Real estate is a sector which touches almost everyone’s life. This is because everyone has a home and many have an office. One often comes across concepts such as FSI and TDR while dealing with the real estate sector. Further, while dealing with taxation issues connected with real estate, knowledge of these terms is of immense value. The concepts of FSI and TDR are explained in the Development Control Regulations for Greater Bombay, 1991 (“the Regulations”). The Regulations have been framed under the Maharashtra Regional and Town Planning Act, 1966 (“the MRTP Act”). As the name suggests, these Regulations are applicable only for the City and suburbs of Mumbai. The MRTP Act provides for the town planning and the development of land for public purposes within the State of Maharashtra. This Article examines these two very important concepts.
2.1 The term FSI means Floor Space Index. FSI has been defined under the Regulations to mean the quotient of the ratio of the combined gross floor area of all floors in a building to the total area of the plot. However, the areas which are specifically exempted under the Regulations are excluded from the computation of the FSI. Thus, FSI would be computed as under :
Total Covered Area on all floors
Total Plot Area
Hence, the FSI quotient denotes the total constructed area which is possible on a given plot of land. For instance, if the area of a plot of land is 100 square metres and the prevailing FSI quotient for that area is 1.33, then the total possible constructed area on that plot would be 1,330 square metres.
2.2 Thus, FSI is the most important component of real estate development as it signifies the amount of construction which is possible on a given plot of land. Under the Regulations, different FSI quotients have been specified for different parts of Mumbai.
2.3 The DC Regulations divide Mumbai into different zones such as residential, commercial, industrial, educational, etc. The maximum permissible FSI earmarked for some of the areas in Mumbai are as under :
No. Area and type of Occupancy FSI permissible
1. Residential Zone & Commercial Zone
(a) Island City of Mumbai (i.e., from South Mumbai to Mahim) 1.33
(b) Suburbs Ranges from 0.5 to 1.00
2. Service Industrial Zone 1.00
3. Educational Buildings, Medical Institutions and Institutional Buildings
(a) Island City of Mumbai (i.e., from South Mumbai to Mahim) 1.33
(b) Suburbs 1.00
2.4 Note off late FSI in Suburbs have Changed ......... Uptill 1.5
In the In following cases, certain additional FSI is allowed :
2.4.1 Road widening and construction of new roads : BMC would allow additional FSI on 100% of the area required for the roads if the owner of the land surrenders it free of compensation to the BMC.
2.4.2 Educational / Medical /Institutional Buildings : BMC may permit additional FSI for such buildings subject to the terms and conditions specified by the BMC in this regard.
2.4.3 Hotels : FSI can be exceeded by starred category of residential hotels in accordance with the terms and conditions specified by the BMC in this regard.
2.4.4 MHADA Schemes : Low-cost housing schemes, for the economically weaker sections of the society, developed by the Maharashtra Housing and Area Development Authority are also eligible for additional FSI over and above those specified in the table.
2.4.5 Cessed Buildings : For the reconstruction of cessed buildings located in the Island City, the FSI available is as high as 2.5 on the gross plot area. A cessed building means a heritage building, etc. Similarly for repairs of cessed buildings and Urban Renewal Schemes undertaken by MHADA the FSI shall extend upto the area required for rehabilitation of the occupiers.
2.4.6 Slum redevelopment scheme : For redevelopment of slums, pavements, construction of transit camp tenements, etc. additional FSI is allowed subject to the terms and conditions specified in this regard.
2.4.7 Software Buildings : BMC may permit the maximum permissible FSI to be exceeded by buildings on plots of Information Technology establishments set up by Public Bodies such as MHADA, SEEPZ, SICOM, etc. or their joint ventures.
2.5 FSI Computation
Under the Regulations, the plot size for the FSI computation is done as under :
No. Plot size Area for FSI computation
1. Residential and Commercial Zones
(a) Up to 1,000 sq.m. Total Area
(b) 1,001 – 2,500 sq.m. Total Area subject to maximum of 2,125 sq. m.
