Home > Article Showcase > Builders Concern > Developers - Beware - Delay in Delivery of flats may Cost You Fortune

Developers play vital role in redevelopment of housing societies. Currently, the redevelopment mania of residential properties is booming in full swing and one finds in Mumbai that compound wall of every third property of a society is covered with tins as number of small time Developers and real estate companies has joined the battle in an effort to grab a share of this fast rewarding pastry.

There is also likelihood of delay in completion of such projects under redevelopment followed by numerous complaints from the buyers when flats are not delivered in time by Developers as documented in agreement.

There are numerous causes that contribute for delay such as late government approvals, getting the completion certificate after a long wait, financial crunch, bagging more and more projects beyond the capacity, fund diversion, constitutional changes in company, increase in creditors, labour problems, lack of effective monitoring of the projects, mounting-up of unsold flats and shops, blockage of funds, frequent amendments in govt. policies, raw material delays, cement and steel procurement in irregular manner, manpower delay, adverse market reports of Developer to list a few.

According to industry watchers, most of the Developers face project delays. About 85-90 per cent projects are delayed in some way or the other and at times lot of the delays are not in the Developer’s control. The delays on account of various reasons do affect the overall budget of a Developer, increases the construction and storage cost and hit the brand image and future of the company. Of course, it has a direct impact on end-users as well.

One more contributory factor is that at any point in time, there is a 50 to 60 per cent shortfall in unskilled manpower in the construction market. Civil contractors executing projects have so much on their plate that managing different projects is becoming more and more difficult. The ultimate result of such delays takes a toll of buyers whose dreams are shattered even after shelling out lakhs of rupees to buy a small house.

The end solution for any buyer is the Court of Law. Even before the Real Estate Regulator is formed, Consumer Courts are now taking the lead in establishing the best examples for the delay in delivery of flats to the harassed buyers. On recurrent cases of Developers taking more than the agreed time they promise in agreement to deliver flats to the buyers, the Consumer Courts are coming down on the side of the buyers.

Let us examine a recent judgment by Maharashtra State Consumer Disputes Redressal Commission which has a wider impact for victims of delays in a similar situation. The recent judgement puts the onus of delay beyond reasonable limits on the Developers and relieves the buyers the risk of being cheated and duped by Developers when they go back on their promise.

The Maharashtra State Consumer Disputes Redressal Commission, in a judgement on September 13, 2013, gave a landmark decision in favour of one of the buyers who had booked a flat in December 2008 in Kalyan, an extended suburb of Mumbai and paid approximately Rs. 19 lakhs to the Developer. The flat was supposed to be delivered by September 2010. The project was in limbo for years. Construction had not begun. The flat buyer waited until the end of 2011. Eventually, he filed a complaint with the MSCDR Commission.

In his complaint, the flat buyer alleged negligence on the part of the Developer in not handing over possession by the promised date. He asked for delivery of the flat, additional charges for the mental harassment he was put through, and the interest payment as per the agreement. In his complaint, the flat buyer also provided documentary proof of the current market value of the flat from a govt. approved valuer. However, the Developer admitted receiving full payment for the flat and argued that construction would begin “as soon as possible” after getting requisite permissions.

The MSCDR Commission called this case as the fittest example as to how the Developers exploit the innocent buyers and ordered the Developer to pay the current market value of a flat with the same specification in the same locality, which would be around Rs. 60 lakhs, in case the flat was not delivered within three months. In addition, the MSCDR Commission also directed the Developer to pay to the buyer, Rs. 3 lakhs as compensation for mental harassment and Rs 30,000/- for legal charges.

In its judgement, the MSCDR Commission quoted a marked judgement from the Supreme Court which held that “while quantifying the damages, Consumer Forums are required to make an attempt to serve ends of justice, so that compensation is awarded in an established case which not only serves the purpose of re-compensating the individual, but which also at the same time, aims to bring about a qualitative change in the attitude of the service provider” In the referred case, the Developer was considered as “service provider”.

According to the recognized lawyer representing the buyer, compensating him at the current market value has certainly delivered a required justice. It is distressing to state here that in earlier judgements of Consumer Forums, the buyers were merely granted a paltry amount of interest on the principal amount paid to the Developers. In reality, no amount of interest is enough, considering the ever rising real estate rates. But with compensation like this, a buyer can at least consider buying a house in the same area.

Consumer Forums across the country are lined up with similar complaints against Developers. But as this judgement shows, such wilful default on the part of Developers would now entail a heavy price.

We quote an example, a modus operandi of the Developers as to how they betray the flat buyers. Let us take a study case of a flat admeasuring say 1,000 sq. ft area in 2007 in Borivali, Mumbai. The going rate then was Rs. 6,000/- per sq. ft. The agreement states that the possession of the flat shall be handed over in March 2010. The Developer, however, does not hand over the keys until March 2013 as the construction work is not complete. When the buyer asks reasons for the delay, he is presented with an option: take back the Rs. 60 lakhs paid from 2007 to 2010.

The buyer has two choices then. One, he may wait indefinitely for the project to complete as he has already exhausted his funds. Two, he can take Rs. 60 lakhs back and look for other options. However, this is also not possible as the rates in the said area have by that time doubled and he will get a far smaller flat for the same price at that locality. The betrayed buyer in this case has lost on both the fronts i.e. flat and the time. The Developer will sell the same flat to another buyer at the current market value say Rs 12,000/- per sq. ft and would make Rs 1.2 crore, an extra profit of Rs. 60 lakhs.

In some cases, where the buyers are able to exert some pressure, the Developers pay about 10 to 12 per cent interest on the amount refunded. However, the dirty trick played by the Developers is that the interest is calculated from the probable date of possession mentioned in the agreement till the date of refund. The Developers happily pay that interest as it was only for 2-3 years while they used the buyer’s money for 6 years without interest. On the other hand, this interest was not substantial for the buyer to match the current market value of another flat in the vicinity.

In India, sale agreements are usually prepared by the Developers. The usual agreement for a standard under-construction project would usually indicate 3-4 years as the time-frame for completion. The buyer is bound to arrange the fund within this period while the Developer is bound to keep his side of the deal and hand over the keys on the mentioned delivery date. The innocent buyer being not the law-savvy does not know that there is no penalty clause mentioned in the agreement in case the Developer fails to deliver the flat in time. 

There are several examples of buyers caught in similar circumstances. If the property value is up to Rs. 20 lakhs, the complaint can be filed with a District Consumer Forum. For value of property between Rs. 20 lakhs and Rs. 1 crore, the complaint can be filed with the State Commission and for value above Rs. 1 crore, the complaint can be filed with the National Consumer Disputes Redressal Commission at New Delhi.

 

**********