CCI’s order: What is in it for buyers?
Developers will now have to obtain the consent of buyers if substantial changes are proposed in the building plans
When purchasing a property, buyers sign a standard buyer’s agreement often containing contentious clauses that may be arbitrary, unreasonable and detrimental to their interests. The recent interim order by the Competition Commission of India (CCI) in the highly publicised matter of Belaire Owner’s Association versus DLF Limited once again brought this to the fore. In its earlier order dated August 12, 2011, CCI had established abuse of dominant position by the developer and had directed the developer to cease and desist from formulating and imposing unfair terms and conditions. CCI had further directed the developer to suitably modify contentious terms of the buyer’s agreement. However, the developer preferred to appeal against this order before the Competition Appellate Tribunal (COMPAT). COMPAT, vide its order dated March 29, 2012, directed CCI to pass an order specifying the extent to and the manner in which the buyer’s agreement under dispute was to be modified.
As per the directions of COMPAT, CCI vide its supplementary order dated January 3, 2013, provided draft clauses to be substituted in the buyer’s agreement of the apartment complex in question. The draft clauses address the concerns of both developers and buyers and are more compliant to laws applicable to the specific project such as the Haryana Development and Regulation of Urban Areas Act, 1975, and its rules and the Haryana Apartment Ownership Act, 1983 and its rules. In the supplementary order, various issues were discussed by CCI, including:
Ownership: Since total price is on per square feet basis of super area of an apartment and as buyers pay central/state taxes for land, buyers jointly own the entire land and common areas, too, belong to them. However, ownership of buyers in pro- ject’s land and common areas is indivisible.
Super area: Developers need to obtain the consent of buyers where substantial changes are proposed in building plans resulting in variation of more than 2% in the super area of the apartment. Since major variations lead to changes in the total price, the developer is required to give all relevant information to buyers.
Earnest money: Earnest money will not include components like preferential location charges, brokerage etc. CCI provided eventualities in which developer may forfeit earnest money, such as termination of agreement by the buyer (provided such termination is not caused due to default or breach of the developer) and buyer’s failure to make payments for three consecutive stages of construction.
Escalation: Total price to be escalation-free, except escalation due to increased charges levied by government authorities. However, the developer has to provide relevant notification/order to that effect along with the demand letter to the buyer.
Possession: Settling the issue of holding charges where the buyer refuses to take possession on grounds attributable to the developer, CCI recommended that responsibility to fulfill any provisions and formalities will be that of the developer and the developer will ensure the buyer’s interests are protected. However, once possession is offered to the buyer, he/she shall take possession within the stipulated period. In case the buyer fails to do so, then the developer will be entitled to cancel the buyer’s agreement provided that the developer has condoned the delay by buyer subject to thebuyer paying the charges for such period. In case the buyer fails to fulfil the prescribed conditions within three months from intimation by the developer of delivery of possession, the developer has the option to cancel the buyer’s agreement and forfeit earnest money.
Parking: Open and stilt parking are part of the common areas. However, developers may impose extra charges allocation of additional parking spaces.
Inter-linking: Regarding the practice of interlinking of projects, CCI observed that developers may do so but for the purposes of ingress and egress from the project and without adversely affecting rights of the buyers.
CCI’s Order and COMPAT’s directions in this case are being keenly followed by the industry and buyers alike. In a welcome move, other developers are modifying their existing standard Buyer’s Agreements, keeping in mind the changes recommended by CCI.