Remedies against unfair practices of builders and real estate developers
Today the real estate industry is one most flourishing industry in India. The demand for residential and commercial property is increasing constantly and so is the number of builders and developers who offer special features to attract prospective buyers. A very important role is played by builders and developers in the redevelopment of housing societies.
The increase in the demand and the offered promises does not ensure that the promises will fulfilled on time. Non delivery of possession on time is one of the major areas of conflict between the developers and the buyers. There are numerous cases where builders have taken more than the required time to finish projects while leaving home buyers to suffer financial loss. Late government approvals, getting the completion certificate, delay in getting raw material, cement and steel procurement, manpower delay etc are some of the major factors that contribute to the delay caused in handling over the possession to the buyers. Whatsoever be the reason, the delay in completion of the project affects the overall budget of a developer and has a direct impact on the buyer. If the buyer has secured a home loan for the flat, its repayment schedule is treated as pre-EMI till the buyer gets the property's possession. A buyer is entitled to tax rebate under sections 24 (b) and 80 (c) of the Income-Tax Act 1961 only after securing possession of the property and thus commencement of EMI. Till then, he gets no tax relief on the pre-EMI. Thus, the buyer has to pay the EMIs of the bank and also the rent for his current residence. The financial loss and mental agony that the buyer has to face cannot be compensated except by giving him the physical possession of his house.
Besides the late delivery of the possession a number of other malpractices are complained against the builders. Deficiency in service, improper amenities, ceiling leakage, improper drainage system, incomplete fire safety system, low quality of electrical wiring, improper water provisions, not providing the occupation certificate, etc are some of the major complaints against the builders.
Insertion of a penalty clause which is biased in their favour is also one of the unfair practices committed by the builders. In most of the cases, the agreement contains a penalty clause in which the buyer is charged a penalty @ 18% for delayed payments in the purchase of a flat, when the builder delays the delivery of the same flat, the rate at which the builder pays is only about @ 1 -2 % showing an unfairly loaded contract.
Precautions to be taken by a prospective buyer
Before buying a house, a buyer must do a thorough due diligence of the building. A prospective buyer must thoroughly go through the original copy of the agreement with the builder. One must verify the original documents of the property. The title of the Vendor to the property must be clear and marketable. The buyer must search the title re port for the last few years.
- He must also verify whether the builder has obtained non agricultural permission for the land from the collector.
- He must also verify the development agreement between the owner of land and the builder.
- He must ask for the copy of order under the Urban Land Ceiling Act. He must check the building plans sanctioned by the competent authority and the commencement certificate granted by Corporation / Nagar Palika.
- He must also ask for the building completion certificate (if available).
Buyer must also check the building bye-laws in the area to verify any issue with setback, side setback, height, etc. He must confirm with the seller the transfer fees, stamp duty and registration charges to be paid on purchase of the property as well as outgoings to be paid for the property. The sale agreement must be scrutinized in detail. It should have the municipal-approved plan of the flat, carpet area with the area of the balconies shown separately, price of the property including the proportionate price of common areas and facilities shown separately and intervals at which installments may be paid. It should be verified that the proper stamp duty has been paid.
A buyer who is the victim of the unfair practices of the builder can approach the following forums for his redressal:
- He can file a civil suit in a Civil Court
- He can file a complaint before the consumer Forum
- He can file a complaint before the Competition Commission of India
- He can approach Regulatory Forums
- He can file a Criminal Case
The Supreme Court has held that a consumer has the right to approach the Civil Court or the Forum under the Consumer Protection Act for relief in a situation where the builder commits breach of his obligations. There are well laws such as the Maharashtra Ownership Flats Act or the Development Control Rules under which the case can be filed before a Civil Court for damages for refund of amount and interest on the said amount.
The Supreme Court has held that advertisements inviting applications for allotment without having title to the impugned sites was deceptive and unfair practice of the builder. In another case it has held that a clause containing an escalation cost in an apartment buyer’s agreement without disclosing the maximum enhancement amounted to vesting of unrestricted power to increase the cost of the flat and hence it is an unfair trade practice. If a builder uses sub-standard material in construction of a building or makes false misleading representations about the condition of the house then it is denial of the facility or benefit of which a consumer is entitled to claim value.
