Isn’t it ironic that in a country where the number of unsold housing units is skyrocketing, the business of real estate continues to be a seller’s market? Contrary to the developers’ influence peddling that the housing market is by and large a buyer’s market now, the fact lies that the developers continue to take the buyers for a ride. The developers’ exploitative practices are not limited to the delay of the project, but also default in delivering the promised amenities, and, most glaringly, with one-sided unfair contract. Track2Realty explains the options before the home buyers.
Possession process is no less ordeal where the home buyers are forced to sign on the dotted lines or else denied the hand over. The developers in this part of the world are conscious of the fact that not every home buyer can afford the legal trial for years. After all, developers hold the possession when legally contested by the home buyer.
A Track2Realty review of the documents (including Builder Buyer Agreement and Maintenance Agreement) of various builders that the home buyers are forced to sign from pre-purchase to possession clearly shows “Unfair Contract” is more of an industry practice than exception. Clauses like “the buyer cannot write any social media post to criticize property”; “buyers’ rights limited to arbitration in case of grievance and arbitrator to be appointed by the developer”; “sign pre-possession satisfaction letter”; “builder reserves right to deduct IFMS if maintenance amounts falls short” are rampant realities in the housing market.
Needless to say, unfair contract is a market reality of Indian real estate; a reality that builders wish to continue with and the buyers don’t have financial and legal resources to challenge. Every other builder is doing the same, is often the justification on part of the developers.
The prevailing practice of Unfair Contract by the builders raises some pertinent questions: What should the home buyer check out before signing the deal with the builder? What can the buyer do if the builder only showcases the Builder Buyer Agreement (BBA) after having taken the booking amount? What are the legal options for buyers if the builder forces an unfair Maintenance Agreement at the time of and/or after possession?
The problem is all the more acute in affordable housing where a vast majority of the buyers don’t even avail the services of a lawyer for due diligence and get the papers vetted. There is more reliance on the brokers who represent both the buyer and the seller and tend to be hand-in-glove with the builder. In many developed property markets of the world, the broker can’t have dual representation and can only represent the buyer or the seller.
There is an urgent need for home buyer education in the Indian housing market and buyers too need to understand it is better to be safe than sorry. The developers create a FOMO (Fear of Missing Out) sentiment and the gullible home buyers fall into the trap of making the instant payment of the booking amount. Thereafter lies a vicious cycle of one-sided set of documents and the buyer gets to see the Builder Buyer Agreement much after he has made the payment. Despite the RERA guidelines, every developer still has his own fancy ideas of BBA that could not sustain a legal scrutiny in most of the cases.
A landmark judgment in the case of Pioneer Urban has clarified that the builder can only forfeit the Earnest Money, if the buyer is cancelling the booking without justified reasons. But in actual practice the builders are forfeiting an inappropriate amount in case of buyer’s exit, even when the buyer is exiting due to the builder’s fault.
Hiring a lawyer for due diligence is hence not a bad idea while committing to life’s costliest purchase, and a purchase where the product is just a promise at the time of booking. In many of the matured economies and developed housing markets of the world, the presence of a real estate attorney is mandated by law at the time of property purchase.
A legal due diligence before making a purchase decision would ensure that the lawyer ratifies all the mandatory approvals and land title. This also ensures that the buyer makes the payment only after reading and getting convinced with the clauses of the BBA. The lawyer also ensures that the BBA clauses are fairly balanced and not exploitative.
For those home buyers who have already purchased an apartment without getting the papers legally vetted, the law is pretty clear to safeguard their interests. The Consumer Protection Act Section 47 (1) (2) clearly says that if it is a one-sided agreement, it falls under Unfair Contract, and even after the contract has been executed the buyer can get it declared null & void. The powers to get it declared null & void lies with the State Commission if the total sale consideration is less than INR 10 crore; and if the consideration is above INR 10 crore then the buyer can approach the NCDRC.
Now since most of the cases are within INR 10 crore the buyer can file a consumer complaint in the State Commission to get it declared null & void. The builder will have to give a penalty and adequately compensate the home buyer at the same rate that he has documented to extract from the buyer, in case of late payment.
The developers also play foul with the home buyers at the time of possession and the Maintenance Agreement more often than not is one-sided. Some of the clauses are so exploitative that the builder can later retain the maintenance with him for years. In most of such cases, the developer claims that the majority of the buyers have signed on the dotted lines. It is a different matter that the dissenting buyers have been forced to sign or else possession is being denied. Now, for those home buyers who don’t understand legality the builder claims that this is the opinion of majority of the buyers.
Legal position is again clear that just because the majority of the buyers have agreed to sign the documents, it is not agreed under the law that any aggrieved person is liable to sign on the same dotted lines. If one feels he is being defrauded and cheated, then there is no necessity that he should also sign the document just because everyone else has signed it. Even a single buyer can move to court against this and refuse to sign the document till the matter is settled in the court.
The issue of Unfair Contract is one of the grey zones that needs to be addressed and challenged by the home buyers. Probably what would encourage more and more buyers to take legal recourse is a fast track real estate court. Delayed litigation is what scares the home buyers most.
Ravi Sinha
@RaviTrack2media
Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.
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