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Discussions related to Real Estate matters, Real Estate laws, loans, financial queries

Protecting yourself from One Sided Builder Buyer Agreement

Postby dheerajjain » Fri Jun 27, 2014 11:08 pm

Excellent Article from 'The Hindu' Newspaper June 01, 2014. Please read below: ... 072187.ece

Many clauses in builders’ contracts are loaded against the buyer. A heads up on what these clauses are

Recently, home buyers got a favourable verdict in a case against home developer DLF. The Competition Appellate Tribunal upheld that many clauses in the company’s contracts with buyers were one-sided and unfavourable to the buyers of two of its Gurgaon-based projects, Park Palace and The Belaire.

In 2011, the Competition Commission of India had asked DLF to pay a penalty of Rs 630 crore.

Builder-buyer agreements having ‘draconian and one-sided clauses’ are widespread. This agreement covers important aspects of the contract, such as the timeframe for completion, payment terms, interest penalties and approved layout plans.

But many buyers are either not fully aware of its importance, or cannot decipher the complex legalese and sign the agreement in haste. For example, clauses related to modifying the super area, common area, and imposing holding charges were detrimental to buyers in the DLF agreement.

Here are some problem clauses that have caused problems for home buyers.
Area increase

If your home is nearing completion, it could well turn out to be that you get a payment demand for increased area. In this regard, your agreement may state that the final area may be higher than the original contract stripulated due to ‘plan changes’.

But this increase is rarely inside the four walls of your house. Up to 10 per cent of the space can go in the ‘super built-up area’ outside. It is not easy to measure what this area really is.

And unless you modify the agreement to show the updated area, you may not be able to charge for the ‘higher’ area when the flat is resold.

Your agreement may not even state if the new area will be charged at the original offer price or at the prevailing rates. If your builder raises a demand for payment, ask why the area increased. Know the local rules in your area to check if the increase is within permissible limits.

For example, a maximum deviation of 5 per cent over the approved plan is allowed in group housing projects in Haryana.

Handing over of your flat may seem also like a distant dream, as inordinate delays have become the norm. Delays add to your financial burden by way of home loan interest and rent payments. But while your delay in paying the instalment may attract a 18-24 per cent penalty, you cannot expect any relief when builders stretch the timeline.

For one, the hand-over date may be stated as ‘two years from commencement’, where the starting date is loosely defined. Two, clauses such as ‘force majeure’ may absolve the builder of penalties. Not that penalties are high − it is around ₹5-20 per square foot per month. Compare that to the ₹3,000-10,000 per square foot you may be paying.

The builder may also ask you take ‘fit-out possession’ even without an occupancy certificate. You can do the wood-work, but taking this offer could be counted as a hand-over.

No penalty will be paid, although actual occupancy may be many months away. So be wary of taking this offer and always insist on getting delivery dates in writing.
Holding charge

You may find that if you choose not to take possession, the builder, as in the case of DLF, may demand holding charges. But don’t rush to move in if many promised amenities are not ready. Ideally, your payment terms should be based on overall work progress under the entire project, not just construction of your walls. However, many of the common facilities and amenities such as power back-up are not provided even when the building is handed over.

Also measure the actual carpet area delivered to ensure that any floor plan changes during the course of construction have not reduced your living space. It is also possible that the developer has altered the layout plans to include more floors − as DLF did − or added extra buildings, reducing your share of open space.

“Buyers should make sure that in a multiple tower project, all towers are handed over together,” says Shailendra Bais, who is awaiting delivery of his home in Unitech Uniworld Gardens in Gurgaon after over five years.
Other terms

Before signing an agreement, ensure there is an ‘indemnity clause’, where you are protected and compensated by the developer if there are legal disputes such as ownership rights on the land. Also ensure that you have a way to walk out if there are issues such as plan changes or the builder not providing original documents. Check that the various deposits for electricity and water connections, club membership fees, and contributions to maintenance sinking funds will be kept in a separate account and transferred to the home owners’ association.

And remember, just because a clause is in the contract, that does not make it legal. The contract has to abide by the rules and regulations of the local housing authority. Registering the agreement is also a good idea, although it may involve some cost. States such as Tamil Nadu have made it mandatory to register it in the sub-registrar’s office within 120 days of signing.
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