(c) 2,501 sq.m. and above Total Area (-) 15% of the area for recreational / amenity open space
2. Industrial Plots
(a) Up to 1,000 sq.m. Total Area subject to maximum of 900 sq. m
(b) Above 1,000 sq. m Total Area (-) 10% of the area for recreational / amenity open space
2.6 Exclusion from FSI Computation
2.6.1 In computing the FSI, the Regulations specify certain areas which are to be excluded. Some of these areas are as under :
(a) Areas for recreational open spaces such as elevated / underground water reservoirs, electric sub-stations, pump houses, pavilions, gymnasiums, club houses, other sports and recreation facilities, swimming pools, etc.
(b) Certain types of features permitted in open spaces, such as sanitary blocks, covered parking spaces, pump room, meter room, water tank, dustbins, plant nursery, etc.
(c) Area covered by certain types of stair-case rooms, lift rooms, passages, etc.
3.1 Meaning: TDR stands for Transferable Development Rights. Regulation 34 states that under certain circumstances, the development potential of the plot land may be separated from the land itself and can be made available to the owner of the land in the form of Transferable Development Rights.
3.2 Many times a land falls within the zones demarcated or areas reserved for public purpose / additional amenities in the development plan prepared under the MRTP Act. These are known as reservations under the Regulations. In such a case the Town Planning Authorities require the plot of land for carrying out their developmental activities, such as reservation for garden area, road widening, construction of schools, parks, playgrounds, etc. Thus, there are conflicting objectives of the BMC / Town Planning authorities on one hand who want to use the land for reservation purpose and the Owner of the land on the other hand who wants to use the land to construct residential / commercial, other projects. These divergent objectives are balance by a TDR.
3.3 DRC : Where an owner whose land is reserved for any town planning purpose under the MRTP Act has surrendered his land free of cost to the BMC in the manner specified under the Regulations, then he is eligible for FSI in the form of Development Rights. The FSI by way of Development Rights would be of the like manner and to the same extent had the land not been reserved. Alternatively, the Owner may be granted TDR after he has completed the development of the reservation and surrendered the same to the BMC. The Development Rights are granted in the form of a Development Rights Certificate which the owner may either use himself or he can transfer it to any other person.
3.4 Development Rights are granted to an owner / a lessee only for reserved lands which are retainable / non-retainable under the Urban Land (Ceiling and Regulations) Act, 1976, and in respect of all other reserved lands to which the provisions of the aforesaid Act do not apply. A certificate, to this effect must be produced from the appropriate Authority under that Act before a Development Right can be granted.
3.5 Computation : A Development Rights Certificate is issued by the BMC Commissioner. It states, the FSI credit available (in square meters of the built-up area) to which the owner or lessee of the said reserved plot is entitled, the place and user zone in which the Development Rights are earned. The Certificate would also specify the areas in which such credit may be used. It is pertinent to note that TDR cannot be used all over Mumbai. It may be only used in certain designated zones.
3.6 For computing the built-up area for the purpose of FSI credit which has been allotted in the form of a DRC shall be as under :
(a) it would be equal to the gross area of the reserved plot to be surrendered; and
(ii) it will be proportionately increased or decreased according to the permissible FSI of the zone from where the TDR has originated.
For instance, Mr. X surrenders a plot of land equal to 1,000 sq. meters which is to be used for various reservational purposes. The prevailing FSI in that area is 1.00. Hence, he would be eligible for a DRC which would give him a credit of an equivalent built-up area and would be increased by an FSI of 1.00.
3.7 If the owner instead of merely surrendering his land to the BMC, also develops or constructs the amenity on the surrendered plot at his own cost and then hands over the developed/constructed amenity to the BMC, free of cost, then he is eligible for additional Development Rights. These additional Development Rights would be equal to the FSI equal to the area of the constructed by him. However, the construction must be to the satisfaction of the authority and in accordance with the conditions stipulated in this regard. It is pertinent to note that the entire development must be done at the Owner’s costs.
3.8 Transfer : In case the holder of a Development Rights Certificate or a DRC does not wish to use the credit himself, he can transfer the same to any other person. Hence, the name Transferable Development Rights. The transfer of the certificate is by endorsement.
