What if a single agreement had the power to set in motion something transformational? The joint development agreement is not just any contract; it is the backbone of a daring coalition between two visionary parties with ambition and shared intent. What lies ahead is more than mere terms and conditions; it is a roadmap for building something special. This Brick & Bolt blog explains what a joint development agreement is and why it is necessary.
What is a Joint Development Agreement?
The Joint Development Agreement is a contract agreed between the landowner and the real estate developer. So, under this kind of agreement, the land would be offered by the landowner, whereas the developer would take care of all other aspects—planning, construction, approvals, and marketing.
What makes this arrangement neat is that both parties must share the rewards: either sharing revenue from the sale of the developed property or the division of the actual upland between them.
So instead of selling your land outright, you (landowner) will be able to participate in the upside of this project, with little risk and zero effort in construction.
Types of Joint Development Agreements
JDA differ in structure and terms from project to project, depending on the arrangements for finance and the goals of the parties involved. The most common types are those referred to below:
Revenue-Sharing JDAs
In revenue sharing, the developer side and the landowner side agree to split the revenue arising from the property developed, which includes sales proceeds or lease proceeds shared in the ratio mutually agreed on by both parties. On a revenue-sharing basis, landowners and developers are subject to financial risks and rewards that are contingent on how the property performs in the market.
Area-Sharing JDAs
In area-sharing development, the developed property is divided into physical portions. Each party is conversant with receiving willing ownership of their share, and the party is responsible for the development, maintenance and marketing of its portion. This model allows the parties to independently handle and derive benefits from their shared undertakings.
Hybrid Models
Hybrid JDAs incorporate provisions of both revenue-sharing and area-sharing types. This setup lends further flexibility in the determination of financial returns and ownership sharing by considering the specific needs of a project. It also allows parties involved to align the sharing of risks and rewards based on their value contribution and objectives.
Legal Issues in Joint Development Agreements
Compliance with Local Regulations
The proposed development must comply with zoning laws and land use regulations. After that, environmental impact assessment requirements must be complied with in order to ensure that any damage to the environment is evaluated and ameliorated or compensated. In addition, before generally starting any work of development, all necessary building permits or construction approvals must be obtained from the local authorities concerned.
Stamp Duty Implications
Stamp duty payable on a JDA depends on the value of the property and the type of transaction in question, i.e., whether it is the transfer of development rights. In India, the rates of stamp duty and the related laws associated with those stamp duties tend to differ very considerably from one state to the other, so one needs to look at the laws governing the particular area concerned.
GST on Joint Development Agreement – Applicability and Implications
One needs first to understand whether GST applies to such transfers of development rights under the joint development agreement. Also, whether input tax credit can be availed against the GST paid on the purchase of construction materials, services, etc., would have huge implications on accurate financial planning as well as compliance.
What are the Components of the Joint Development Agreement?
A joint development agreement should address all issues about the subject matter and their consequences. The principal elements generally include:
Parties
This section lists all the parties involved in the JDA. In this case, there could be two or more entities.
Project
This section gives a brief description of the project, along with the project title and type (for example, commercial complex, township, residential colony, or others).
Non-recourse project financing
This refers to the fact that project loans are put through non-recourse financing because the lender will not, in fact, recover the loan from its assets but from project profits. The borrowers in turn agree that they shall put in the project assets as collateral.
Developmental Scope
This includes an expansion plan and development budget as annexures. The development activities include ownership, construction, financing, and project operations, along with future projections and scope.
Benefits of Joint Development Agreement
- Shared Financial Responsibility: It helps in reducing the financial burden on landowners, as developers take care of construction, marketing and approvals charges.
- Access to Enpertise: Developers bring industry expertise to the project, ensuring the planning, design and regulation compliance are followed properly.
- Diversified Investment: This helps landowners convert their land into a new income source by generating revenue through sales or leases.
- Risk Sharing: The risks associated with the property are shared between landowners and developers, providing stability when there are unforeseen risks or market fluctuations.
- Legal Clarity: JDAs supported by government tax policies contribute affordable housing options for different income groups.
- Flexible Arrangements: JDAs can be of different forms, from revenue sharing, build-up area, sealable area models, and can suit any types of projects or needs.
Documents Required in a Joint Development Agreement
Ownership Documents
Sale Deed, Partition Deed, Gift Deed, and Deed of Declaration establish title and include property details such as name, extent, and survey number
Revenue Documents
- Records of Rights, Tenancy and Crops (RTC): Includes ownership, land extent, kharab details, possession type, and encumbrance.
- Index of Lands and RoR: Shows property details and nature of ownership.
- Mutation Record: Reflects changes in ownership; captures past owners/sellers.
- Conversion Order: Confirms conversion from agricultural to non-agricultural use, issued by the District Commissioner.
Survey Documents
- Property Sketch: Indicates boundaries, survey numbers, road access, and location.
- Tippani: Hand-drawn sketch showing property measurements.
- Hissa Tippani: Sketch of the entire survey number and bifurcated plots with owner details.
- Atlas: Sketch showing measurements post-bifurcation from the parent survey number.
- Kharab Utaaru: Details kharab classification (A or B).
- Village Map: Shows survey boundaries, lakes, roads, green zones, and other geographic constraints.
Other Documents
- Encumbrance Certificate (EC): Confirms a clear title and absence of encumbrances.
- Discharge of Mortgages: Evidence of loan closure, if applicable.
- Litigation Details: Includes plaints, statements, orders, judgments, decrees, and settle
Stamp Duty on Joint Development Agreement in India
Stamp duty is considered an important item in the input cost structure while considering a JDA for a property development. The amount of stamp duty to be paid depends on the state where the property is situated and would usually be based on the value of the land or property involved.
In common practice, stamp duty is levied at anywhere from 4% to 8% of the normal market price of the property, in various states. In addition, nominal charges would be payable for the registration of the JDA with the Sub-Registrar of Assurances.
Such charges would normally include:
- Stamp duty: About 7% of the guideline value of the property (may vary).
- Registration fee: About 4% of the amount of stamp duty.
Stamp duty and registration charges may, however, vary widely according to the value attached to the property as well as the norms of the state in which the property is located.
Conclusion
The Joint Development agreement recognises the mutual obligation for both parties to work together in good faith and with mutual respect to effect the successful completion of a joint development project. This agreement hence sets the stage for a productive and lasting partnership. Both parties aim to deliver innovative outcomes for fulfilling strategic objectives together.
Apoorva H P Achar