How you can make builders complete projects or compensate for delays


Builders always like to be in the news. When they are not selling flats, they are busy buying polo teams or sponsoring cricket tournaments. While the reason for being in the limelight may have differed over the years, today it’s the same for most developers, and it’s the wrong one, delayed projects.

Most builders are sitting on projects that are long overdue and many are unlikely to hand over the keys in a hurry to the house that you may have already paid for. According to industry estimates, at least a third of residential projects is facing execution delays.

The reasons vary from lack of demand and paucity of funds for the developer to delay in getting regulatory approvals. According to a recent study by property research firm PropEquity, almost 45% of the projects launched between January 2007 and June 2009 in the three biggest property markets (Delhi/ NCR, Mumbai and Bangalore) are facing significant execution delays. PropEquity surveyed 1,920 projects that were scheduled to be completed by January 2012 ( see graphic below ).

When Delhi-based retired Air Commodore DVS Trehan booked a 2,400 sq ft apartment in November 2007 in Noida, he was looking forward to moving in by early 2010, as promised by the builder. But even after four years of paying the entire sum, the developer seems in no hurry to hand over the possession of Trehan’s house.

“I had sold my earlier flat and pooled in my retirement money to purchase this house. The company was to hand over the possession by January 2010, but even by late 2009, they had not begun any construction activity on the proposed site,” he says.

Trehan’s repeated queries and visits to the developer’s office were met with empty promises. “The office staff would fob me off with stories that they have the latest technology, which would enable them to complete building the structure in just six months,” he adds.

Trehan is not alone. There are countless such cases where buyers are still waiting for their homes and have not received a single rupee as compensation from the builder. The wait has been particularly tough for those whose EMI clock has begun ticking.

However, the situation is unlikely to become better any time soon as builders continue to face a funding crunch and the demand for property across most cities remains weak. With inflation continuing to be above the central bank’s comfort level, any action on the home loan front is also likely to be gradual.

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Even developers are beginning to realise the severity of the problem. For, after endless claims that projects get delayed because of factors beyond their control, they are now considering it as a serious issue knowing that they cannot brush it aside by shunning responsibility. So an industry body has come up with a code of conduct for its 6,000 members to ‘maintain the honour and dignity of developers, promoters and builders’.

The move is being lauded in industry circles as long overdue, but its effectiveness in curbing the menace is being questioned. “What can it do? At most, it can cancel my membership of the association.

Even developers are beginning to realise the severity of the problem. For, after endless claims that projects get delayed because of factors beyond their control, they are now considering it as a serious issue knowing that they cannot brush it aside by shunning responsibility. So an industry body has come up with a code of conduct for its 6,000 members to ‘maintain the honour and dignity of developers, promoters and builders’.

The move is being lauded in industry circles as long overdue, but its effectiveness in curbing the menace is being questioned. “What can it do? At most, it can cancel my membership of the association,” says a developer, whose two projects have been delayed in the National Capital Region.

What are your options?

This is not to say that the code of conduct may not be of much use. Perhaps it will make an impact on the way the developers treat complaints from buyers, but that is still a long way off. The point is, as an aggrieved buyer, you should not wait for either the builder to take the code seriously or fast-track the execution of his project just because he has to follow a code. In the following pages we tell you what your options are while taking on the builders to demand what is rightfully yours, and also how individuals and groups are doing it across the country.

Forming a group

This is a recent inclusion, and as some home buyers have discovered, can sometimes yield good results. This is the route Trehan decided to take when the developer was non-committal and non-responsive. He joined hands with other fellow buyers in the same project and took legal recourse to get their grievance redressed.

“The idea of creating an association germinated from our experiences so that we could present a joint front to deal with the developer,” he says. Legal experts are also of the opinion that it is better to have a joint front to get your demands across. Ravi Goenka, advocate at Goenka Law Associates, explains that other than cutting costs there is a better chance of getting justice faster while putting up a common front.

The process of starting a consumer group, according to Goenka, is very easy and it can be started with just two people, unlike a public company, which needs at least seven people to register. It is also necessary to register your association to add legitimacy. If one is unsure about the legalities, one can approach a lawyer. The total cost, including the lawyer’s fee, would work out to anywhere between Rs 3,000 and Rs 8,000 and the entire process would take 15-20 days.

