Joint Development Agreement in Indian Real Estate - A Guide

With easy norms and regulations, a joint property development agreement is becoming a common sight in the Indian real estate ecosystem. The Indian Government has also revised the tax on Joint Development Agreements (JDA) to facilitate rapid growth in order to provide affordable housing options to all sections of the society. But are you aware of what a Joint Development Agreement is and what is the process to make a contract of Joint Agreement? Let’s find out:

What is a Joint Development Agreement?

A JDA is an official contract between the landowner and builder describing in detail how the construction will take place. As the name suggests, this Agreement means an accord to develop and construct based on fixed guidelines and share the properties accordingly. The Joint Development Agreement between the landowner and builder defines the ownership rights of the property and the guidelines for the construction of the property. Through this arrangement, the landowner provides their land to the builder for development under a fixed contract. The builder then carries out the construction based on the guidelines of the JDA. Based on the terms and conditions of the JDA between the landowner and the builder, the profit shares will be divided.

What the Developer Commits to Provide in a Joint Development Agreement:

A Joint Development Agreement (JDA) is a contract between a landowner and a developer to develop a property. In a JDA, the developer agrees to provide various services, and the landowner agrees to provide the land for development. Here are some of the things the developer agrees to provide in a JDA:

• Financing for the project: The developer is responsible for arranging for the funds required for the development of the property. This includes the cost of construction, marketing, and sales.
• Design and construction: The developer is responsible for designing and constructing the property according to the agreed-upon specifications.
• Obtaining necessary approvals: The developer is responsible for obtaining all the necessary approvals and licences required for the project, such as building permits, environmental clearances, and fire safety certificates.
• Sales and marketing: The developer is responsible for marketing and selling the property to potential buyers.

Different Forms of Joint Development Arrangement

There are different forms of Joint Development Arrangement (JDA) that can be used for real estate projects. Some of the common forms of JDA are:

1. Revenue Sharing Model: In this model, the landowner and the developer share the revenue or profits from the project as agreed in the JDA.

2. Built-up Area Model: In this model, the landowner receives a built-up area in the project in proportion to the land contributed, while the developer gets the remaining built-up area for sale.

3. Saleable Area Model: In this model, the landowner gets a share of the saleable area in the project in proportion to the land contributed, while the developer gets the remaining saleable area for sale.

Importance of Joint Development Agreement Between Landowner and Builder

JDA Registration has emerged as a common method in India’s real estate these days. It’s due to the fact that people are getting more aware about delegating work and earning. With JDA, the owner of high-potential land can earn through it without necessarily having the know-how of construction. Joint Development Agreements have facilitated a market where financial limitation or the lack of knowledge cannot stop a landowner from utilising their land’s potential. It has emerged beneficial for large real estate developers and corporate builders who have the finances but lack prime locations due to the unavailability of land parcels.

Benefits of Joint Development Agreements

• Efficient Land Utilisation: JDAs allow landowners to make the most of their valuable land assets by partnering with developers for construction.
• Shared Financial Responsibility: Developers bear the financial burden of construction, marketing, and approvals, reducing financial stress on landowners.
• Access to Expertise: Developers bring industry expertise to the project, ensuring proper planning, design, and compliance with regulations.
• Diversified Investment: Landowners can convert their land into a new income source, generating revenue through project sales or leases.
• Risk Sharing: Risks in JDAs are shared between landowners and developers, providing stability in case of unforeseen challenges or market fluctuations.
• Legal Clarity: JDAs are legally binding agreements that outline ownership rights, profit-sharing, and dispute resolution, reducing the likelihood of conflicts.
• Promotes Affordable Housing: JDAs supported by government tax policies contribute to affordable housing options for various income groups.
• Flexible Arrangements: JDAs can take different forms (e.g., revenue-sharing, built-up area, saleable area models) to suit specific project goals and needs.

What Sets Apart Joint Development Agreements from Joint Venture?

While both Joint Development Agreements (JDA) and Joint Ventures (JV) involve collaboration between a landowner and a developer, there are some key differences between the two. Here's a quick rundown:

• Ownership: In a JDA, the landowner retains ownership of the land, while in a JV, both parties share ownership of the land and the developed property.
• Risk and reward sharing: In a JDA, the landowner shares in the risk and rewards of the project based on a pre-agreed ratio, while in a JV, both parties share the risk and rewards equally.
• Management and control: In a JDA, the developer is responsible for the management and control of the project, while in a JV, both parties share the management and control.

What Needs to be Kept in Mind with Regard to a Joint Development Agreement (JDA)?

