Transfer Fees - Is it Justifed by Societies?

In the South Mumbai real estate market, despite a legal cap of Rs 25,000 on transfer fees, housing societies are reportedly charging substantial amounts ranging from Rs 10 to 30 lakh for flat transfers. A recent incident involving a businessman selling his spacious flat in a luxury tower highlights this practice, with the society demanding a share of the sale amount for transferring ownership to the new buyer. Another example cited involves a seller paying Rs 28 lakh for the transfer of a 2,850 sq ft flat. These charges, often termed as 'voluntary donations,' are calculated as a percentage of the transaction value, typically around 2%, in areas like Lower Parel, Worli, and Prabhadevi. However, in some central Mumbai locations, sellers are reportedly asked to pay Rs 1,200 per sq ft.

While legally societies are only allowed to charge up to Rs 25,000 for transfers, the practice of demanding higher amounts under the guise of donations is widespread, especially in affluent areas like Cuffe Parade, Nariman Point, and Pedder Road. Such fees, collected ostensibly for infrastructure funds, have been criticized as 'arm-twisting' to bolster society or developer reserves. Despite being common across all property segments, this practice has raised concerns about its fairness, particularly in buildings with affluent occupants and well-funded societies.

Real estate experts point out that rising maintenance costs prompt societies to levy higher transfer fees, often categorized as voluntary contributions or donations to circumvent legal restrictions. Resistance to payment can result in delayed or denied No Objection Certificates (NOCs), leading many sellers to comply to avoid transaction delays. Some parties challenge these fees post-payment, seeking refunds on excessive charges. However, societies often justify these charges as exempt from income tax under the principle of "mutuality," which courts have historically upheld.

Advocates emphasize the need for societies to refrain from excessive charging and suggest seeking funds through general body resolutions rather than imposing burdensome fees on individual transactions. Despite legal precedents and objections, these practices persist, reflecting ongoing challenges within the real estate market.