Builder Buyer agreement

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NAVI MUMBAI DEVELOPERS WELCOME HIGH COURT ORDER TO FULFIL PROMISES ON BROCHURES
Sun, Mar 26, 2006News
A recent order of the Mumbai High Court has cheered all flat buyers. The High Court order states that builders are bound to honor the promises made in their brochures. Justice K J Rohee observed that the facilities mentioned in the brochure can be treated as part of the agreement even if it not part of the pact between the builder and the flat buyer. The High Court order making it mandatory for the builder to give flat buyers everything that is promised is brochures will have an impact on the real estate industry where developers are known first to present buyers with every amenity and later go back on these painted picture by either reducing the size of the swimming pool or shrinking the gardens and the likes. In the particular case being heard by the court, the builder was planning to construct on area that was earmarked for a garden. Section 7 of the Maharashtra Ownership of Flats Act prohibits a builder from any alterations without consent after the plans and specifications of the building have been disclosed to the flat buyer. However today, several developers do not abide by this and alter plans. This recent order of the Mumbai High Court has cheered up flat buyers who very often feel helpless when a builder promises something on the brochure and then fails to fulfill these promises. There is mixed reaction to this High Court order among builders and developers. Renowned developer Arvind Goel says that the decision is welcome. Prominent developer Rajesh Prajapati points out that the decision will not affect the reliable names of the industry but those developers who follow unethical practices of not delivering what they promise.

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MUMBAI: In an important order that strengthens the hand of the flat buyer vis-a-vis the builder, the Bombay high court has ruled that there can be no additional construction on a housing society plot if the buyers had not been informed of the same at the start.

In land-starved Mumbai, builders often utilise undeveloped portions of a housing society to construct new buildings using additional construction rights in the form of Floor Space Index (FSI) or Transfer of Development Rights (TDR).

This practice may now come to an end with the court ruling that unless it was initially disclosed to flat buyers, no part of the land belonging to their housing society can be used for additional construction.

The court said that builders have to make a “true and full disclosure’’ about the housing project while signing the sale agreement with a buyer. The order was made in the case of an application by a Jogeshwari housing society opposing the builder’s plan to amalgamate a part of the society’s land with an adjoining plot to construct a 14-storey tower. A division bench comprising Justice R M S Khandeparkar and Justice A V Nirgude restrained the developer, Pranay Constructions Pvt Ltd, from using any part of the society’s land for the tower.

“The promoter is not only required to make a disclosure concerning the inherent FSI, he is also required at the stage of layout plan to declare whether the plot in question in future is capable of being loaded with additional FSI/floating FSI/TDR,’’ said the judges. “In other words, at the time of the agreement, the promoter is obliged statutorily to place before the flat takers the entire project\scheme.’’

According to Mukesh Vashi, the lawyer representing the Jogeshwari housing society, the provisions in the Maharashtra Ownership Flats (Regulation of the Promotion of Construction) Rules as well as Supreme Court judgments on the issue are in favour of flat buyers. “Not only is the builder required to reveal details of the land, amenities and facilities to the buyer, but the development potential of the land on which the housing society stands as well,’’ said Vashi.

The HC judgment comes on the heels of a series of orders in the last few years protecting the rights of buyers. Earlier this year, the HC had held that builders cannot change their building plans arbitrarily and add extra floors without the specific consent of the flat purchasers. Another ruling had stated that builders were bound to honour the promises made in their brochures even if these were not part of the sale agreement.

In the case at hand, a first suit was filed by the White Towers Cooperative Housing Society, Jogeshwari (West) seeking orders to the builder to provide the conveyance deed of the land. A subsequent application was moved before the court against the proposal by the builder to construct a multi-storeyed tower by amalgamating a portion of the society’s land with an adjoining plot.

Vashi argued that the proposal was against the interests of the buyers as they had been kept in the dark about the builder’s expansion plan. The lawyers for the builders countered this saying that a builder had the right to develop a plot of land as long as he was not modifying the existing building. They further contended that the layout plan for the new construction had been approved by the BMC and had not been challenged by the petitioners.