A Joint Development Agreement (JDA) is a complex legal document that requires careful consideration before signing. Here are some things to keep in mind with regard to a JDA:

• Clearly define the scope of work: It is important to define the scope of work and the responsibilities of each party in detail.
• Payment terms: The payment terms, including the amount and schedule of payments, should be clearly defined.
• Dispute resolution: The JDA should include provisions for dispute resolution to avoid legal battles in case of disagreements.
• Regulatory compliance: Ensure that the agreement complies with all the applicable laws and regulations.
• Termination clauses: The JDA should include termination clauses that define the circumstances under which the agreement can be terminated.

GST on Joint Development Agreement

Through a JDA, the Landowner transfers their development rights and allows construction on their land, and the developer, in return, constructs the building on the owner’s land. It is now up to the Landowner to decide whether to keep their share of flats for personal use or sell their share to the buyers. This arrangement can be classified into:

• Transferring the development right from the owner to the builder.
• The service provided by the builder to the landowner in the form of transfer of the property.
• Builders sell their share to their customer base.
• The buyer utilises their share of flats.

It still remains debatable whether the Joint Development Agreement comes under the slabs of GST or not. Since the transfer of development rights is similar to the case of the sale of immovable property, the government wants to keep it under the slabs of GST. Service tax on JDA is to be paid by the builder.

Currently, GST is applicable after the supply of the development rights. It means when the landowner transfers their ownership rights to the builder, the responsibility to pay the GST charges is shifted to the builder through the Reverse Charge Mechanism (RCM). Hence, the landowner is not required to pay any GST on a JDA.

However, if the landowner sells their share of the flats and receives a considerable amount from prospective buyers, they are liable to pay GST and other tax on the JJDA. JDA GST charges have been revised based on CBDTs latest circular on JDA taxation.

CBDT Circular on Joint Development Agreement

The Central Board of Direct Taxes introduced section 45(A) through the Finance Acts of 2017 which stated:

[(5A) Notwithstanding anything contained in sub-section (1), where the capital gain arises to an assessee, being an individual or a Hindu undivided family, from the transfer of a capital asset, being land or building or both, under a specified agreement, the capital gains shall be chargeable to income-tax as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority; and for the purposes of section 48, the stamp duty value, on the date of issue of the said certificate, of his share, being land or building or both in the project, as increased by the consideration received in cash, if any, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset :

Provided that the provisions of this sub-section shall not apply where the assessee transfers his share in the project on or before the date of issue of the said certificate of completion, and the capital gains shall be deemed to be the income of the previous year in which such transfer takes place and the provisions of this Act, other than the provisions of this sub-section, shall apply for the purpose of determination of the full value of the consideration received or accruing as a result of such transfer.

This was the latest GST update on the treatment of Joint Development Agreements.

Joint Development Agreement Format India

Looking for a joint venture agreement format for the development of land? Here is the correct format for a sample Joint Development Agreement if you are planning to execute one:

Issues in Drafting of Joint Development Agreement

Drafting a Joint Development Agreement can be a complicated process, and there are several issues to consider, including:

• Clarity in terms and conditions: Ensure that the terms and conditions are clear, unambiguous, and easy to understand.
• Consideration of statutory requirements: Development agreements are governed by various statutes, including the Real Estate (Regulation and Development) Act, 2016 (RERA), the Transfer of Property Act, 1882, and the Indian Contract Act, 1872. It is crucial to ensure that the agreement complies with these statutes.
• Identification of the land: The JDA should clearly identify the land on which the development is to take place.
• Details of the construction: The agreement should specify the details of the construction, such as the timeline for completion, the quality of construction, and the materials to be used.
• Risk-sharing: The agreement should clearly define the risks and responsibilities of both the landowner and the developer.
• Dispute resolution mechanism: It is essential to include a dispute resolution mechanism in the agreement to resolve any conflicts that may arise between the parties.

A Joint Development Agreement between the landowner and a builder offers a lot of benefits to both parties. A JDA offers clear cut instructions to avoid disagreements and disputes. Literal to the definition, Joint Development Agreements are long term commitments and should be considered carefully before execution. Any discrepancies in the guidelines of the JDA can lead to disagreements and disputes between the parties. If you have any more queries around Joint Development Agreement in India, reach out to the legal experts at NoBroker and get all your queries answered. Comment your problem and we will reach out to you.

FAQ’s

Ans. Joint Development Agreement Registration has emerged as a common method in India’s real estate these days. A Joint Development Agreement between the landowner and a builder defines the ownership rights of the property and the guidelines for the construction of the property.

Ans. The biggest disadvantage of a Joint Development Agreement is the disputes and disagreements that can arise between the parties concerned over time. The process involves very high capital and requires time as well.

Ans. Stamp Duty Charges Depends based on the state in which the property is located. You can check with the local land registration department.

Ans. A legal arrangement between a landowner and builder, where the landowner contributes the land parcel and the builder constructs the property based on the decided guidelines is called a Joint Development Agreement.

Ans. Yes, all Joint Development Agreements have to be registered at the
Sub-Registrar office.