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 homebuyers to suffer financial loss. This article discusses the various remedies available to homebuyers in case of conflict with builders/real estate developers.
Wed Jul 20 2022 | Real Estate, Wills, Probate and Trust | Comments (0)
Today the real estate industry is one most flourishing industries 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 be 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 homebuyers 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 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 for 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.
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 report for the last few years.
Buyer must also check the building by-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
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 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 been 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 and 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 a service as by a builder or contractor. When the possession of the property is not delivered within the stipulated period, the delay so caused is denial of services. 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 a 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. 50,00,000 (Fifty 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 fifty lakhs but does not exceed rupees two crore. The National Commission has jurisdiction to entertain complaints where the value of the goods or services and compensation, if any, claimed exceeds rupees two 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.
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 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.
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 a 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
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 handing over the possession to 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.
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