To register the association, the members would have to submit their residence proof, PAN details and a copy of the bylaws of the association. These are basically the objectives for which the association has been formed.

They would include the format for inclusion and exit of members, the annual membership charge, the duties and responsibilities of the executive board in the association, the frequency of the meetings and the various committees in the association. The body can then select an auditor to keep a check on its books of accounts and can delegate specific duties to its members.

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But how does one accumulate the members? One way to form aggrieved buyers’ groups is by meeting at the project construction site. Harsh Sehgal, president of the DLF Park Place Residents Welfare Association, got a list of all the other buyers in the project by visiting the construction site regularly. “Fighting a legal battle is a costly affair and putting up a joint front helps in cutting costs,” says Sehgal.

The easiest way to get started, of course, is to take the online option. Forming a community on social networking websites like Facebook is easy. That’s how Abhay Upadhyay, who is the president of the Kolkata West International City Buyers’ Welfare Association, managed to join forces with other buyers in his battle against the builders.

“After we got some members, we began exchanging mails and appraising others about the latest developments in the project. Forming the association was the next step after we realised that the developer was not taking serious note of individual grievances,” he says.

One advantage that an informal forum like the Internet offers is that you can start looking at a project delay really early and not wait for it to miss the promised final date of completion. The trick is to be aware and keep visiting the project frequently to see the progress of construction.

If it is behind schedule and you post a comment on the Net, you most certainly will have a group when the project is delayed and this will offer a good bargain opportunity. Here’s how you can leverage the power of the Internet to get people together and fight for a common cause.

Dedicated websites: If you are considering the purchase of an apartment, all it takes is the click of a mouse to access feedback from buyers on the developer or the project. Websites like complaints.com or mouthshut.com offer such platforms. The opinions, posted freely, make it imperative for the companies in a competitive market to respond to the complaints.

The project: DLF Park Place, Gurgaon

The group: 200 flat owners, led by Harsh Sehgal (centre), President, DLF Park Place Resident Welfare Association

The problem: The home owners booked the apartments in the project in 2006 and were promised possession in three years. They are still waiting for it.

The buyers’ response: The grouping of buyers happened gradually since there was no list, making it difficult to contact other allottees.

Eventually, seven owners came together and formed an association, and when it was formally registered, many others joined it.

The builder’s reaction: Repeated requests for meetings and resolution of the issues were met with disdain. The letters to the management received no response.

However, while the Internet opens up new avenues, it doesn’t come with any assurances of redressal. Do not expect results within a few days just because you have posted your complaint. Though the process starts with one complainant, a random check on the Net about your particular grievance will give you an idea whether other people are also affected and provide information about the right forum to join.

An important point to remember is that you also need to back up the online campaign with offline efforts. As the number of online groups grows, you will have to think of newer ways to force the developer to sit up and take notice.

Taking legal recourse: Most buyers hesitate to explore the legal option because of the cost and delays in pursuing long-drawn cases. However, some recent judgements that have gone in favour of buyers should enthuse them . Such decisions are on a case-to-case basis, and though these help, you will have to go through the same process again.

In case of consumer courts, the cost is minimal and you can represent the case yourself. In fact, you can also take builders to court for high-handed and rough behaviour of their employees or for changing the project specifications midway during construction and after taking deposits.

If you have a grievance against the builder, send a notice to him in writing. Do not worry if he refuses to accept your notice. The proof of sending is valid in the consumer court and will be declared thus since the notice has been duly served.

An important aspect to keep in mind is that the promise to deliver a good or service must be made in writing, it can be a brochure or even a printout of a Web page of the company’s site. This should be preserved carefully because it will be your only proof to show what the company had promised.

You also have the option of taking your problems to a consumer organization, which can then take up your cause against the builder. Approaching the local authorities can sometimes drive a developer to be more proactive. For instance, when DLF came out with full-page advertisements on 26 April 2009 in Bangalore, announcing the opening of bookings for its Westend Heights project, some potential buyers approached the municipal corporation to check if the developer had relevant permissions.

When a notice was sent by the municipal authorities to the developer, it accepted that it was only “in the process of taking sanctions”. On 6 May, the corporation also came out with a public notice, stating that the investors could obtain information free of cost regarding the approved sanction plans, and anyone who planned to buy property in the city could avail of the facility and satisfy himself regarding permissions.

