Changing The Nature Of Building From Residential To Commercial

Coverage of this Article

KEY TAKEAWAYS

-In this article, we talk about the various aspects of conversion of a land from Residential to Commercial purposes.

DEFINITION OF RESIDENTIAL AND COMMERCIAL BUILDINGS

COMMERCIAL BUILDINGS:

-Buildings and structures located on commercial real estate with an aim to generate profit are commercial buildings.

RESIDENTIAL BUILDINGS:

-Buildings and structures with sleeping accommodation, but not necessarily including cooking and dining facilities are termed as Residential buildings.

AUTHORITIES INVOLVED

-Before the conversion, the person concerned has to make sure that all the documents related to the conversion, the building, and the business are passed by the following officials:

Municipal Commissioner
Housing Society Management
Municipal Authority/ Town Planning Authority

PROCEDURES

-All the conversions that take place in different a State are governed by Different Laws.

ZONAL LAWS

-Zonal Laws are the laws of the local Municipal Authority that govern the use of land and construction of buildings.

CONSEQUENCES

-As a consequence of conversion of the property, the property tax that has to be paid also increases as compared to a residential property

Facts of the case were

-In an auction held for the properties near Connaught Place and India Gate, a lease deed with identical terms was executed in favor of all the auction purchasers by the then Secretary of State for India

KEY TAKEAWAYS

• In this article, we talk about the various aspects of conversion of a land from Residential to Commercial purposes.
• All these procedures have to be passed by the local authorities, keeping in mind any previous contracts or lease.
• These conversions are governed by the Zonal Laws which vary from State to State.
• After the conversion has taken place, there are also issues of taxes which have to be taken care of.
• A landmark judgment regarding the conversion of land was taken in Ansal & Saigal Properties (P) Limited v. L&DO 74 (1998)

DEFINITION OF RESIDENTIAL AND COMMERCIAL BUILDINGS

COMMERCIAL BUILDINGS:

• Buildings and structures located on commercial real estate with an aim to generate profit are commercial buildings.
• This includes buildings like industries, retail, office, restaurants, hotels.
• While constructing these structures, we have to make sure that proper facilities are provided to the people working there, like, sanitation and hygiene.

RESIDENTIAL BUILDINGS:

• Buildings and structures with sleeping accommodation, but not necessarily including cooking and dining facilities are termed as Residential buildings.
• These structures may accommodate one or more families.
• This may include structures like lodging and boarding houses, apartments, etc. but often establishments that come under commercial are also set up here with special provisions.
• In a set of rules laid down by the Supreme Court in 2006, it was mentioned that only the professional activities of a doctor, a lawyer, a chartered accountant, and an architect can be allowed to occur in a certain portion of their residential establishments.
• Any commercial setup established in a residential area has to make sure that the noise limit is within the prescribed limits of the Ministry of Environment and Forest, Government of India.

AUTHORITIES INVOLVED

• Before the conversion, the person concerned has to make sure that all the documents related to the conversion, the building, and the business are passed by the following officials:

Municipal Commissioner
Housing Society Management
Municipal Authority/ Town Planning Authority

PROCEDURES

• All the conversions that take place in different a State are governed by Different Laws.
• It is a must that any property conversion from Residential to Commercial or vice versa is governed by the Zonal Laws.

ZONAL LAWS

• Zonal Laws are the laws of the local Municipal Authority that govern the use of land and construction of buildings.
• According to the Zonal Laws, the entire city is divided into different zones, to facilitate proper and peaceful residential and commercial habitation.
• These laws vary from State to State in India.
• It is the Zonal Laws only that put a restriction on the height of the buildings and determine the spacing which has to be present between 2 buildings.
• The application for conversion has to be submitted to the Local Municipal Authority or the Town Planning Authority concerned with the locality.
• In case, it is the tenant who wants to use the property for commercial purposes, they have to get a Non-Objection Certificate signed by the Landlord and also the permission of the Housing Society Management.
• With the application, the concerned person also has to submit the license under the Shop and Establishment Act to start commercial activity and other documents like the company registration and company id, size of business, nature, and address of the property, etc.
• This does not apply to Doctors, Lawyers, Chartered Accountants, and Architects.
• After all the necessary documents are submitted, the matter is then investigated by the Municipal Authorities.
• While investigating the matter, it is kept in mind, that the residents of a certain area will not be hampered by the presence of that commercial structure
• Once the Municipal Commissioner approves the documents, the conversion is approved and now the specific type of commercial purpose can be carried out at the specified building.

CONSEQUENCES

• As a consequence of conversion of the property, the property tax that has to be paid also increases as compared to a residential property
• Changes can also be seen in the Electricity Bill, which is ‘domestic’ for residential purposes, while ‘non-domestic’ for commercial purposes
• It is also to be noted that activities like, teaching, painting, yoga, dance, and tuition do not incur any extra commercial charges.

In the landmark judgement of Ansal & Saigal Properties (P) Limited v. L&DO 74 (1998) we come to know that even if we take the permission of the concerned authorities, we have to honour the terms and conditions of any previous contracts that have been made with regards to the land.

Facts of the case were-

In an auction held for the properties near Connaught Place and India Gate, a lease deed with identical terms was executed in favor of all the auction purchasers by the then Secretary of State for India. The conditions of the lease allowed the construction of single-storeyed residential houses in those properties. But that was the time when multi-storeyed buildings were being constructed in Delhi, and after obtaining sanctions from the local authorities, like the Delhi Municipal Corporation, multi-storeyed buildings were constructed in these lands. Apartments were built on this land and disposed of off to the new users, thus resulting in a change of user.

On becoming aware of the construction of these multi-storeyed buildings, the L&DO issued a notice to the previous owners to exercise their right to re-enter their property on the ground that the lessees have violated the terms of the lease.

A writ petition was filed by the lessees to challenge the notice of re-entry. While the petition was pending, the respondents made it clear that they wanted to renew the terms of the lease to benefit both parties.

A renewed offer was then made and each lessee was required to pay to the L&DO an amount on account of the additional premium to be paid in a lump sum; 5% charges on additional premium; revised ground rent; overhead charges; existing ground rent; interest on existing ground rent; additional ground rent; interest on additional ground rent; damage charges; penalty; charges for withdrawal of re-entry; and cost of supplementary lease deed.

Now the case turned from conversion of property to the fulfilment of the new offer, where the respondents claimed that the conditions in the new offer were harsh and discriminatory. The court, therefore, held that even if we take the permission of the concerned authorities, we have to honour the terms and conditions of any previous contracts that have been made with regards to the land.

This judgement is also used in other cases, like ABASKAR CONSTRUCTION PVT LTD v. LAND AND DEVELOPMENT OFFICER, where a similar kind of issue was seen.