Redevelopment is a crucial process for many cooperative housing societies in Maharashtra. While selecting a developer, it is important to safeguard members’ interests through proper documentation and financial security. One of the most important protections available to societies is the Bank Guarantee (BG). The Government Resolution (GR) dated July 4, 2019, lays down clear provisions that mandate developers to furnish a BG before starting redevelopment.
Mandatory Bank Guarantee under Clause 18(2)
According to Clause 18(2) of the GR dated July 4, 2019, the developer must provide a Bank Guarantee equivalent to 20% of the total cost of the redevelopment project. This requirement is not optional and must be incorporated in the Development Agreement (DA). If a developer submits a proposal without offering a BG, the society should insist on its inclusion before finalizing or signing the DA.
Purpose of Bank Guarantee in Redevelopment
The Bank Guarantee serves as a financial safeguard for the society and its members. Its key objectives include:
-
Protection against developer default – The BG ensures that if the developer fails to fulfill his obligations, the society can invoke the guarantee to recover losses.
-
Assurance of financial capability – It proves that the developer has the financial strength to complete the project.
-
Legal enforcement – The terms of the BG specify when and how it can be invoked, making it legally enforceable.
Key Terms to Include in the BG
When accepting a bank guarantee from a developer, societies must ensure the following points are clearly specified:
-
Amount – Must be 20% of the total project cost.
-
Tenure and Validity – Should cover the entire redevelopment period, with provisions for renewal if needed.
-
Conditions of Invocation – Clear mention of circumstances under which the society can invoke the BG, such as delays, breach of agreement, or non-completion.
-
Dispute Resolution Mechanism – Procedure to be followed in case of disagreement regarding invocation.
Precaution for Society Members
Members should not vacate their premises until the valid BG is handed over to the society. Vacating without securing a BG can expose members to financial and legal risk if the project stalls or the developer defaults.
Choosing the Right Developer
While the BG provides security, societies must still carefully evaluate the developer’s financial stability, track record, and past performance before signing any agreement. A well-chosen developer reduces the risk of disputes and ensures timely completion of the project.
Conclusion
A Bank Guarantee is not just a formality but a mandatory safeguard under the GR dated July 4, 2019. Societies should insist on its inclusion in the Development Agreement and verify its terms before proceeding with redevelopment. This single step can protect members’ interests, prevent disputes, and ensure smooth and timely project completion.