The Consumer Protection Act, 1986 is the Act which seeks to provide for better protection of the interests of consumer. Any person who hires any services for consideration is a consumer under the Act. It provides remedies to a consumer against deficient services. When a land is allotted or developed by a statutory authority or it constructs a house for the benefit of a common man, it is as such, “service” as by a builder or contractor. When the possession of the property is not delivered within stipulated period, the delay so caused is denial of “service”. Such disputes or claims are termed as deficiency in rendering of service of particular standard, quality or grade. A person who applies for allotment of building site or for a flat constructed by the Development Authority or entered into an agreement with a builder or a contractor is a potential user and the nature of construction is covered in the expression “service” of any description. Thus, the Consumer Protection Act provides protection against the malpractices of the builders and developers. Any person dissatisfied by the services or delayed delivery of possession can approach the consumer forum for his redressal. The consumers can approach the Redressal Forums for deficiency in service at different stages of housing.
The Consumer Protection Act provides a three tier machinery for redressal of consumer grievances. The District Forum is at the lowest level. The District Forums are established in each District and have jurisdiction to entertain complaints where the value of goods or services and the compensation if any, claimed does not exceed Rs.20, 00, 00 (Twenty Lakhs). The State Commission is established in each state and have jurisdiction to entertain complaints where the value of goods or services and the compensation if any, claimed exceeds rupees twenty lakhs but does not exceed rupees one crore. The National Commission has jurisdiction to entertain complaints where the value of the goods or services and compensation if any claimed exceeds rupees one crore. A consumer can file a complaint in the consumer forum against the builder/developer. The complaint must be filed within two years from the date of the dispute.
In a recent landmark judgment the Supreme Court has held that when the possession of the property is not handed over to the allottee in time it amounts to denial of service and the allottee, who has been affected by the delay in delivery of possession is entitled to compensation.
In another landmark judgment the National Commission has held that the allottee is entitled to opt out of a project if there is a delay in delivery possession of the house by the real estate developers. It was also held that the allottee is entitled to a refund of the entire money with reasonable interest and any deduction on the said amount is unjustified. In another judgment it was held that a builder cannot refuse to pay interest on the refund, if such refund is being sought on account of deficient service rendered by the builder, or on account of unfair trade practice perpetrated by him.
Competition Commission of India
The Competition Act, 2002 was enacted to prevent practices having adverse effect on competition, to prohibit use of dominance and to protect the interests of the consumers. The allottee can file a complaint against the unfair practices of the builders before the Competition Commission of India which has been empowered to investigate anti competitive practices and impose stringent penalties on the offenders. The definition of dominant position is a subjective definition and takes within its sweep many builders who tend to abuse to abuse their dominant position against that of the allottee who has invested money in his project. The punitive measures given under the Act will have a deterrent effect on the real estate industry and help in promoting a fair competition in the market that will ultimately be beneficial for the prospective allottees. A complaint before the Competition Commission can be made against that builder only who is a dominant entity in the market.
In one of its landmark orders the Competition Commission of India imposed a penalty of Rs. 630 crore on Delhi based realtor DLF while holding that it had indulged in unfair practice and market dominance. The commission found DLF guilty of beginning work on a residential project without approvals, increasing the number of floors mid-way through the project, delaying completion, and forfeiting the booking amount of some allottees.
Regulatory Forums & Criminal Case
An allottee can approach the regulatory authorities complaining against the non compliance of the statutory obligations by the builders.
