Developer Assigning Only Leasehold Rights Via Sub-Lease Not A 'Promoter', Project Doesn't Require RERA Registration: Allahabad High Court

"Ability to offer units for sale is a foundational element for attracting the applicability of the Real Estate (Regulation and Development) Act, 2016, as the statutory scheme primarily governs 'real estate projects' undertaken for the purpose of sale to allottees." Allahabad High Court, in a significant ruling dated May 8, 2026, held that a developer who only possesses leasehold rights and intends to assign those rights through sub-leases, without the power to sell units, does not qualify as a "promoter" under the Real Estate (Regulation and Development) Act, 2016.

A bench of Justice Syed Qamar Hasan Rizvi observed that the legislative intent of the Act is to regulate only those projects which are intended for "sale" to prospective allottees, and in the absence of a sale component, the mandatory registration requirements under Section 5 of the Act are not attracted.

The case arose when the U.P. Real Estate Regulatory Authority (RERA) challenged an order of the Real Estate Appellate Tribunal (REAT) which had directed the registration of a commercial project named 'Samrajya' in Ayodhya. The project was being developed by M/s Maa Bhagwati Commercial Reality N Resorts LLP on land leased from a public charitable trust for approximately 30 years. While RERA originally rejected the registration on technical grounds regarding the trust's title, the matter evolved into a fundamental question of whether the Act applied to lease-only projects.

The primary question before the court was whether a real estate project can be developed and registered under the RERA Act on land taken on lease where the developer only has the right to sub-lease and not to sell. The court was also called upon to determine if a developer who lacks the power to transfer title by sale can be classified as a "promoter" within the meaning of Section 2(zk) of the Act.

Court Analyzes Definition Of 'Promoter' Under Section 2(zk)

The Court observed that the status of a 'promoter' under the Act is not determined by mere possession or leasehold interest in land, but by the active role of development and the subsequent sale of units. It noted that the definition of a promoter specifically includes persons who develop land or construct buildings "for the purpose of selling" all or some of the apartments or plots to other persons.

A person who has been assigned development rights but cannot sell the plots, apartments, or buildings, and can only assign leasehold rights by way of creation of sub-leases, stands exempted from the operation of the Act. The bench clarified that if the element of sale is missing from the transaction, the developer does not fall within the ambit of the statutory definition.

Element Of 'Sale' Is Indispensable For RERA Applicability

Examining Section 2(zn) of the Act, which defines a 'real estate project', the Court emphasized that the definition necessarily contemplates development "for the purpose of selling." The bench noted that the term "title" in legal parlance refers to the bundle of rights by which a person enjoys dominion over property, including the right to dispose of it.

The Court held that a conjoint reading of the provisions yields mandatory conditions for RERA's applicability: there must be construction activity, and such activity must be undertaken for the purpose of sale. Unless both conditions co-exist, a person cannot be classified as a "promoter" and is not required to apply for registration under the Act.

"The element of 'sale' is indispensable for bringing any activity within the ambit of the Act."

Distinction Between Leasehold Interest And Absolute Ownership

The Court highlighted that a lessee holds only a restricted right of possession and enjoyment in accordance with the terms of the lease, without acquiring absolute ownership. In the present case, the lease deed specifically provided for the creation of sub-leases within the period of the principal lease but did not grant any right to sell the property.

The bench observed that since the respondent does not possess the legal authority under the lease deed to sell the plots or buildings, the project does not fall within the scope of the Act. The Court remarked that RERA is not supposed to grant or refuse registration to a person who, by definition, cannot be a promoter.

Statutory Interpretation Must Align With Legislative Intent

Relying on the "Statement of Objects and Reasons" of the 2016 Act, the Court noted that the Parliament intended to ensure the "sale" of plots and apartments in an efficient and transparent manner. The bench invoked the legal maxim A Verbis Legis Non Est Recedendum, stating that when the language of a statute is clear and unambiguous, the court must give effect to the plain words used by the legislature.

The Court cited the Supreme Court's decision in M/s Newtech Promoters and Developers vs. State of U.P. to reiterate that courts should read sections in their literal sense and cannot rewrite them to suit convenience. It concluded that the Authority was justified in its eventual stance that the application for registration was not maintainable as the respondent was not a "promoter."

Final Directions And Outcome Of The Appeal

The High Court ultimately disposed of the appeal by clarifying that the respondent is neither obligated to seek registration nor can they be compelled to obtain it. Consequently, the previous directions issued by the Appellate Tribunal to RERA to grant a registration number and login ID were set aside.

The Court further directed U.P. RERA to withdraw any prohibitory or restrictive communications (Form-D) issued against the respondent, as the project stands outside the purview of the Act. This allows the respondent to proceed with their project without RERA oversight, provided they do not engage in the "sale" of units.

Date of Decision: May 08, 2026