Madras High Court · Judgment · 25.05.2023
An owners’ association cannot charge a transfer fee on every resale
The Madras High Court upheld an order declaring void a bye-law under which a Chennai apartment owners’ association charged a “corpus fund” of ₹50 per sq.ft. or 1% of the sale value on every transfer, and directed refund of the fee collected.
Key points
- A flat owner has the right to sell, gift or transfer the flat; the association has no role in a transfer between two persons.
- Once a flat is transferred, the association can claim only maintenance charges; a transfer fee of ₹40/₹50 per sq.ft. or 1% of the sale value is not contemplated by law and is illegal.
- The fee collected had to be refunded within four weeks; coercive action against members is not permitted.
The facts
The association of a 60-flat building in Kilpauk, Chennai, registered under the Tamil Nadu Societies Registration Act, amended its bye-laws to collect a “corpus fund” or transfer fee from incoming purchasers, eventually fixed at ₹50 per sq.ft. or 1% of the sale value, whichever was higher. A purchaser who paid the fee in 2013 complained, and the District Registrar declared Clause 8 of the bye-laws void and directed a refund. The association challenged that order, arguing that the Tamil Nadu Apartment Ownership Act, 1994 overrode the Societies Act and that the Registrar lacked jurisdiction.
What the Court held
The Court dismissed the petition. It held that the right to transfer one’s flat is a property right the association cannot obstruct, and that a transfer fee of this kind was not authorised by the statutes and defeated the purpose of the association. Collections of this nature were illegal. The Registrar’s order was upheld, the fee was to be refunded within four weeks, and the Court warned that coercive action by an association against its members could attract criminal law.
Why it matters
This decision is under Tamil Nadu law and does not apply directly to Maharashtra co-operative housing societies. In Maharashtra, the premium a society may charge on transfer is capped by the Government’s order under Section 79A (see the transfer premium GR of 2001), and the bye-laws prohibit any other donation or charge on transfer. The judgment is a useful parallel on why percentage-of-sale-price charges are not permitted.
Fifty-four-page judgment in English. This page summarises the decision for general information; it is not a substitute for the full text and not legal advice. Check whether the decision has since been appealed, modified or overruled.
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