COMPENSATION TO BE PAID BY THE DEVELOPER FOR DELAYED POSSESSION OF YOUR FLAT AND REDEVELOPMENT OF HOUSING SOCIETY
Builders and developers play vital role in redevelopment of housing societies. Currently, the redevelopment mania of residential properties is booming in full swing and one finds in Mumbai that compound wall of every third property of a society is covered with tins as number of small time builders and real estate companies has joined the battle in an effort to grab a share of this fast rewarding pastry.
There is also likelihood of delay in completion of such projects followed by numerous complaints from the buyers when flats are not delivered n tine as documented. What do developers do when apartments aren’t finished on time? Some pay back their clients as part of a penalty clause.
It is a long ending tussle between builders and home buyers that never seems to end delivering projects on time. There are umpteen cases where builders have taken extra time to finish projects while leaving home buyers to suffer fiscal setbacks.
Imagine a situation where you’ve booked a house in an apartment complex while paying hefty EMIs and also the rent for the temporary place that you currently occupy. Any delay in getting into your own house obviously means a financial loss.
The only change today is that builders now have a penalty clause in their agreements with buyers. But that is not mandatory yet. There have been cases earlier where people have contested builders in courts but in most cases that is a long prolonged battle which not many are willing to go through.
There are cases where people have complained about delayed possession of apartments but these are not highlighted because there are no effective machineries available to redress their grievances. However, the larger and top class developers have their image to protect and to fulfill their commitment they include a penalty clause in agreements.
There are numerous causes for delays such as late government approvals, getting the completion certificate after a long wait, raw material delays, cement and steel procurement, manpower delay to list a few. Getting local approvals is a harrowing task and the new Environmental Impact Assessment clearance that is now mandatory can even take up to nine months. At any point in time, there is a 50 to 60 per cent shortfall in unskilled manpower in the market. Civil contractors executing projects have so much on their plate that managing different projects is becoming more and more difficult.
According to industry watchers, most developers face project delays. About 85-90 per cent projects are delayed in some way or the other and that a lot of the delays are not in the developers’ control. The delays on account of various reasons do affect the overall budget of a developer, increases the construction and storage cost and hit the brand image and future of the company. Of course, it has a direct impact on end-users as well.
A project in which the buyer has given a minimal advance, the pressure on the developer is far less compared to heavy advance acceptances. The buyer’s capital is stuck and they can’t go anywhere. In such a situation, strict penalty clauses are imposed. This is one reason why clients rely on top class developers who are sure of their deliveries.
The realty industry experts say that in the last few years, developers have taken up 10 times more projects compared to what they have done in their total lifetime. Have they thought where the availability of the labor, brick, steel and cement is? How will they manage all this? However, there are well-known construction companies who are trying to get more advanced technology for construction to match their deliveries. However, the cost of adopting such technologies in India is still very high and not many developers are able to benefit from it.
The solution, it seems, lies in the urban development ministry’s plans to create a regulator for the real estate sector. The regulator would promote best practices and consumer interest. Where there is a delay, the regulator will ensure that penalty is paid by the developer. The regulator will also be considered as an ombudsman between the buyers and developers.
The housing societies often get confused about choosing the best or right or so to say, one “HONEST” builder. There are many cases where the dreams of members of the housing society are crashed when the terms of Development Agreement and time schedule of completion of project is not maintained by such opportune builders of III tier.
There are types of voracious builders of III tire who have abandoned or have delayed the redevelopment projects due to paucity of inflow or diversion of funds from the assigned projects in order to acquire more and more projects beyond their financial means or are simply not capable to execute the projects due to lack of competency.
Building a home is a major decision for the lifetime and one would not want to take chances. It is said that till you do not leave your society, you are the KING. The day on which you handover your property to the builder for redevelopment and leave your society, the builder is the KING.
With regard to the buying of flats/premises in projects other than redevelopment also, there is an upward trend for buying the property. The cut down in interest rate and easy registration process has attracted more property buyers to invest on their dream home.
Today real estate is one of thriving industries and demand for residential and commercial property is increasing day-by-day. There are number of builders and developers in city who offer or promise special features to attract prospective buyers. However, there are some builders or developers who delay the completion of project and the buyers suffer mentally and financially.
There are property buyers who say his/her flat’s possession has been delayed by six months or more. Even those of reputed builders get delayed unexpectedly. The properties buyers are the now considered consumers and finally have got a voice and a forum to air their grievances. Using consumer courts, buyers have been able to get back their money with interest or have been financially compensated besides allotment of flats by the sloppy builders.
In case of delay, the builder is liable to refund the amount paid with interest (for the period of delay) as there has been a breach of contract. A promoter, who constructs or intends to construct either commercial or residential building, shall specify in writing, the date by which possession of the flat is to be handed over.
