Maintenance charges that buyers need to be aware of

As the purchase of a property involves a large amount of money, home buyers need to undertake a thorough analysis, to avoid a wrong decision. This analysis should not only involve the cost of the property, but also future expenses. Maintenance charge is one such expense, which can significantly impact the property buying decision of end-users and investors alike, while buying an under-construction or a ready-to-move-in property. The monthly outgo on maintenance charges, can make a big difference to your personal finance and saving money on this can help you accumulate a significant amount in the long-term. This can be particularly useful during challenging times like now, when the world is passing through the Coronavirus pandemic.

What does maintenance charge include?

“Flat maintenance charges vary but the Cooperative Housing Societies Act lists out the following charges:

• Property taxes
• Water charges
• Common electricity charges
• Contribution to the repair and maintenance fund
• Expenses on repair and maintenance of the lift of the society, including charges for running the lift
• Contribution to the sinking fund
• Service charges
• Car parking charges
• Non-occupancy charges
• Insurance charges
• Leases rent
• Non-agriculture tax
• Education and training fund
• Election fund
• Any other charges

It may also include salaries of office staff, liftmen, watchmen, etc., society office property tax, electricity, water charges, printing, stationery and postage, travelling allowance of staff of members, subscription to education fund and other charges,” explains Rituraj Verma, partner at Nisus Finance.

How maintenance charge impacts you financially?

Society maintenance charges rules have a direct bearing on the life cycle cost of a property, says Col GK Grover, professor emeritus, School of Real Estate – RICS School of Built Environment, Amity University. “While investors, particularly in the case of commercial property, understand maintenance charges meaning, end-users may not have the same degree of comprehension of its impact. Multi-national and large companies understand its significance and thus, for commercial properties, maintenance charges have a big impact on the buying decision. In most commercial property cases, the maintenance charges are based on actual expenditure plus a certain percentage over the same,” Grover explains. Maintenance charges are higher in commercial properties than in residential ones, as the former will have components such as central air conditioning and larger common areas.

In the case of home buyers, the impact of maintenance charges on flats is neither understood well by many, nor do the developers care to highlight its impact. Experts point out that in under-construction projects, the maintenance charges may not be demanded initially and may not be discussed in detail. However, for a ready-to-move-in property, all the charges, including society maintenance charges and various deposits, are required to be paid upfront and hence, the home buyer learns about it. This has a bearing on the buyer’s decision.

GST on maintenance charges

Usually, ambiguity over maintenance charges exists, for the first two to three years following the formation of the housing society. This is also the period when residents start occupying the building and fit-out work is in progress. “With the promulgation of Apartment Acts, it is now mandatory for developers to hand over both, commercial and residential properties, to the apartment owner’s association. This bodes well for home buyers, as they would themselves be setting the standards and deciding on the common area maintenance charges in the short-term and long-term,” points out Nimish Gupta, MD, RICS South Asia. “Flat owners also have to pay GST at 18%, if their monthly contribution to the residents’ welfare association (RWA) exceeds Rs 7,500, as per the Finance Ministry’s orders dated July 22, 2019. As per the rules, RWAs are required to collect the GST on monthly subscription/contribution charged from its members, if such payment is more than Rs 7,500 per flat per month and the annual turnover of the RWA by way of supply of services and goods exceeds Rs 20 lakhs,” he adds.

Regulation of maintenance charges under RERA

The flat maintenance charges law under RERA, stipulates that it is the duty of the developer to pay all maintenance charges, until the day he hands over the possession to the buyers, says Verma. “Thereafter, he has to ensure that the building remains without any leakages for five years beyond the date of hand over to the society. Builders usually charge a one or two-year maintenance charge as an advance, as part of the sale agreement and they have to inform buyers of all costs estimated at the time of the sale,” elaborates Verma.

Criteria for charging maintenance

Information provided by RICS South Asia

Guidelines on maintenance charges

It may happen in the case of certain projects that the real estate developer may commit to maintaining the project for a few years. However, the maintenance charges may be recovered by the builder from the home buyers (allottees or purchasers) either as a lump-sum or in installments. In some other cases, the builder may ask the buyer to pay a lump-sum towards a maintenance corpus. Is this legal or does it contravene the provisions of the Real Estate (Regulation and Development)  Act (RERA)? This is acceptable. provided that it is not contrary to the provisions mentioned below.

Maintenance charges cannot be an income for the builder

The builder cannot transfer the proceeds or maintenance charges received from allottees to his company’s account, because such money received for maintenance is not his income in any way. The logic behind it, is that a builder is only a facilitator for a limited amount of time and the onus of taking up the responsibility of maintenance of the flat and its premises is on the residents’ welfare association (RWA).

Maintenance charges should be deposited in a separate bank account

The developer is required to open a separate bank account, where the contribution from home buyers can be deposited.

Treatment of interest accumulated

Naturally, a lump-sum amount would yield a certain interest. However, this is not to be used by the builder for his own expenses. The interest will continue to accrue to the same account.

CA’s role

A chartered accountant must certify that the money has been used for the intended purpose only.

Cost incurred on deferred services

Now, suppose the builder went ahead and gave the possession of the flat to the buyer without arranging for an electricity connection. Guidelines as per Madhya Pradesh RERA, say that in such cases, if the builder says he would pay the difference between the normal rate for a domestic connection and that charged by the state electricity board, such charges cannot be paid out of the separate account used to deposit the maintenance charges. It should come out of the builder’s own resources.

Owner of balance in the separate account

Whenever the builder hands over the maintenance to the RWA, he/she is also liable to hand over the balance amount in the bank account to the RWA, along with details of income and expenditure, as certified by a CA.

Can maintenance charges be waived?

While common area maintenance (CAM) charges are mandatory, to ensure that the property is in good health, in case of unforeseen circumstances, developers may come up with plans. For example, when COVID-19 hit the commercial real estate market, trends suggested that developers were reviewing CAM charges with their occupiers. Re-negotiation of contracts in the commercial market became important.

In case of residential projects, maintenance charge waivers can be introduced for a stipulated period of time, in exceptional cases. Many housing societies brought about this waiver during the Coronavirus pandemic.

FAQs

(With inputs from Sneha Sharon Mammen)

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