In a recent order, Maharashtra's real estate regulator
– Maha RERA – qualified a private equity fund holding a
minority equity stake as a 'promoter' under the Real Estate
(Regulation and Development) Act (RERA) basis certain veto rights,
which are quite common in the sector. The order, apparently given
on equitable grounds to protect the primacy of homebuyer interests,
has industry wide implications. Real estate funds could now be
jointly liable with the developers to share the financial
obligations imposed under RERA. The order has selectively pierced
the corporate bringing to fore questions relating to corporate
personality of the entity. The order could impact private equity
and private credit funds investing in developmental estate.
In this analysis, we examine (A) the terms of the investment which
were read to hold that the investor is a promoter under RERA; (B)
the potential justification for the Regulator's interpretation;
(C) the impact on various stakeholders and on LP-GP relationships
as a result of this Order; and (D) peculiarities of private equity
investments and established standards of global deal making in real
estate that don't seem to have been appreciated.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.