Home > Judgments > Compensation on Delayed Possession > Delay in Possession of Flats

Builders and 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 builders 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 followed by numerous complaints from the buyers when flats are not delivered in tine as documented. What do developers do when apartments are not finished on time? Some pay back their clients as part of a penalty clause.

It is a long ending tussle between builders and home buyers that never seems to end delivering projects on time. There are umpteen cases where builders have taken extra time to finish projects while leaving home buyers to suffer fiscal setbacks.

Imagine a situation where you have booked a house in an apartment complex while paying hefty EMIs and also the rent for the temporary place that you currently occupy. Any delay in getting into your own house obviously means a financial loss.

To make ease for the home buyers and to remove rotten from the housing sector, Housing Department is planning to introduce new norms to control the realtors. It has made changes in the draft bill and increase the proposed fine from a maximum of Rs 10 lakh to Rs 1 crore, said Sachin Ahir, Minister of state for Housing.

According to the Ahir “whereas in the draft bill to control the housing sector Rs. 10L was the maximum fine, on the other side market experts believes that penalty amount is insufficient for the developers.” Due to the several complaints from buyers department has taken it seriously and made the norms to ease it. The new draft states the maximum penalty for an errant builder is Rs one crore.” This decision has been taken in recent past in a meeting which has spearheaded by Ahir and attended by the Gautam Chatterjee, principal secretary housing, and other senior Housing Department officials.

As per the fresh reports final decision is yet to be taken to the draft which will be tabled in the state legislature for setting up of a Housing Regulatory Authority. 

However, the only change today is that builders now have a penalty clause in their agreements with buyers. But that is not mandatory yet. There have been cases earlier where people have contested builders in courts but in most cases that is a long prolonged battle which not many are willing to go through.

There are cases where people have complained about delayed possession of apartments but these are not highlighted because there are no effective machineries available to redress their grievances. However, the larger and top class developers have their image to protect and to fulfill their commitment they include a penalty clause in agreements.

There are numerous causes for delays such as late government approvals, getting the completion certificate after a long wait, raw material delays, cement and steel procurement, manpower delay to list a few. Getting local approvals is a harrowing task and the new Environmental Impact Assessment clearance that is now mandatory can even take up to nine months. At any point in time, there is a 50 to 60 per cent shortfall in unskilled manpower in the market. Civil contractors executing projects have so much on their plate that managing different projects is becoming more and more difficult.

According to industry watchers, most developers face project delays. About 85-90 per cent projects are delayed in some way or the other and that a 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.

A project in which the buyer has given a minimal advance, the pressure on the developer is far less compared to heavy advance acceptances. The buyer’s capital is stuck and they cannot go anywhere. In such a situation, strict penalty clauses are imposed. This is one reason why clients rely on top class developers who are sure of their deliveries.

The realty industry experts say that in the last few years, developers have taken up 10 times more projects compared to what they have done in their total lifetime. Have they thought where the availability of the labor, brick, steel and cement is? How will they manage all this? However, there are well-known construction companies who are trying to get more advanced technology for construction to match their deliveries. However, the cost of adopting such technologies in India is still very high and not many developers are able to benefit from it.

The solution lays in the urban development ministries plans to create a regulator for the real estate sector. The regulator would promote best practices and consumer interest. Where there is a delay, the regulator will ensure that penalty is paid by the developer. The regulator will also be considered as an ombudsman between the buyers and developers.

The housing societies often get confused about choosing the best or right or so to say, one HONEST builder. There are many cases where the dreams of members of the housing society are crashed when the terms of Development Agreement and time schedule of completion of project is not maintained by such opportune builders of III tier.

There are types of voracious builders of III grade who have abandoned or have delayed the redevelopment projects due to paucity of inflow or diversion of funds from the assigned projects in order to acquire more and more projects beyond their financial means or are simply not capable to execute the projects due to lack of competency.  

Building a home is a major decision for the lifetime and one would not want to take chances. It is said that till you do not leave your society, you are the KING. The day on which you handover your property to the builder for redevelopment and leave your society, the builder is the KING.

With regard to the buying of flats/premises in projects other than redevelopment also, there is an upward trend for buying the property. The cut down in interest rate and easy registration process has attracted more property buyers to invest on their dream home.

Today real estate is one of thriving industries and demand for residential and commercial property is increasing day-by-day. There are number of builders and developers in city who offer or promise special features to attract prospective buyers. However, there are some builders or developers who delay the completion of project and the buyers suffer mentally and financially.

There are property buyers who say his/her flat’s possession has been delayed by six months or more. Even those of reputed builders get delayed unexpectedly. The properties buyers are the now considered consumers and finally have got a voice and a forum to air their grievances. Using consumer courts, buyers have been able to get back their money with interest or have been financially compensated besides allotment of flats by the sloppy builders.

In case of delay, the builder is liable to refund the amount paid with interest (for the period of delay) as there has been a breach of contract. A promoter, who constructs or intends to construct either commercial or residential building, shall specify in writing, the date by which possession of the flat is to be handed over.

In case of delay, as there has been a breach of contract, the builder would attract penalty under both Consumer Protection Act and the Maharashtra Ownership Flats Act. The builders are careless about compensation because there is no detailed written down Real Estate Regulator from the Government as yet, for rigorous punishment to such builders. A consumer doesn’t want to get into a legal tangle and just wants his flat in hand and the unscrupulous builders take advantage of this helplessness.

Many property aspirers buy an under-construction flat for the convenience of slab-wise payment and lower rates. But is it such a good idea? A Mumbai consumer says her flat's possession has already been delayed by six months. Like her, scores go through the harrowing wait for possession when housing projects-even those of reputed builders-get delayed unexpectedly. To add to their woes, consumers complain that builders rarely offer compensation, leave alone actually doing it out.

Now, consider the financial implications of delayed possession. A Mumbai consumer who was promised his flat in June 2007 says, "My agreement document clearly says that in case I intend to return the flat over delayed possession, the builder will refund the original amount with 9% interest from the day one he received the payment."

However, the flat purchaser calls this an impractical solution. "Prices have more than doubled since we booked the flat, so giving it up for just 9% interest does not make sense." Besides, he says, the interest rate on borrowed money has also seen a steep rise. During the unfortunate wait, buyers lose out in other ways too. One, if they don't own another property, they have to stay put in a rented place.

Two, if they have secured a home loan for the flat, its repayment schedule is treated as pre-EMI (equated monthly installment) till the buyer gets the property's possession. A buyer is entitled to tax rebate under sections 24 (b) and 80 (c) of the Income-Tax Act 1961, after securing possession of the property and thus commencement of EMI. Till then, he gets no tax relief on the pre-EMI.

Property buyer can present their own cases in consumer courts and do not need to engage a lawyer. The property buyer must file his complaint within two years of the dispute arising, after which it becomes outdated. A written complaint, can be filed before the District Consumer Forum for property value of up to Rupees twenty lakhs, State Commission for value up to Rupees one crore and the National Commission for value above Rupees one crore.

The builder problems can’t justify the delay. The default on the part of the builder would attract penalty under both Consumer Protection Act and the Maharashtra Ownership Flats Act, 1963. Often, the builders have an agreement clause that assures buyers a daily damage for the delayed possession. The buyers must ensure that his agreement for purchase of flat includes the compensation clause from the builder for delay in possession.

If such compensation clause for delay in possession of flat is included as penalty clause in the agreement for purchase of flat entered between the buyer and the builder i.e. monetary compensation for per day's/per month’s delay, buyer can be sure to get the compensation.

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