3.9 Use : When the holder of the DRC desires to use it on a plot of land then he must attach all his DRCs along with the development application made by him to the BMC.
3.10 Areas of Use : DRCs cannot be used in Mumbai in the following locations :
(a) Within the Island City
(b) On receivable plots of land located in certain restricted areas such as between the tracks of the Western Railway and Swami Vivekanand Road or between the tracks of the Western Railway and Western Express Highway or in Coastal areas, No Development Zones, etc.
Except as specified above, DRCs can be used :
(a) on any plot in the same ward as that in which they have originated, or
(b) on any plot lying to the north (wholly or partially) of the plot in which they have originated.
3.11 Receivable Plots of Land : Receivable Plots of land mean those plots of land other than the plots from which the TDR has originated / is generated. The utilization of the TDR on plots of land also depends upon the zone in which it originated and the zone in which it is permitted to be used. Thus, TDRs originating in Residential Zones are permitted to be used in Residential Zones only or in some types of Commercial Zones subject to fulfillment of certain conditions. Similarly, TDR originating in a Commercial Zone is permitted in Commercial Zones or some Residential Zones, etc.
3.12 A lot of co-operative housing societies have made substantial money by selling the rights to construct additional floors over their existing building structure to a real estate developer. The developer would then buy TDR and load it on top of the existing building, construct additional floors and then sell the flats. This would be done without demolishing the existing structure. However, last year the BMC has come out with a Circular according to which it would from 1st May, 2003, not be possible to load TDR on an existing structure in certain western suburban areas – K and H West Ward. In such cases the existing structure must be completely demolished and only then can the TDR be utilised for the construction of a new building. This Circular would have an impact on the construction activities in the Suburbs.
3.13 Stamp Duty on TDRs : There has been a great raging controversy between the Government and the real estate builders over the incidence of stamp duty when a Development Rights Certificate is transferred. The Stamp Office was of the view that since the rights are attached to immovable properties, the DRC also becomes an immovable property and hence, it is liable to stamp duty @ 10% of the market value of the property. Whereas the builders contention was that since the DRC can be transferred by a mere endorsement, it is a movable property. Recently, the Law Department of the Maharashtra Government has opined that a TDR is a movable property. The effect of this decision means that sale of TDRs would attract stamp duty as on a movable property @ 3%. In addition, the Stamp Office has issued a Notification in October, 2003, by which it has totally exempted stamp duty in respect of a property transferred free of cost by a person to the BMC for producing public amenities against the sanction of TDR.
IV. Directors’ Responsibilities
4.1 In cases of FSI / TDR violations, i.e., where the constructed area exceeds the maximum FSI permissible under the Regulations and/or allowed under the DRC, the BMC has power to demolish the illegal construction. It can also recover the costs of such demolition from the accused. In addition, both under the MRTP Act and the BMC Act, the penalty for unauthorised development or for use of a property otherwise than for the purpose it was planned, is imprisonment and a fine.
A very famous case in this respect is that of Pratibha Co-operative Housing Society Ltd. where the Society violated the FSI laws by constructing an unauthorized additional area of up to 24,000 sq.ft, equivalent to 8 additional areas. Ultimately, the matter went to the Supreme Court which upheld the demolition of the illegally constructed floors. While concluding the Supreme Court observed that “this case should be a pointer to all the builders that making of unauthorized construction never pays and is against the interest of the Society at large”.
V. Auditor’s duty
Although an Auditor is not supposed to enquire about the compliance of DC Regulations, etc., it would be of great utility to him if he has a basic understanding of the provisions of the law in this respect. The Auditor may be able to use this knowledge in judging whether the going concern of an entity which is engaged in real estate construction has been affected because of severe violations of the FSI/TDR law. If the Auditor suspects any such violations then he may ask for a well-reasoned legal opinion or a Certificate from a BMC recognised Engineer / Architect. It can impact, at times, the ‘going concern’ aspect in the case of a builder. In the case of a buyer of a property, it would be advisable to enquire whether the ‘property lawyer’ involved in the purchase of the property has verified the proper use of the FSI/TDR.