In case of delay, as there has been a breach of contract, the builder would attract penalty under both Consumer Protection Act and the Maharashtra Ownership Flats Act. The builders are careless about compensation because there is no detailed written down Real Estate Regulator from the Government as yet, for rigorous punishment to such builders. A consumer doesn’t want to get into a legal tangle and just wants his flat in hand and the unscrupulous builders take advantage of this helplessness.
Many property aspirers buy an under-construction flat for the convenience of slab-wise payment and lower rates. But is it such a good idea? A Mumbai consumer says her flat's possession has already been delayed by six months. Like her, scores go through the harrowing wait for possession when housing projects-even those of reputed builders-get delayed unexpectedly. To add to their woes, consumers complain that builders rarely offer compensation, leave alone actually doing it out.
Now, consider the financial implications of delayed possession. A Mumbai consumer who was promised his flat in June 2007 says, "My agreement document clearly says that in case I intend to return the flat over delayed possession, the builder will refund the original amount with 9% interest from the day one he received the payment."
However, the flat purchaser calls this an impractical solution. "Prices have more than doubled since we booked the flat, so giving it up for just 9% interest does not make sense." Besides, he says, the interest rate on borrowed money has also seen a steep rise. During the unfortunate wait, buyers lose out in other ways too. One, if they don't own another property, they have to stay put in a rented place.
Two, if they have secured a home loan for the flat, its repayment schedule is treated as pre-EMI (equated monthly installment) 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, after securing possession of the property and thus commencement of EMI. Till then, he gets no tax relief on the pre-EMI.
Property buyer can present their own cases in consumer courts and do not need to engage a lawyer. The property buyer must file his complaint within two years of the dispute arising, after which it becomes outdated. A written complaint, can be filed before the District Consumer Forum for property value of up to Rupees twenty lakhs, State Commission for value up to Rupees one crore and the National Commission for value above Rupees one crore.
The builder problems can’t justify the delay. The default on the part of the builder would attract penalty under both Consumer Protection Act and the Maharashtra Ownership Flats Act, 1963. Often, the builders have an agreement clause that assures buyers a daily damage for the delayed possession. The buyers must ensure that his agreement for purchase of flat includes the clause compensation from the builder for delay in possession.
If such compensation clause for delay in possession of flat is included as penalty clause in the agreement for purchase of flat entered between the buyer and the builder i.e. monetary compensation for per day's/per month’s delay, buyer can be sure to get the compensation. The study of recent cases of delayed possession is re-produced below for the awareness of the flat/premises buyers:
BUILDERS CHEAT EARLY BUYERS, SAYS STATE COMMISSION
A "landmark judgment" recently delivered by a State Commission has ensured redress for a harassed Matunga couple. The Maharashtra State Consumer Disputes Redressal Commission directed Khar-based Monish Builders to pay Arti and Vikas Modi Rs 7.86 lakh as damages and hand over possession of the Chunabhatti flat they had bought in 2006.
The Consumer forum, while delivering the judgment, said that "When the purchasers complain, the builders show them provisions of the Maharashtra Ownership of Flats Act, 1963 and willingness to give full refund with interest at 9% from the date they received the money so that after using the flat buyer's money liberally for years, the builder can later sell the flat at much higher rate and pocket huge profit thereafter."
The Modis booked a 580 sq. ft flat in Mohan Mansion, Chunabhatti, for Rs 22.4 lakh. Over a period of time, the Modis paid the builder Rs 20.18 lakh. They were promised the possession of their flat before June 2007 but when the builder failed to deliver, Modis were forced to rent an apartment for five years.
The State Commission found the builders guilty of ‘Deficiency in Service’. In 2006, the Modis invested their life savings in a flat, and can't afford to buy one at the present rate, said the commission.
BUILDER FINED RS. 20 LAKH FOR DELAY: CONSUMER COURT
Mumbai: In an order that will cheer property buyers. As per the news item appeared in "Times of India, dated 14 June' 2010, Mumbai edition, page 01" the Maharashtra State Consumer Commission recently directed a developer to shell out Rs. 20 lakh at the rate of Rs. 2,000 a day for a delay in giving possession of a shop premises to a purchaser.
The significance of the order passed by a three-member bench comprising president S B Mhase, S R Khanzode and D Dhamatkar—is that it is “among the first times’’ that “per day’’ damage, as was specified in the sale agreement, has been charged, according to lawyer Bindu Jain. The lawyer represented the aggrieved party, Dharshi Dedhia.
Often, builders have an agreement clause that assures buyers a daily damage for delayed possession, but few buyers, if any, invoke it, Jain said. The lawyer said the judgment comes as a boost to purchases of flats and other property across the state.