In cases where the builders make false promises to the flat purchasers and do not comply with their statutory obligations, the allottee has an option to file a criminal case in a criminal Court against the builder along with the consumer complaint to be filed in consumer forum. The allottee can file a criminal case under the provisions of the Indian Penal Code, 1860 for cheating, breach of contract, not responding the grievance and delivery of poor quality construction. The allottee can issue a statutory notice to the builder. In case the builder does not respond to the notice, parties have a right to approach the Criminal Court. A police complaint can be filed after the issue of notice and then a criminal complaint can be filed before the Metropolitan Magistrate. The complainant should bring out irregularities committed by the builders while executing the constructions of the building.
Various Defaults Committed by Builders and Developers and their Remedies 1. Sub standard work:
2. Construction without approvals:
- In one of its judgment the Supreme Court of India has held that if a builder uses sub-standard material in construction of a building or makes false misleading representations about the condition of the house then it is denial of the facility or benefit of which a consumer is entitled to claim value.
- In cases where the end product delivered to the allottee is of substandard quality the allottee has the remedy to file a consumer complaint in the consumer forum against the allottee for deficiency in services. In such cases the consumer forums have ordered the builders to remove the defects and also pay compensation to the allottee. The allottee also has an option to file a civil suit against the builder claiming damages for breach of obligations.
3. Construction on illegally acquired land:
- The consumer forums have held that where the plot has been sold by the authorities without taking proper approval of the layout plans and as a result of which the possession could not be delivered to the prospective allottee, such an act on the part of the builder amounts to deficiency in service.
- In case where the builder constructed the property without the required approvals from the authorities, the allottee can file a consumer complaint against the builder for deficiency in service. He can also file a civil suit against the builder for refund for amount. In such cases the allottee can also approach the regulatory authority that was to issue the required approval which can statutorily force the builder to obtain the approval.
- In such case, subsequent to allotment of the plots, the Supreme Court had banned the construction activity in five km radius of Badkhal Lake and since the complainant’s plot fell within the said Supreme Court directions and the Commission directed the builder/developer to refund the amount along with interest, holding that the complainants/ allottees were entitled to compensation.
4. Fraud in booking:
- In cases where the construction has been made on illegally acquired land, the allottee can approach the consumer forum or the civil court for his redressal. In such cases the allottee can either claim the refund of the amount invested by him in the property or he can ask for an alternate accommodation by the same builder.
- The Supreme Court has held that even the advertisements inviting applications for allotment without having title to the land was deceptive and unfair trade practice of the builders.
5. Change of land use, layout plan and structures without the approval of the allottee:
- In cases of fraud in booking, the allottee can file a complaint against the builder in the consumer forum or file a civil suit in civil court. In case of fraud the allottee can also file a criminal complaint before the police.
- In a case the Supreme Court has held that the name of the applicant not being considered at the time of the draw notwithstanding that the applicant had fulfilled all the requirements of the advertisement was held to be a ”deficiency in service” as such, an applicant had a right for consideration of his application along with similarly situated persons and if at the appropriate time his name had been considered and allotted a plot, he would have been able to raise construction thereon with the resources at his disposal.
- It was held that by unduly and unlawfully denying him the opportunity of allotment, a reasonable and just compensation was required to be fixed and paid.
- It was also held that a period of 9 months to a year is justifiable period to return the application fee without any interest, but if it can be demonstrated that the delay on the part of the Authorities in refunding the application fee was unreasonable, the courts have awarded interest notwithstanding that the brochure inviting the applications clearly provided that no interest would be paid by the Development Authorities.
6. Hidden charges:
- If the builder wants to undertake additional construction, which is not part of the layout plan shown to flat allottees at the time of executing the purchase agreement he must obtain the consent of the allottee. In cases of the builder/developer makes changes in the use of land or in the layout plan and the structures with respect to the one given in the agreement, the allottee must send a legal notice to the builder and if he does not respond to the same the allottee can file a complaint against the builder in the consumer forum or file a civil suit in a civil court.
- The allottee can also file a complaint before the Competition Commission of India if he is able to show that the builder is a dominant entity in the market and is misusing his position to the detriment of the allottee by unilaterally altering the layout plan or structures of the building.
7. Enhanced external development charges:
- If the allottee is overburdened by the excessive hidden charges in the allottee builder agreement, the allottee can file a civil suit in a civil court.
