be understood by a flat purchaser and such person would contemplate garage which has a roof and wall on three sides.
Whether stilt parking spaces are part of common areas and facilities?
The MOFA does not define common areas and facilities. However, the Maharashtra Apartment Ownership Act, 1970 does define `common areas and facilities’ in Section 3(f). The Court, while referring to it, said that just like it is unreasonable that a developer cannot take common passage/lobbies or staircases out of the purview of `common areas and facilities’, it is unreasonable to say that parking spaces do not fall under `common areas and facilities’. It is not necessary that all flat purchasers must actually use `common areas and facilities’ in its entirety. The relevant test is whether such part of the building is normally in common use.
Therefore, it was held that MOFA mandates the promoter to describe common areas and facilities in the advertisement as well as the `agreement’ with the flat purchaser and if a promoter does not fully disclose the common areas and facilities, he does so at his own peril. Stilt parking spaces would not cease to be part of common areas and facilities merely because the promoter has not described the same as such in the advertisement and agreement with the flat purchaser.
Also, expressly stating the rights of the developer/promoter, the court said that, “so far as the promoter is concerned, he is not put to any prejudice financially by treating open parking space/stilt parking space as part of `common areas’ since he is entitled to charge price for the common areas and facilities from each flat purchaser in proportion to the carpet area of the flat.” MOFA mandates the promoter to describe `common areas and facilities’ in the advertisement as well as the `agreement’ with the flat purchaser and the promoter is also required to indicate the price of the flat including the proportionate price of the `common areas and facilities’.
Hence, `stilt parking space’ is not covered by the term `garage’ much less a `flat’ and it is part of common areas. The court said that stilt parking space/s being part of common areas, the only right that the promoter has is to charge the cost thereof in proportion to the carpet area of the flat from each flat purchaser. Such stilt parking space being neither a `flat’ nor a `garage’ within the meaning of under Section 2(a-1) of MOFA, cannot be sold separately.
In the words of the Court : “The promoter has no right to sell any portion of such building which is not ‘flat’ within the meaning of Section 2(a-1) and the entire land and building has to be conveyed to the organisation; the only right remains with the promoter is to sell unsold flats. It is, thus, clear that the promoter has no right to sell ‘stilt parking spaces’ as these are neither ‘flat’ nor attachment to a ‘flat’.
First and foremost, the judgment has been given in the context of the laws in Maharashtra. The universal applicability of this judgement would come into question if there are different laws in a particular state. For instance, the judgment can be applied to the NCT of Delhi in view of the Delhi Apartment Ownership Act, 1986 but it is uncertain whether it would also apply to the state of Rajasthan, which has no such laws.
Secondly, it is contemplated that the developers/promoters/builders would now increase the cost of the flats to compensate for the loss that they would suffer by not being able to sell these parking spaces separately. The financial burden on the purchasers would either increase or remain the same, but will not decrease. The Confederation of Real Estate Developers’ Association of India (CREDAI), Pune branch, said though SC has made it categorically clear that “stilt parking/open parking” cannot be sold as it does not fall under the definition of ‘flat’ or ‘garage’, it has also stated that the builder can charge for stilt parking/open parking under common area and facilities separately.
Thirdly, the entire ruling is based upon the meaning of the word ‘garage’. According to the Hon’ble S.C., the area closed by three sides and above used for parking is a garage. This logic puts stilt area enclosed by less than three sides or not at all enclosed in a different footing than the area covered by three sides.
However, the positive point is that the developers/promoters/builders cannot retain or sell such parking spaces separately since they are included in the common areas. Parking cannot be given or charged from persons who have not bought a flat in the premises. The purchasers would be able to enjoy the same by paying only an amount proportionate to the carpet area of the flat.