Indian home buyers have long been the victim of arbitrary and lopsided sale agreement between the developer and the buyer. Things are set to change once the Real Estate (Regulation and Development) Act, 2016 is implemented on ground. How do property buyers get to benefit from the new real estate law and the proposed real estate regulatory bodies?
In the primary real estate market, which refers to new properties developed by builders, the agreements for sale or the builder-buyer agreements have been skewed in favour of the developers, who draft these agreements to give them practically a free hand in executing the property development and the agreement. In the current scenario, buyers have to sign a sale agreement that gives them few liberties. The developers ensure that the agreements allow them to delay project execution, revises prices, alter the property layout and charge hefty penalty from buyers while only being liable for a nominal penalty on its own default.
On 2 August 2016, the Ministry of Housing and Urban Poverty Alleviation released a draft sale agreement for new properties, based on the Real Estate (Regulation and Development) Act, 2016. It brings the buyer and the developer on the same level in terms of the agreement clauses. The basic draft has been made available on the ministry’s website (http://mhupa.gov.in/). When this agreement is ratified, all developers will have to submit a draft sale agreement (builder-buyer agreement) while registering their real estate projects with the real estate regulator.
Let us examine the main clauses of the draft builder-buyer agreement which will be executed for new property sale in future.
Escalation-Free Pricing on Carpet Area
The Total Price is escalation-free, save and except increases which the Allottee hereby agrees to pay, due to increase on account of development charges payable to the competent authority and/or any other increase in charges which may be levied or imposed by the competent authority from time to time. The Promoter undertakes and agrees that while raising a demand on the Allottee for increase in development charges, cost/charges imposed by the competent authorities, the Promoter shall enclose the said notification/order/rule/regulation to that effect along with the demand letter being issued to the Allottee, which shall only be applicable on subsequent payments.
Buyers will have the peace of a fixed price for their property. Currently, buyers are often shocked to find a higher final cost at the time of handover of the property by the developer. Current, builder-buyer agreements allow developers to increase rates at their free will.
No Alteration Without Buyer’s Consent
It is agreed that the Promoter shall not make any additions and alterations in the sanctioned plans, layout plans and specifications and the nature of fixtures, fittings and amenities described therein in respect of the apartment, plot or building, as the case may be, without the previous written consent of the Allottee.
Buyers won’t have to settle with a property which is quite different from the original layout shown to them at the time of booking. Builders can modify the layout only with buyer consent and also project layouts can be changed only after two-thirds of buyers agree to the proposed layout change.
Timely Payments & Delivery
Time is of essence for the Promoter as well as the Allottee. The Promoter shall abide by the time schedule for completing the project and handing over the [Apartment/Plot] to the Allottee and the common areas to the association of the allottees after receiving the occupancy certificate or the completion certificate or both, as the case may be. Similarly, the Allottee shall make timely payments of the installment and other dues payable by him/her and meeting the other obligations under the Agreement subject to the simultaneous completion of construction by the Promoter as provided in Schedule C (“ Payment Plan ”).
Timely delivery also becomes a key clauses, with equal penal liabilities on developers. Currently, developers charge hefty penal interest in case of defaults in payment by the buyer. In contrast, developers pay a meager late payment penalty of Rs 5-7 per square foot.
Limiting Force Majeure Clause
The Promoter, based on the approved plans and specifications , assures to hand over possession of the [Apartment/Plot] on _________________, unless there is delay or failure due to war, flood, drought, fire, cyclone, earthquake or any other calamity caused by nature affecting the regular development of the real estate project (“ Force Majeure ”).
The conditions that qualify as force majeure have been limited and clearly defined. Earlier, a wide array of situations such as shortage of labour and construction materials were also included in the force majeure clause.
Easy Cancellations & Quick Refunds
The Allottee shall have the right to cancel/withdraw his allotment in the Project as provided in the Act: Provided that where the allottee proposes to cancel/withdraw from the project without any fault of the promoter, the promoter herein is entitled to forfeit the booking amount paid for the allotment. The balance amount of money paid by the allottee shall be returned by the promoter to the allottee within 45 days of such cancellation.
If a buyer chooses to cancel his/her property purchase, builders will have to refund the due amount within 45 days of the cancellation request. This is a huge relief as currently builders take several months, sometimes more than a year, to refund the payments in case of cancellation by the buyer or even when a project is scrapped by the developer.
Project Delays
Except for occurrence of a Force Majeure event, if the promoter fails to complete or is unable to give posses sion of the [Apartment/Plot] (i) in accordance with the terms of this Agreement, duly completed by the date specified herein; or (ii) due to discontinuance of his business as a developer on account of suspension or revocation of the registration under the Act; or for any other reason; the Promoter shall be liable, on demand to the allottees, in case the Allottee wishes to withdraw from the Project, without prejudice to any other remedy available, to return the total amount received by him in respect of the [Apartment/Plot], with interest at the rate specified in the Rules within 45 days including compensation in the manner as provided under the Act. Provided that where if the Allottee does not intend to withdraw from the Project, the Promoter shall pay the A llottee interest at the rate specified in the Rules for every month of delay, till the handing over of the possession of the [Apartment/Plot] .
Buyer Stops Making Payments
In case of Default by Allottee under the condition listed above continues for a period beyond ____ consecutive months after notice from the Promoter in this regard, the Promoter shall cancel the allotment of the [Apartment/Plot] in favour of the Allottee and refund the amount money paid to him by the allottee by deducting the booking amount and the interest liabilities and this Agreement shall thereupon stand terminated .
Defective Construction or Property
It is agreed that in case any structural defect or any other defect in workmanship, quality or provision of services or any other obligations of the Promoter as per the agreement for sale relating to such development is brought to the notice of the Promoter within a period of 5 ( five) years by the Allottee from the date of handing over possession, it shall be the duty of th e Promoter to rectify such defects without further charge, within 30 ( thirty) days , and in the event of Promoter’s failure to rectify such defects within such time, the aggrieved Allottees shall be entitled to receive appropriate compensation in the manner as provided under the Act.
No Additional Construction
The Promoter undertakes that it has no right to make additions o r to put up additional structure(s) anywhere in the Project after the building plan has been approved by the competent authority(ies) except for as provided in the Act.
Again, this restriction on any new development will ensure buyers get what they paid for. Recently, a Noida-based developer was asked to demolish two additional buildings erected inside a residential project without buyers’ consent. It is fairly common for builders to increase the number of floors in their buildings without seeking any consent or intimation to their existing buyers.