YOUR DEVELOPER DELIVERS A DELAYED APARTMENT OR PAYS FLAT
COMPENSATION ?
M. SIVARAMAN
Plight
of Apartment Buyers:
Hard earned money and home loan proceeds are shelled
out to developers by the consumers in the fond hopes that the apartments, the
common facilities and other amenities as showcased in the promotional brochure,
advertisements, application forms and the construction agreements would be honoured
and delivered in time and as per the specifications promised by the
developers. The individual consumers who
are not organized when they book the apartments do not stand a chance to the
well organized and advised developers in matters relating to the contractual
terms, most of which remain in fine print with elaborate legal drafting tilting
the scales of balance in favour of the developers. Contractual remedies, if any, available to
the apartment buyers against the delay or defaults by the developers in such
agreements are either inadequate or illusory in nature. On the other hand, the developers are usually
cushioned with various safeguards and favourable terms, often outright denying
or utmost capping their overall liabilities with elaborate clauses which can
save them from claims arising out of delays and defaults. In practical terms, the individual consumers
do not have any say in the negotiation, finalization and execution of the
application forms for booking the apartment and the construction agreements
which typically results in one-sided agreement, broadly protective of the
developers interests only.
In this backdrop,
when an individual consumer who was promised an apartment is confronted with
huge delay in delivery of possession and / or with the common areas, facilities
and other amenities which have been promised are also not ready or do not meet
the contractual specifications, it results not only in financial strain, but,
also leads to emotional stress and mental agony. This is because a residential apartment or
house is not merely an immovable asset, but, an aspirational ideal in ones’
life. When almost all the installments
towards the apartment have been paid out to the developers by the consumers
from out of their own funds and home loan proceeds, if the possession is not
ready and inordinately delayed, then, it is double whammy for the consumers,
since on the one hand their monies have been fully paid and the apartment is
not delivered, while at the same time, the loan EMIs would have already
kicked-in and in some cases, the consumers may also be constrained to continue
to pay rentals till the apartment possession is delivered.
Remedies under Consumer Protection
Act:
Such inordinately delayed delivery of possession
and/or non-availability of the common facilities and amenities as per the
contractual specifications can be a subject matter of a consumer dispute in
view of the deficiency of services and/or defect in the construction on the
part of the developers and builders. The
individual consumer can file a consumer complaint. More than one consumers who have a common
interest in the consumer dispute can also file consumer complaint in a
representative capacity against the developers/builders(1). The Consumer Disputes
Redressal forums created at the district, state and national level under the
Consumer Protection Act are tribunals which usually go by the contractual terms
agreed between the parties and do not deviate from the agreed commercial
bargain even in the face of one-sided agreements.
Are
Separate Car Parking Charges Illegal?
But, when builders and developers charged extra for
car parking space in violation of the local state legislation in Maharashtra,
the Supreme Court has held that separate charges for car parking is illegal and
not maintainable(2). This position was further explained &
reiterated by the Supreme Court(3). However, these arise out of State specific
legislations. For instance, in the State
of Karnataka, the Supreme Court has held that separate car parking charges can
be collected by developers as there is no prohibition against the same under
the Karnataka Apartment Ownership Act(4).
Are
Grossly One-sided Agreements Legally Valid?
Courts ordinarily decide the consumer disputes in
terms of the contractual bargain the parties have arrived at. It was held that when a developer has already
agreed in the building construction agreement that in case of delay in delivery
of possession he would compensate the buyer of an apartment at a specified per
square feet rate, then, courts should not overlook such clauses and order
further compensation; only if there are strong and exceptional reasons,
compensation at a rate more than the contractually agreed rate can be awarded(5).
But, if the agreements are highly one-sided and have been drafted to
protect the developers’ interest, then, courts can read down the agreed clauses
which are the product of an unfair bargain.
It was also held that contractual terms cannot be final and binding if
they are one-sided and the consumer was forced to sign on the dotted lines of
the developers; such one-sided, unfair and unreasonable terms in the contract
form unfair trade practice by the builder for selling the flats(6).
Validity
of Compensation Clauses favouring Developers:
Typically, the developers and builders usually ring
fence their liabilities arising out of delays and defaults in the delivery of
possession. In extreme cases, they cap
their liability that in the event of delay in delivery of possession beyond the
promised date and also if there are no force
majeure circumstances, only a per square feet rate at say Rs.3/- or Rs.5/-
per sq. ft. per month for the delayed period would be reduced by them in the
sale consideration. This hardly works
out as any meaningful compensation to the consumers. But, in extreme cases involving huge delay in
delivery of possession, courts came forward to award just and reasonable
compensation over and above the contractually agreed compensation rate(7).
