When are buyers denied compensation?
National Consumer Disputes Redressal Commission rules out compensation for those wanting to exit a project because of delays in delivery
The compensation provision in builder- buyer agreements has been drafted to cover events/ instances of delay in completion of project, specifically where the investors/ buyers/consumers are willing to continue with the investment and stay on in the project.
Moreover, the compensation amount is often in the range of ₹ 5 to ₹ 10 per square feet which is nominal considering the huge investment made and the interest the consumer pays to the bank for a home loan. However, the consumer is unable to take advantage of this provision of compensation if he exits from the project because of delays in construction.
One such issue was brought up in a case decided by the National Consumer Disputes Redressal Commission this year. The Commission heard three complaints against a leading builder.
In all complaints, the complainants had booked one flat respectively in different projects by the developer in Greater Noida and paid 95% of the total sale consideration under a down payment plan. The complainants took loans from banks for the apartments and were paying interest on the amount. In these complaints the flatbuyers’ agreements were executed in the time span ranging from 2007 to 2008 with a promise to complete construction in 36 months.
However, till the date of filing the complaint, ie in the year 2014, the construction was nowhere near completion.
On account of this alleged inordinate delay in construction, the complainants were no longer interested in waiting for possession of the apartments and sought refund of the sale consideration paid by them with an interest at 18% or 24% per annum. Since the developer refused to listen to them they approached the National Commission and pleaded for a refund with interest for the delayed period.
The developer rejected to their demands on the ground that the interest rate sought was excessive and that the complainants should be refunded the amount and compensation according to the builder-buyer agreement.
The commission held that the clause for compensation in the flatbuyers agreement may apply only in cases where construction of the apartment is delayed and despite the delay the buyer is willing to accept possession. Thus, the clause regarding compensation will not be applicable to the complainants in the current case as the complainants are not interested in the apartments and are seeking a refund.
Regarding the percentage of interest to be paid to the complainants, the commission was of the opinion that since the developer demanded an interest at the rate of 24% in case of delay on the buyer’s part, if the project was delayed by the developer, the rate of interest should be the same (24%).
However, the commission (keeping in mind the escalation in the price of land and other factors) decided that a rate of interest at 18% would be sufficient compensation along with refund of the sale consideration paid by the complainants.
The aforesaid order comes as a big relief for consumers/ investors whose investment is stuck in projects which are stalled and are undelivered due to some reasons. The investor on his part is also wary of exiting the project due to nominal penalty as per the compensation clauses in the flatbuyers agreements.
Only homebuyers who stay invested in a project are eligible for compensation if it gets delayed.