2.2 Promoter Disclosures & 70% Escrow Account Rules

2.2 Promoter Disclosures & 70% Escrow Account Rules

Quick Summary: Financial discipline and transparent public disclosures are core pillars of RERA 2016. Section 4(2)(l)(D) mandates that promoters deposit 70% of all customer funds into a designated separate bank account dedicated exclusively to land and construction costs. Withdrawals require proportional progress certification via Form 1 (Architect), Form 2 (Engineer), and Form 3 (Chartered Accountant). Furthermore, Section 13 prohibits accepting more than 10% advance payment without executing a registered Agreement for Sale.

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1. Mandatory Public Disclosures on MahaRERA Portal (Section 4 & Section 11)

To eliminate information asymmetry between developers and buyers, Section 4 and Section 11 require promoters to publish comprehensive project details on the MahaRERA online portal:

• Title & Encumbrances: Title certificates from a legal practitioner with 10+ years experience, search reports, details of mortgages, and registered Joint Development Agreements (JDA) with landowners.
• Sanctioned Plans & Layouts: Approved building plans, floor-wise layouts, structural drawings, and common area amenity specifications approved by local planning authorities.
• Proforma Documents: Standard drafts of Allotment Letters, the Agreement for Sale (the model form at Annexure 'A' to the Maharashtra RERA Rules 2017, prescribed under Rule 10), and Conveyance Deeds.
• Project Professionals: Names, contact addresses, and professional registration numbers of appointed Architects, Structural Engineers, Chartered Accountants, Contractors, and registered Real Estate Agents.
• Quarterly Progress Reports (QPRs): Mandatory quarterly updates on units booked, physical construction progress milestones, approvals received, and financial updates.

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2. The 70% Separate Escrow Account Architecture (Section 4(2)(l)(D))

Section 4(2)(l)(D) mandates that 70% of all realizations collected from allottees from time to time MUST be deposited directly into a separate bank account maintained in a scheduled bank in the project's local jurisdiction.

Ring-Fenced Permissible Expenses

Funds in the 70% separate escrow account CANNOT be used for promoter profits, marketing, office administrative overheads, or land acquisition for other ventures. They are strictly restricted to covering:

1. Land Cost: Actual land purchase price, lease premiums, legal title fees, government clearance charges, tenant/slum rehabilitation costs, and premium FSI or TDR charges paid to municipal bodies.
2. Construction Cost: Direct civil construction expenses, building raw materials (steel, cement, concrete), labor wages, site infrastructure, MEP (mechanical, electrical, plumbing) installations, and professional fees paid to architects and engineers.

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3. Fund Withdrawal Mechanism: The Three-Certificate System

Promoters cannot withdraw money from the 70% separate escrow account arbitrarily. Withdrawals are strictly regulated and must match the exact percentage of physical and financial completion of the project.

Before making any withdrawal from the 70% separate account, the promoter must obtain three statutory certificates:

Mathematical Formula for Permissible Withdrawal

The Chartered Accountant (Form 3) calculates maximum allowable cumulative withdrawal as:

$\text{Permissible Withdrawal} = \left( \frac{\text{Land Cost Incurred} + \text{Construction Cost Incurred}}{\text{Total Estimated Project Cost}} \right) \times 0.70 \times \text{Total Collections}$

This mathematical ring-fencing ensures that funds remaining in the separate account, combined with future receivables from unbooked units, are always sufficient to complete remaining construction work.

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4. Operational Rules for Escrow Accounts & No-Lien Rule

MahaRERA circulars define operational rules for managing project bank accounts:

• Account Naming: The bank account must be titled: "MahaRERA Designated Separate Account for Project [Name]".
• No-Lien Prohibition: Lending institutions, banks, and financial creditors are legally prohibited from creating any lien, set-off, attachment, or mortgage over the 70% separate account for any loan or liability of the promoter.
• The 30% Operational Account: The remaining 30% of collections may be deposited into the promoter's separate operational account to cover promoter profit, marketing costs, real estate agent commissions, administrative expenses, and loan interest.

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5. Maximum Advance Payment Limit (Section 13)

Section 13(1) of RERA 2016 establishes a crucial financial safeguard for prospective home buyers:

The 10% Advance Collection Cap

A promoter shall not accept a sum exceeding 10% of the cost of the apartment, plot, or building as an advance payment or application fee without first entering into a written Agreement for Sale and registering it under the Registration Act, 1908.

Real estate agents must advise buyers never to pay more than 10% of the total property value prior to registering the Agreement for Sale.