The court did not see things this way. “The obligation (to make full disclosure) remains unfettered,’’ said the judges. “Obviously, the flat takers stand assured that in case of any change to be made in the project as was disclosed to the flat takers at the time of entering into agreement, the same has to be by following the proper procedure and without disturbance of the rights accrued to the flat purchasers in relation to the flats and all benefits attached to the flats, including in relation to the land on which the building having such flat is situated.’’ They added that builders could not carry out construction on a society’s plot as a matter of right.

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Builders, buyers have to go by the agreement

Does the builder have unrestricted powers whenever the agreement clauses are open ended? finds out C.H.Gopinatha Rao
What if when a buyer and builder fault in the agreement in they have entered into? Is the builder vested with unrestricted powers whenever the agreement clauses are open ended and lacks resolution? The Supreme Court case involving DKF Universal Ltd and EktaSeth discusses the above point.

A flat along parking space was booked in 1993 in DLF Residency park, Gurgaon for a sale price of Rs. 16,37,488 payable in 42 instalments spread over a period of ten years commencing from 1993.

The buyer paid a total sum of Rs. 9,94,836 up to September 1998. The builder, on his part, instead of delivering the apartment within three years from the date of booking delayed the completion.

In addition, the builder also demanded an additional amount of Rs. 4,21,474 towards cost escalation, increase in area and external electrification, fire fighting systems and stand by generator.

The buyer declined to pay the revised amount since she found it beyond her paying capacity. She also complained that the delivery of flat was delayed.

However, the builder cancelled the allotment, the earnest money of Rs. 1,69,012 was forfeited and the balance amount returned.

Unfair trade practice
The buyer approached the Monopolies and Restrictive Trade Practices Commission contesting it. The commission recorded that the action of the builder in increasing the cost resulting in the cancellation was an unfair trade practice.

It also observed that the builder had no right to forfeit the earnest money. Consequently, a direction was issued that the builder should return the earnest money with interest thereon at 9% per annum from the date of withholding the earnest money till the date of repayment. Aggrieved by the decision, the builder appealed to the Supreme Court.

The Court observed that the parties to the contract were governed and bound by the terms and conditions of the agreement entered into. The buyer at the time of signing the agreement was well aware of the fact that additional amount would be demanded on account of factors enumerated in the provisions of the agreement.

But what would be the maximum enhancement was not prescribed in the agreement. By inserting the words “the decision of the company in this regard would be final and binding on the allottee”, the company had vested in itself unrestricted power to increase the cost.

The builder also could not give possession within three years from the date of booking and it was also evident that the apartment was incomplete.

As per the agreement the only option given was that if there is delay in delivering the possession, the allottee would be entitled to refund of entire amount deposited with the builder without any interest. This means no liability will accrue upon the builder due to delay in handing over possession.

Considering the facts and circumstances of the case, the court felt that in exercise of their discretionary jurisdiction under Article 142 of the Constitution of India and in the interest of justice directed the builder to return of 50% of forfeited amount while the remaining 50 % stood forfeited.

The Supreme Court made it clear that the direction should not be considered as a precedence in such issues. What this holds for all the buyers is that they must carefully scrutinise the agreement document and take care of all clauses and particularly look at additional costs and other commitments. It also auctions the builders that they cannot assume unrestricted powers in decisions that affect both the parties.

The author is former National President, Institution of Valuers.

[gopalvijay]

very good development indeed for all of us.
Could we get more details like case reference no. ?

[kittu]

very good development indeed for all of us.
Could we get more details like case reference no. ?

http://epaper.timesofindia.com/Repository/ml.asp?Ref=VE9JTS8yMDA4LzA1LzI5I0FyMDAxMDE=&Mode=HTML&Locale=english-skin-custom

http://www.hindu.com/pp/2009/03/07/stories/2009030750080800.htm