Today, there are lots of distressed properties in the market where merger and/or takeovers are happening. While it makes sound business sense for both the builders of stressed assets as well as the one having capital to invest, the home buyers with little elbow room to negotiate are often at the receiving end of such market transactions that look promising as an outside view. Ravi Sinha explores the legal options for the home buyers.
Case Study I: Abhik Banerjee got a call from the builder’s office that the stuck up project has been sold off and the new builder wants to meet the existing buyers of the project. Once reached over there, he was verbally told to either exit the project and get a refund of the paid amount without any delay penalty or else pay INR 10 lakh extra. The builder’s logic has been that the project cost has escalated and it is unviable for the new builder to complete the project at the earlier committed price.
Case Study II: When the long delayed and stuck project at Noida got the new builder who took over the distressed asset, the existing buyers had a sigh of relief. However, that relief was short lived as the builder soon announced to relaunch the project with more promised amenities. Now the existing buyers had only two options given to them- either shift to the smaller apartment at the same committed cost or pay an extra amount. Refusal by a few buyers led to cancellation of the allotment on part of the builder who claimed the buyers’ commitment was with the erstwhile builder and not him.
Case Study III: After having stuck for years in the Bangalore property, the harassed home buyer Apoorvanand has been asked to give an undertaking to not get into any future litigation. The new builder having taken over the stuck up project claims it is mandatory for getting the SWAMIH fund for completing the project.
The above case studies are real life experiences of the buyers with only name being changed here on request. The question is can the new developer force the existing buyers to exit or make more payment? The settled principle of law says NO!
Advocate Nirmit Srivastav categorically says that the initial contract plays a paramount role. The contract with the erstwhile developer will be considered in such cases. The new developer can’t charge over and above the previous sale consideration. If the builder makes an additional demand, then that is a matter of litigation.
“Even if the new developer has decided to relaunch the project, the options for the existing home buyers are pretty clear that the earlier clauses and recitals of the agreement will play a crucial role. The Supreme Court is very clear on this,” says Srivastav.
Venket Rao, Founder of Intygrat points out that today distressed properties are available and financially stronger investors & builders find a great opportunity. In fact, it is a win-win situation and a great opportunity for the stuck promoter to exit and a value deal to the investor/buyer. One important aspect for buyers in such properties is a thorough diligence which should involve most importantly current status of project approvals, checking on any pending regulatory actions, any court stays and of course the financial strength of the new developer and requisite approvals/documentation/structure of takeover of such property by the new developer.
“Invariably, builders while taking over a distressed property do not play with the existing receivables unless there is a new understanding/agreement with the existing buyers in a distressed property. However, the terms of the existing agreement are sacrosanct and new terms including fresh timelines or pricing is not permissible. Under Section 15 of RERA, it specifically takes care of such a situation. However, if the distressed property is acquired by the builder as Resolution Applicant under a process of CRIP, then such conditions and terms under which such Resolution Plan would have been approved by NCLT would be applicable. In such a case, therefore, any increase in price if approved in the Resolution Plan, then the buyers have to pay the increased price,” says Rao.
Advocate Aditya Pratap also believes that must such takeovers happen on an as is where is basis. All tragedies of distressed assets are subject to the rights of existing flat buyers. Therefore, it would be safe to say that if you have booked a flat which unfortunately happens to be on a distressed project, your rights will not be impacted if a new builder comes in.
“In fact, as per the lease of contract, the price agreed will be honoured. The new builder subsumes the contractual obligations of the older builder. As far as opting out is concerned, buyers can only claim refund if the possession deadline is not met under Section 18,” says Aditya.
The existing home buyers in such cases can choose to exit from the property at any time under Section 18 of RERA. However, in case of a project being at an advanced stage, courts are inclined to decide on a case to case basis and may mould the relief by granting possession rather than exit from the property.
Interest payment to bank or even obligation under subvention schemes is responsibility of the buyers and Invariably buyer has to shell it out of one’s own pocket. Though, at times courts tend to grant some compensation and in certain cases builders have been directed to honour interest payments under subvention scheme.
Legal insight for the buyers
New promoter can’t demand for extra money and there is legal safeguard for buyers under Section 15 of RERA
New builder taking over a distressed asset has to honour the contractual obligations with the previous builder
The new builder can’t even defer the timeline of the project completion on his own
Even if there is escalation and/or project is relaunch, the new builder by law has taken over the distressed asset with all its assets & liabilities
If the stuck project has been given to the new builder under insolvency then the buyers have to honour the resolution plan that may/ may not have extra financial liabilities
The buyers always have the right to exit the project under Section 18 of RERA
The buyer also has a right to demand delay penalty with the new builder, unless the project has been taken over under insolvency with insolvency plan acting as rider
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