The commission said, “To issue notice for delivery of possession without an occupation certificate was an illegal act. We find that there is no ground to justify the delay.”
Dedhia possessed a shop and godown in Rajhans building in Thane as a tenant. The original landlord sold the premises to Padmavati Enterprises who decided to redevelop the property and agreed to give a shop of 366 sq ft to Dedhia at a subsidized rate. The agreement was made in June 2005 to hand over possession in October 2005, but the possession was given in June 2007 that too without an occupation certificate. As a result, Dedhia claimed damages for the delay at Rs. 2,000 per day as stipulated in the agreement.
Dedhia’s other grievance was that a water connection wasn’t given to him. He took up the matter with the Thane district consumer forum, which ordered the builder to pay him Rs. 20,000 as an additional compensation for the “mental agony and financial loss’’.
As already pointed out above, there have been innumerable decisions in Consumer Forums concerning builders and flat owners. These decisions have been rendered mostly on the ground of “deficiency in service”. Which expression has been defined in section 2(1) (g) and section 2(1) (o) of the Consumer Protection Act. In cases of delay in giving possession of the flats, the consumer forums have directed the refund of the amount deposited by the potential purchasers with the builder/housing board along with 18 per cent. In another case, besides issuing order for refund of the entire amount of Rs. 1,09,000/- deposited and payment of 18 per cent interest, the builder was also ordered to pay Rs. 1 lakh as further compensation.
BUILDER DIRECTED TO PAY COMPENSATION FOR DELAYED FLAT DELIVERY
Mrs Veena Khanna of New Delhi Vs M/s. Ansal Properties and Adharshila Towers, New Delhi: Before National Consumer Disputes Redressal Commission, New Delhi: Order dated 9th July 2007
Due to abnormal delay in handing over the possession of flat, the Complainant had demanded refund of the deposited amount with interest @ 18% which the Opposite party refused to pay. Complainant filed a petition before the State Commission, Delhi. By judgement and Order dt.06-12-2005, the State Commission directed the Opposite Party to refund the amount of Rs.15,00,000 with interest @ 13% p.a. from the date of deposit of the last instalment till the date of payment of refund. In the alternative it also directed that if the Opposite Parties choose to handover the possession of the flat, the order of refund with interest will not come into operation.
Against the above Order of State Commission, the Complainant Mrs. Veena Khanna filed an Appeal in the National Consumer Dispute Redressal Commission praying that the Opposite Parties be directed to deliver the possession of the flat and also compensation for delay in delivery or adequate compensation should be awarded so that she can purchase a flat of the size.
It was argued that as the afore-quoted order passed by the State Commission gave preferable alternative to the Opposite Parties, and the builder took undue advantage of it and refunded the amount deposited by the complainant with interest, as directed, because of the rise in the prices of the immovable properties.
Opposite Parties took advantage only because an option was given to either refund the amount or to hand-over possession of the flat and no adequate compensation was awarded. The National Consumer Dispute Redressal Commission commented that if such contentions of refunding of the money with payment of minimal interest is accepted, the builders would earn millions of rupees by delaying the delivery of the possession of the flat for months together for one reason or the other.
After considering the arguments of the counsels representing both the parties the National Consumer Dispute Redressal Commission decided that the Complainant is required to be compensated for delay in construction of the flat and for not allotting the same to her. Because of the delay in construction and delay in deciding the matter, it is practically impossible for a retired Govt. employee to purchase a flat at the present price.
The National Consumer Dispute Redressal Commission further stated that therefore, there are two alternatives – (a) one is to give adequate compensation for delay and to direct the Opposite Parties to hand-over possession of an alternative flat in the vicinity of the area where the flat was allotted to the Complainant; (b) or secondly, to pay adequate compensation to enable the Complainant to purchase a new flat of the same area in the same or similar locality.
The Opposite Parties were directed to pay a sum of Rs.7,50,000/- as compensation to the Complainant for the period she suffered financially. This was on the presumption that the value of the flat has escalated. However, if the builder considers that compensation of Rs.7,50,000/- (Rupees seven lakhs and fifty thousand) is more or excessive, it would be open to the builder to provide an alternative flat of the size and price agreed, in the same locality or near about, to the complainant for which an appropriate allotment letter will be issued by them in favour of the Complainant within a period of eight weeks from the date of the order. If the same is not issued, it shall pay compensation of Rs.7,50,000/- to the complainant, as directed.
The builder must deliver the project in time along with 100 per cent transparency in all the dealings. He must stick to the promised terms and conditions and pay penalty if the project delivery is late. Trust is the most important element in a society-builder relation and that should be well taken care of by the builder. Get all the promises or agreements made by builder in writing. It should outline the work to be done, date of completion, amenities or facilities promised.
Counselor and Analyst for Redevelopment of Housing Societies
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