If you are lucky, the pressure that you build as a group will take you a long way in addressing your concerns. If not, the legal option is always open, and as a group, you stand a better chance of winning it.

The bottom line: when it comes to project delays, there are no fixed rules and you’ll have to fight it out with the builder in most cases. But if you do your homework well, you can put up a good fight.

 The problem: The builder was supposed to hand over the possession in 2010, but the project is yet to be completed. The compensation for the delay is payable only at the time of taking possession. The possession letters were issued even though the basic infrastructure, such as approach roads, parks and promised facilities, were not in place. Besides, the maintenance charges are high at Rs 4.20 per sq ft with three years’ advance payment.

The buyers’ response: The home owners started by taking down names and contact details of other buyers from the visitors’ register at the site.

 They formed a group on Yahoo and Google and started contacting other buyers through group mails, eventually forming an association. Nearly 140 members joined the first membership drive and more than 45 in the second drive.

The builder’s reaction: The builder’s attitude changed once the association was formed. The maintenance charges were reduced to Rs 1.75 per sq ft with only two years’ advance payment, while the club charges were withdrawn. Within four days of the first dharna by the association on 2 June 2011, all allottees received a mail from the builder saying that Punj Lloyd had been appointed and construction would start from 15 July. The builder also offered individual deals in order to disintegrate the group.

The current status: The association has filed two legal cases. The first case was filed before the Competition Commission of India in September 2011 and the order is awaited. Another writ petition has been filed by a buyer in the Calcutta High Court. The court has asked KMDA and the KWIC to file affidavits.

The rulings you can cite

Courts and consumer forums have often ruled in favor of the home buyer. Go through this list to figure out where your case fits in because it is easier to convince a panel if you can cite precedence.

Supreme Court verdicts

1) Housing construction is a service under the Consumer Protection Act

In 1993, the Supreme Court ruled in favor of MK Gupta in his case against the Lucknow Development Authority for not delivering his flat on time. This landmark judgment brought housing construction under the purview of the Consumer Protection Act, 1986.

The Supreme Court ruled that “the purpose of widening the definition (of service) is to include in it not only the day-to-day buying and selling activity undertaken by a common man, but even activities that are otherwise not commercial in nature, yet partake of a character in which some benefit is conferred on the consumer… Similarly, when a statutory authority develops a land, allots a site, or constructs a house for the benefit of a common man, it is considered a ‘service’ similar to that by a builder or contractor.

When possession of the property is not given within the stipulated period, the delay is denial of service. Such disputes or claims are not with respect to immovable property but ‘deficiency in rendering of service’ of a particular standard, quality or grade. A person who applies for allotment of a building site, or flat constructed by the development authority, or entered into an agreement with a builder or contractor is a potential user and the nature of construction is covered in the expression service of any description”.

2) Interest has to be paid for delay in possession

 In the Ghaziabad Development Authority vs Balbir Singh, 2005 CTJ 124, the apex court observed: “Normally, a case of delivery of possession, though belatedly, stands on a different footing from non-delivery of possession, because in case of the former, the allottee also enjoys the benefit of a plot/flat. In such a situation, the rate of interest should not exceed 12%. In a specific case, where it is found that the delay was culpable and there is no contributory negligence by the allottee resulting in harassment/injury, both mental and physical, the forum/commission would not be precluded from making an award in excess of 12% per annum.”

National Consumer Disputes Redressal Commission cases

1) Buyer is entitled to opt out of a project if there is a delay in delivery

A buyer can opt out of a housing project if there is a delay in delivery of possession by the developer, says the National Consumer Commission. It has also said that the buyer is entitled to a refund of the entire money with reasonable interest, and any deduction by the builder is unjustified. The commission passed the order on a petition of Agra resident Indira Gupta, seeking a quashing of the Uttar Pradesh State Commission direction to deduct 20% from the amount to be refunded by the Agra Development Authority.

2) Buyer can withhold payment if construction does not proceed

 In the Ansal Housing vs Renu Mahendr case (revision petition no. 1218 OF 2006), the commission held: “If the company has not apprised the respondent about the status of the project, which in fact was associated with payments to be made by the respondent, then the respondent having withheld the payment was not at fault. The company, while making all these communications, had been insisting that the respondent release the payment, but it did not adhere to the terms of the allotment letter, letting the respondent know about the progress of the construction of the project.”