- The allottee can also file a complaint before the Competition Commission of India if he is able to show that the builder is a dominant entity in the market and is misusing his position to the detriment of the allottee by unilaterally imposing exorbitant hidden charges.
8. Cancellation of booking/project:
- If the builder demands enhanced development charges from the allottees, the allottee can file a civil suit in a civil court.
9. Forfeiture of amount:
- If after receiving the booking amount the builder cancels the booking, the allottee can send him a legal notice regarding the same and in case the no solution comes out of the same or the builder does not respond to the notice, the allottee can file a consumer complaint against him fro refund for his booking amount.
- The allottee can also file a civil case against the builder. The allottee can also file a criminal case against the builder.
10. Delay in delivering possession:
- The terms and conditions of the agreement entered into between the builder and the allottee determines the refund of the booking amount. If the agreement contains an expert clause that the builder has right to forfeit certain percent of the booking amount, then there is no legal recourse. But if the agreement does not contain any such clause then the allottee can issue a legal notice to the builder.
- The allottee can also approach a consumer forum in case the cancellation is on account of the delay caused by the builder in the completion of the project. The National Commission has held that if the request for refund is made by the allottee on the ground that there has been a considerable long delay in development or handing over of the possession of the plots, then the allottee can approach the consumer along with 18 per cent interest.
11. Creation of third party interests:
- In case of delay in delivery of possession by the builder, the legal options that are available to the allottee are to file a consumer complaint or file a civil suit against the builder for the refund of amount paid to the builder and the interest thereon.
- In case of undue delay the buyer can also file a complaint before the Competition commission of India if the builder is a dominant entity in the market and using his dominant position to the detriment of the buyer.
- The Supreme Court has held that when possession of the property is not given within the stipulated period, the delay is denial of service. Such disputes or claims are not with respect to immovable property but 'deficiency in rendering of service' of a particular standard, quality or grade.
- A person who applies for allotment of a building site, or flat constructed by the development authority, or entered into an agreement with a builder or contractor is a potential user and the nature of construction is covered in the expression service of any description.
- The Court also held that the compensation awarded by the consumer courts in such cases should serve the dual purpose of recompensing the individual while simultaneously bringing about a qualitative change in the attitude of manufacturers and service providers towards consumers.
- In another case the Supreme Court has held that in a specific case, where it is found that the delay was culpable and there is no contributory negligence by the allottee resulting in harassment/injury, both mental and physical, the forum/commission would not be precluded from making an award in excess of 12% per annum.
- National Consumer Commission has also held that the buyer is entitled to a refund of the entire money with reasonable interest, and any deduction by the builder is unjustified.
12. Not providing completion certificate:
- Where a builder creates a third party interest in the flat allotted to a person, the allottee can serve a legal notice to the builder and in case no response is given by the builder the allottee can file a consumer complaint against the builder or can file a civil case. The allottee can also file a criminal complaint against the builder for cheating and fraud.
- In case the builder has not received the completion certificate from the concerned authority, the allottee can file a RTI application with the SPIO of the local Municipality demanding the copies of all the documents submitted for seeking approval of the concerned authorities and can file the required NOCs with the concerned authority and can obtain the completion certificate himself.
- If the builder has obtained the completion certificate and willing to give it to the allottee, then he can file a consumer complaint or file a civil suit against the builder.
Today the increase in the demand of the residential and commercial property has given birth to a number of builders and developers who offer or promise special features to attract prospective allottees. The same has also developed a long ending fight between the allottees and the builders with respect to the unfair practices used by the builders and the delay in handling over the possession the allottees in which case the ultimate sufferer is the allottee who suffers mentally as well as financially. Using the remedies provided by law, the allottees have been able to get back their money with interest or have been financially compensated besides allotment of flats. In case of delay in delivery of possession the builders have been made liable to refund the amount paid with interest for the period of delay. There cannot be any justification against the delay caused by the builder once they have promised the allottees and taken their money on the pretext of their own promises.