Can One-Time Maintenance Reduce Builder-Buyer Conflict?

Scenario 1: Homebuyers in the national capital region are taking to streets every now and then to protest against what they feel is an “illogical hike” in the maintenance charge by developers. Developers, on the other hand, justify the hike citing a rise in expenses as the cause.

Scenario 2: A homebuyer in Mohali dragged the developer to court to challenge the latter's demand of a maintenance charge after possession. The buyer had yet to shift to this apartment.

Maintenance charges are among the three most-contested issues between developers and homebuyer, delay in delivery and quality of construction being the other two issues. Often, developers also lose their reputation even after delivering the project up to the customer's satisfaction due to the charges falling under CAM (common area maintenance) .

What are maintenance charges?

Every housing society has some common areas, and according to the Real Estate (Regulation & Development) Act, 2016, a developer is responsible for providing and maintaining essential services on reasonable maintenance charges to be paid by the residents. Before the new real estate law came into force, the same rules were followed.

Once a housing society's Resident Welfare Association (RWA) is formed and the maintenance work is handed over to it, the developer can no longer charge for maintenance. The RWA can then devise its own set of rules for calculating maintenance charges. 

Maintenance charges are applicable for all common areas, including parks, gardens, lobbies, stairs, elevators, fire escapes, entrances and exits of the building, community centres, common parking areas, installations of central services such as power light, air conditioning, and things that are necessary for a society's existence, maintenance and safety.

However, the disputes arise either due to the developer's greed to charge more or the residents' resistance to pay. In the wake of this, some of the developers in Bengaluru market have now started collecting a one-time maintenance charge during the time of purchase to avoid any future confrontation.

Conflict or consensus

A section of market analysts even maintains that the one-time maintenance charges may help the developer to have control over the maintenance for a longer duration. This is because the recurring money in monthly payment is a big tempting factor for many vested interests to interfere and form the RWA, often more than one RWA in the same society.

However, developers tend to disagree that one-time maintenance is panacea for controlling builder-buyer conflicts. 

Nikhil Hawelia, managing director of Hawelia Group, is of the opinion that maintenance charges of a society are not constant in nature as the major part affecting the rate is manpower/labour driven. One-time maintenance is surely a better structure compared to the overall offering to the end user in today's market. But, practically the success of this one-time maintenance cannot be achieved without undertaking a thorough study of maintenance cost for the time to come.

“Charging a one-time maintenance fee can be for a defined period of, say, 5 or 10 or 15 years. Such a step will surely boost the relation and confidence of the homebuyer with the developer. I do not think that with such policies the RWA formation would not be there; rather, the RWA would be needed to keep a parallel check on the standards of maintenance work being carried out by the respective developer,” says Hawelia.

Parth Mehta, managing director, Paradigm Realty, maintains that after RERA coming into picture, one-time maintenance cost is any day a better deal as the customer is saved from the hassle of paying it every month. The monthly fee can vary, keeping in mind the overhead charges which crop up suddenly. It is always better to have a fair idea of the maintenance charges at the time of booking an apartment as they are recurring monthly charges.

“It will definitely help in reducing the conflict over the maintenance fees charged every month. I think RWAs are responsible for the day-to-day functioning of housing complexes. It is very essential for every developer to come up with a resident welfare association for them to look into daily grievance redressal of the customers. If the maintenance fee is added to the cost of the house, the core job of the association reduces. This would completely affect the RWA formation,” says Mehta.

In a nutshell, a one-time maintenance cost has the potential to address many of the conflicts between developers and buyers. A developer can add the maintenance part in the overall cost in two ways --- He can club it with the project cost and not asking for any maintenance charges. He can ask for an upfront payment on the account of lifetime maintenance. The later will then lead to additional GST (goods and services tax) charges.

Nevertheless, developers will have to market this strategy and let the buyers know that they mean well, primarily because one-time maintenance charges escalates the cost of property in a competitive market. By projecting it in the right manner, developers can also make it a brand differentiator since buyers will get rid of paying monthly charges.

The writer is CEO, Track2Realty. The views expressed are personal.