3) Buyer can move a court despite what is said in the sale agreement

In the Neha Singhal vs Unitech case (first appeal no. 426 of 2010) the commission held: “To emphasise, the clause relating to jurisdiction of courts in the agreement between the parties cannot by itself override the statutory right of the appellant/ complainant conferred by the above-mentioned provision of the Act, that would defeat the purpose and object of the Act. This view is also in accordance with the provisions of Section 28 of the Indian Contract Act, 1872

 

Article Published on:

http://articles.economictimes.indiatimes.com/2012-04-09/news/31312910_1_execution-delays-builders-residential-projects

Builder delays will cost you time and money


Gaurav Prakash, 35, is a senior solution architect working with Ericsson India Ltd, in Gurgaon. But a problem that he can’t find a solution to is his house. Towards the end of 2011, he along with his wife Sashi Pandey, a 35-year-old senior manager in a telecom company, bought an under-construction apartment of about 2,000 sq. ft in Dwarka Expressway, which falls roughly between Gurgaon and Dwarka (on the south-western periphery of New Delhi).The house cost them Rs.70 lakh, for which the couple took a home loan. They were told that they will get possession by around June 2014, but that didn’t happen. And like scores of other urban Indians, they too, are still waiting for the house two years later.

But apart from the house being not available, what bothers them, and others alike, is that they are not able to make use of the substantial tax benefits available on a home loan. And then there’s the rent they continue to pay. “We are paying Rs.52,000 as equated monthly instalment (EMI), andRs.28,000 as rent every month,” said Prakash. So, it’s a triple whammy. Here’s why.

The couple had taken a construction-linked home loan. For two years, construction progressed well and the developer asked for about 90% of the cost based on the stage of the project. But after that, construction almost stopped. As of now, the estimated date of possession is June 2016.

The two-year delay in completion has substantially increased the effective cost of purchasing the house. And most of these costs will not get added while determining the cost of acquisition at the time of calculating capital gains if and when the house is sold. But that comes much later, since the couple doesn’t have the house yet, as also many other home buyers.

Project delay not only restrains home buyers from shifting into their own houses, but also has a big impact on the cost of purchase. Here’s a look at how much that impact can be and how it happens. Read Ahead

Problem No.1: Paying both EMI and rent

Problem No.2: Loss of home loan tax benefits

Problem No.3: Loss due to income tax

Problem No.4: There are other costs also

Mint Money take

If you buy an under-construction property, and it gets stuck, there is limited scope of getting out. Not only do you have to pay both EMI and rent, if you want to sell the house, finding a buyer for a project running behind schedule can be difficult. Even if you do find a buyer, you may have to incur a heavy loss, as you may not be able to get the right price to recover the cost.

If you are an end-user, selling and buying a house in a completed project may not be a feasible option. You will have to sell your current house at a loss and the new completed house will come at a premium.

So, first try to look at the other options. “Look at the clauses in the agreement for penalties that one can pursue legally,” said Anil Rego, chief executive officer and founder, Right Horizons.

If for some reason you are unable to service the loan, “one can request the loan issuing bank to allow her to delay the loan payments. But in this case, the interest will get added to the principal and the total loan amount will increase. Moreover, not all banks will provide that facility,” said Rego.

If the delay is due to the developer, form a home buyers’ association and approach the developer jointly. “The best option is to talk to the developer and try to get the issue resolved as soon as possible,” said Rego. Try to convince the developer to enhance the compensation for the delay and complete the construction soon. If the developer does not pay heed to buyers’ demands, you can look for a legal recourse.

Last year, in June, the National Consumer Disputes Redressal Commission (NCDRC) asked real estate company Unitech Ltd. to pay buyers compensation at the rate of 12% per annum for delay in delivery of apartments, overruling the builder-buyer agreement that had set the rate at 1.8% per annum. While these recourses will not benefit you immediately, you may be able to recover some of the loss.

Under current conditions, project delay is the biggest risk for a home buyer. “ Given the companies’ stretched balance sheets and cashflow problems, we expect execution delays to persist in the short term,” said Samir Jasuja, founder and chief executive officer, PropEquity. If possible, avoid buying an under-construction property. It may be better to pay a premium to buy a completed apartment than being in a situation like that of Prakash and Pandey.Also, do proper due diligence about the developer, track record of delivery, quality of projects and financial position, if possible, before buying a property.

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