Tri­par­tite Agree­ments in Real Es­tate

A few must-know things for con­sumers

Consumer Voice - - Legal Matters - Dr Prem Lata, Con­sumer Awak­en­ing For­mer Mem­ber, CDRF-Delhi

When Raghav and An­jali were plan­ning a fam­ily, own­ing a house was the first thing on their mind. They re­al­ized that they would be able to af­ford the monthly in­stal­ments of the hous­ing loan only if they stopped pay­ing the rent of their house. Con­sid­er­ing that most real es­tate de­vel­op­ers booked houses at least two years in ad­vance – which meant two years of loan in­stal­ments for a house be­ing con­structed – the couple gave up the idea of buy­ing a house. On their part, when the de­vel­op­ers re­al­ized that they were los­ing out on hun­dreds of buy­ers like Raghav and An­jali, they came up with an in­ter­est­ing idea – that there would be ‘no EMI till pos­ses­sion’. They started a scheme wherein they would pay the in­stal­ments of a buyer’s loan un­til the pos­ses­sion was given to the buyer. Sounds like an ideal ar­range­ment, does it? Let’s find out what the real deal is.

Volatil­ity in prices of real es­tate has kept de­vel­op­ers on ten­ter­hooks and most of them are sort of des­per­ate to sell their houses even be­fore the be­gin­ning of their con­struc­tion. They keep com­ing up with at­trac­tive schemes to lure buy­ers. That is how the con­cept of the tri­par­tite agree­ment orig­i­nated. You take a loan for a house and en­ter into an agree­ment with a bank wherein it is clearly stated that the equated monthly in­stal­ments (EMI) of the loan will be paid by the de­vel­oper for a set pe­riod. As the term ‘tri­par­tite’ sug­gests, the three par­ties – the buyer, the seller (de­vel­oper) and the lender (bank) – get into an agree­ment.

On the face of it, this sounds like a win-win sit­u­a­tion for all. How­ever, the murkier re­al­i­ties of such

agree­ments come to light when you re­al­ize that the de­vel­oper is not keep­ing his prom­ise – ei­ther he stops pay­ing the EMIs or he fails to give you the pos­ses­sion of the house on a com­mit­ted date. In such cases, the loser is pri­mar­ily the buyer as real es­tate com­pa­nies do not mind send­ing their bat­tery of lawyers to jus­tify their un­jus­ti­fi­able stances. More­over, it is the buyer and not the de­vel­oper who has bor­rowed from the bank, so the buyer has to en­sure that the EMIs are paid in time in case the de­vel­oper is not pay­ing them.

Here are a few sig­nif­i­cant points that you must con­sider be­fore get­ting into a tri­par­tite agree­ment: This scheme is help­ful if you are rent­ing a house since pay­ing the pre-EMI and the rent can strain your fi­nances. How­ever, be­fore opt­ing for it, you should make sure that the builder hasn’t padded up the cost. He may not of­fer any dis­counts or throw in any free­bies in the deal. You should first bar­gain to lower the price of the house and then opt for the scheme. An­other risk is that if the con­struc­tion of the property is de­layed, your pre-EMI pay­ment pe­riod may stretch for more than two years, and you will have to make the bal­ance pay­ments your­self. This will negate any ben­e­fit that you may have de­rived on the pay­ments made by the builder. You will also have to check whether the builder has suc­cess­fully com­pleted such a scheme in an ear­lier project. It is al­ways bet­ter to go for a scheme that has been suc­cess­fully im­ple­mented by the same de­vel­oper in the past. An­other thing you need to check with the builder is if he will pay the in­ter­est at a pre­de­ter­mined rate. If this is the case and the home loan is on a float­ing rate, the li­a­bil­ity for any in­crease in rate would be on you. This is the most im­por­tant clause in the tri­par­tite agree­ment – whether the builder will pay a penalty for de­lay in con­struc­tion/pos­ses­sion. You must check the timeline for which the de­vel­oper will pay the EMI. Many builders cap the num­ber of years at two, ir­re­spec­tive of whether the con­struc­tion will be com­plete or not within two years. This may not work in your favour. Al­ways keep in mind that if the de­vel­oper de­faults on the EMI pay­ment, then you will be li­able to pay the same and the bank will hold you ac­count­able. In case the bank is lend­ing di­rectly to the de­vel­oper through part pay­ments based on the progress of the con­struc­tion, it may stop re­leas­ing pay­ments if the de­vel­oper fails to con­struct (rea­sons may be any: de­layed or can­celled per­mis­sions/ clear­ances or ob­jec­tions by the gov­ern­ment). In such cases, builders usu­ally threaten buy­ers with can­celling their book­ing and even ask for higher down pay­ments cit­ing price rise, etc. Such terms are gen­er­ally writ­ten in the agree­ments and con­sumers must al­ways be care­ful of the same. Mostly, such agree­ments are quite lengthy with dozens of clauses. Con­sumers must try spend­ing a day or two and even take an ex­pert’s help to re­view such agree­ments clause by clause, and not hes­i­tate in ques­tion­ing the de­vel­oper or the bank in case of any doubt. As a con­sumer and a pay­ing party in the agree­ment, you have the right to ob­ject to, and ask for an amend­ment in, any clause. In case you are not sat­is­fied with the clauses or they seem to be a sort of trap, it is al­ways bet­ter to look for other op­tions. There be­ing such in­tense com­pe­ti­tion among real es­tate de­vel­op­ers, an­other one may give you a bet­ter deal.

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