Before you sign on the dotted line
Put the sale agreement in writing and ensure that your interests are protected
The sale agreement is t he most i mpor t ant document in a property transaction, and contains the fine print of the deal between the buyer and seller. Despite this, buyers rarely go beyond giving the sale agreement a cursory look before signing on the dotted line. However, entering into any commitment without understanding the clauses in the document could be a costly mistake. Just as a buyer carefully compares and checks other aspects of a property such as sales, price, location or amenities, he/she should scan the sale agreement carefully to avoid hassles or disputes at a later stage.
Let’s first understand the current and proposed rules governing sale agreements. At present, all developers have to include clauses as per the flat/ apartment ownership act governing the state (where applicable) in which the project is located. For example, any project in Maharashtra has to comply with the requirements stated in the Maharashtra Apartment Ownership Act, 1971 ( MoFA). In future, this could change if and when the The Real Estate (Regulation and Development) Bill, 2013, introduced in the Rajya Sabha last year, is passed. This bill seeks to establish Real Estate Re g u l a t o r y Au t h o r i t i e s (RERA) at the state level for regulation and development of the sector. It also seeks to standardise property transactions in the sector. However, the bill, in its current form, does not offer a pro-forma of a customer agreement, which would form the basis of all future sale contracts between developers and prospective buyers in the country.
Here are some essentials to bear in mind while reviewing a sale agreement:
Put the ag reement in writing: The i ndividual must ensure that there is a written customer agreement before paying any substantial amount (as per the recommendation of the real estate bill, up to 10%). Registration of the same would be advisable.
Essential contents: The a g r e e m e n t m u s t c l e a rl y define the possession date of the physical unit. This has a bearing on issues like delay compensation and payments. It must also mention the loading i.e. carpet area (net usable area) versus saleable area (the MoFA and regulatory bill make it mandatory to mention carpet area). This helps customers understand better what the actual area is that they are paying for. Finally, the specifications and amenities must be clearly mentioned so that buyers understand what is actually going to get delivered, in comparison to what is shown in brochures, mock-up units and walkthroughs.
Ensure your interests are protected: Linking customer payments to physical completion is a best practice, as any delay in construction by the developer would limit the payment from the individual and thus, help the latter save interest costs. Similarly, there should be no cost borne by the customer for project cost escalation. Other clauses that customers should pay attention to include cancellation and defect liability. The cancellation clause states what happens if the deal is cancelled, while the defect liability clause offers protection against construction defects.
Charges and penalties: The holding charge is the charge to be paid by the buyer if he/she doesn’t take possession of the property within a certain date of completion. There should be reasonable time given to the individual by the developer for this. Buyers should also pay attention to clauses related to delay compensation and penalty on late payments. Delay compensation should be paid on the basis of rental values in nearby areas, and penal interest should be on the basis of prevailing fixed deposit rates.
Documents: T he t i t l e search report and encumbrance certificate should for m part of the customer agreement in order to ensure smooth handover of the title. In addition, the title and land development rights should be transferred in favour of the individual or society, along with the undivided proportionate title in the common areas including handing over of possession.
president, CRISIL real estate ratings