In such cases, courts provided for payment of compensation at
interest rates, which are higher than the per square feet compensation rates
that the developers may have stipulated in the construction agreements.
Validity
of Denying Right to Protest or Initiate Legal Challenge:
After an inordinate delay of say two to three years
beyond the promised delivery date, the developer is now ready to deliver
possession and also execute deed of conveyance.
But, he levies a precondition that you should accept the possession and
execute the deed of conveyance without registering any protest or reserving
your right to initiate legal challenge against delay and damages. In the event you refuse to comply with such
precondition, the developer is not handing over possession nor executing the
deed of conveyance. Ultimately, out of
frustration or out of necessity, you agree to withdraw your claims or the right
to protest or initiate any legal challenge against the developer and thereupon
only the developer delivers possession and executes deed of conveyance for the
apartment in your favour. Subsequently,
can you challenge the act of the builder that he had forced you to withdraw
your protest and legal claims against him?
It has been held by the Supreme Court in a recent
decision(8) that you can still
challenge the same and secure compensation from the court. But, in the meanwhile, if you have arrived at
a settlement agreement with the builder and have received some compensation
from him, which may be presumably of lesser monetary value, then, you will be
bound by the same and not be able to challenge against the delay and defaults. Suppose, while there has been delay and
default continuing for quite a long period and in the meanwhile, if you have
sold the apartment which is midway in the construction, can your subsequent
buyer or you be able to claim compensation from the developer. It has been answered by the Supreme Court in
the above decision that it is not permissible because the new buyer has come in
after he is aware of the delays and defaults on the part of the developer and
that you have sold out the property with all its rights, title and interest and
therefore both of you cannot claim compensation in such cases.
Key
Takeaways:
Rights of the apartment buyers are not uniform in our
country and vary from State to State, as illustrated in the matter of whether
separate charges could be levied by the developer for car parking. If there are one-sided, unfair and
unreasonable terms and conditions and the consumer had to sign such
construction agreements on dotted lines as drafted by the developer to protect
his interests, then, it will amount to unfair trade practice. In the event of delays which are grossly
inordinate, say two or three years beyond the promised date, then, besides
whatever the square feet rate compensation that the developer may allow, the
buyers can still legally challenge and secure just and reasonable compensation
from the consumer forums or courts. Even
in instances where the buyer is forced by the developer to give up or withdraw
unconditionally his legal right to challenge the delays and only thereupon deed
of conveyance is executed, it will not be a bar for the apartment buyer to
subsequently challenge it before the consumer forums and secure just and
reasonable compensation.
(Author
is a Corporate Lawyer based in Chennai & reachable at clearlaw4all@gmail.com)
PS:
1. This post is subject to the Legal Disclaimer of
this Blog as available in our post dated July 4, 2020 titled “Legal Disclaimer”;
2. “Clearlaw4all” has been selected as one of the Top 100 Indian Law Blogs on the web by Feedspot available at https://blog.feedspot.com/indian_law_blogs/ .
End
Notes:-
1. 1. Section 12(1)(c) of the Consumer
Protection Act, 1986.
2. 2. Nahalchand
Laloochand Private Limited vs. Panchali Cooperative Housing Society Limited (2010)
9 SCC 536
3. 3. DLF
Limited vs. Manmohan Lowe (2014) 12 SCC 231
4. 4. Wg.
Cdr. Arifur Rahman Khan & Aleya Sultana & Ors. Vs. DLF Southern Homes
Pvt. Ltd. Civil Appeal Nos.6239 & 6303 of 2019 decided by
the Supreme Court of India on August 24, 2020.
5. 5. DLF
Homes Panchkula Pvt. Ltd.
vs. D.S. Dhanda & Ors. (2019) SCC Online SC 689
6. 6. Pioneer
Urban Land & Infrastructure Limited vs. Govindan Raghavan
(2019) 5 SCC 725
7. 7. See
Wg. Cdr. Arifur supra. See
also, R.V. Prasannakumar Vs. Mantri
Castles Pvt. Ltd. (2019) SCC Online SC 226.
8. See Wg. Cdr. Arifur supra.
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