Why exiting a project might not be easy
The sheer inability of consumers to comprehend lenghty property transaction agreements can often get them entangled in legal wrangles
The buyer of an under construction property is required to pay registration money to the developer at the terms of application for allotment. This advance paid while entering into a transaction is considered earnest money, indicating the buyer’s good faith. It essentially represents/ serves two key purposes – first, it acts as part-payment of the purchase money and second, it acts as security for the performance of the purchase transaction and contractual obligations.
Another important aspect of such transactions is the right of buyers to exit the project. However, the terms and conditions governing exit by buyers are ambiguous. Forfeiture of entire earnest money/ registration deposit upon exercise of right to exit is a common practice by developers that places an additional burden on the individual buyers.
In the Rajbeer Singh Case, d e c i d e d by t h e N a t i o n a l Consumer Dispute Resolution Commission (in 2013), the complainant booked a residential floor in ‘The Terraces’, a residential group housing project in Mohali and paid an advance of ₹ 3 lakh. As per the reported judgment, the developer had given out information about the provisional allotment of the unit in the building. The complainant was given an assurance by the developer that the project would be launched within one month and construction would soon commence. However, the developer failed to abide by his commitments. The complainant sent several letters to the developer with a request to refund the earnest money of ₹ 3 lakh. Since there was no response, the complainant sent a legal notice to the developer, for refund of the amount. No positive response , however, was received.
The complainant filed an appeal i n t he National Commission upon the dismissal of his case in the district forum and state commission. The devel- oper argued that the complainant booked the apartment in question and paid the earnest money against the total sale consideration of ₹ 46 lakh and failed to sign the buyers’ agreement. Reliance was placed on clause 8.2 of the advance registration application form for allotment signed by the complainant and co-applicant. Under the clause, in the event of non-signing of the buyers’ agreement, by the complainant, and returning the same within 30 days, from the date of receipt of the same from the developer, the earnest money deposited by the complainant, shall stand forfeited, without any notice/ reminder.
The developer argued that since the complainant had not signed the buyers agreement in terms of the application form, the developer was entitled to forfeit the earnest money. The complainant’s version was that he never received the buyers’ agreement and further submitted that the developer had changed the constructionlinked installment plan without consulting him.
The National Commission after reviewing the terms and conditions of the application form held the under clause 8.1 of the application form, the complainant was entitled to refund of an initial amount after deduction of 20% of registration/initial amount. The commission further held that since the complainant had not signed the buyers’ agreement, therefore, clause 8.2 also did not apply. Hence, the developer had no right to forfeit the entire earnest money and such forfeiture was unfair trade practice. In this case, the terms of application and allotment specifically provided for refund after deduction of 20% in case the buyer decided to exit the project. The commission directed the developer to refund the money after deduction of 20% of the registration amount within 60 days from the date of filing of the complaint. This case brings to focus the sheer ignorance/ inability of the consumers to interpret these lengthy agree- ments. The case emphasises the importance of the terms of the buyers’ agreements, application forms and allotment agreements and the requirement to read the terms carefully before signing cannot be undermined.