DRT & SARFAESI: Flat Owners – the difficulties with Builders and Agreements – a case study

We have seen the growth of reality sector in the recent past and with the rise of Private Sector, the growth and the employment opportunities, many individuals prefer to acquiring flats in large residential projects undertaken by reputed builders. The growth of reality sector proceeds on the basis of expectation of continual growth and also the investors feel secured by investing in fixed assets. The builders themselves attract investment from the public with the help of bankers and with typical arrangements and agreements. In many cases, the public invest in some project or willing to buy a flat in some residential project based on the reputation of the Company rather through scrutiny of details pertaining to the project. In fact, many builders many not allow the purchaser of the flat to look into the details of the project, the arrangements, the financing and they lay emphasis on the agreement and they show their track-record while attracting and convincing the investors. But, when the purchasers of flats had to insist the builder on completing the project in time, on providing all the facilities as detailed in the agreement or as promised, the flat owners feel really bothered. I would like to share two specific instances with regard to the difficulties being faced by the flat owners as follows:

Case-1 – facts:

A group of software engineers working in different reputed companies wanted to invest in a residential project undertaken by a reputed builder in a big city. The builder could attract these engineers or employees of reputed companies with their rigorous advertising campaign and by showing the reputation of the builder. Though these employees of reputed companies are no where near to the project and though they are extremely busy in their routine activities, they preferred to invest in the project and they planned to buy flats from the builder. These investors concentrated only on making investment and they depended heavily on their incomes and these people invested in other projects too. As these employees can not venture spending more time due to their busy schedules, they had to sign the agreements prepared by the builder with regard to the purchase of the flats, the date of competition, the facilities to be provided etc. The clauses in the agreement are very vague on the face of it and if the litigation comes, then, the builder would be advantageous position with such agreements. However, without thinking at the legal issues and without laying so much emphasis on the clauses in the agreement, many employees agreed to purchase the flats and agreed to pay the installment amounts to the builder either on their own or through Banks where loans were granted. The agreement was entered into in the year 2007 and the project is scheduled to be completed by the middle of 2009 and the flat owners are assured of handing over the flats by that time with the execution of all relevant documents. However, though the flat owners were following-up the issue continually and though the flat owners paid almost all the agreed amount to the builder, the project has not been completed and still substantial work had to be done in the project. When the Flat Owners approach the builder about the completion of the project, then, the builders show some reason and got an extension of 1 year to complete the project. Even after the completion of the extended period, the project has not been completed and these Flat Owners are worried and had to have a look at the clauses in the agreement. The Flat Owners now found that the clauses in the agreement with the builder are so vague, favours the builders and it contains a specific Arbitration Clause mentioning that the parties should resolve their disputes if any in the course only through Arbitration and should not approach any other forum. The Flat Owners are extremely bothered at their investment and getting their Flats as agreed.

Case -1 - Analysis:

In the case cited above, it would be extremely difficult to a single Flat Owner to fight with the builder and the builders can get the assistance of top professional in the industry and they would be able to effectively defend them. A Flat Owner, in his individual capacity, may not be able to fight legally and fight effectively with the builder in view of the heavy costs in involved in the process. At the same time, it is difficult for all the Flat Owners to come together and proceed against the builder asking for their rights as everyone has a different thinking and opinion. When the builders do not complete the project as agreed, in view of the law of limitation, it is imperative on the part of the Flat Owners to go for legal recourse or they can wait if they wish believing at the version of the builder or thinking at the legal process. If an individual Flat Owner, in the case referred to above, had to get an Arbitrator appointed, then, he had to approach the High Court and the appointment process may take few months depending upon the work load of the concerned court and depending upon the procedure followed by that particular High Court. Even when the High Court or the concerned court appoints some Arbitrator to resolve the disputes, huge cost is involved in view of payment of fees to the Arbitrator and other expenses. It may take considerable time and one needs the advice of a competent professional too in the Course. Otherwise, even if, the Flat Owner or the Owners approaches the Consumer Court, they may require the assistance of a reputed professional to state their case effectively. On the contrary, the builders maintain the high profile professionals to defend to them. There may be cases where there can be genuine difficulties with the builder, but, it is also true that the builders proceed on certain assumption and might at times. Likewise, if the investors or the Flat Owners are negligent at the clauses in the Agreement and not vigilant, then, it is likely that they may suffer and the case discussed exposes the complications in detail.

Case – 2 – facts:

A reputed builder has acquired large extent of prime land in the city and advertised about their big residential project at the site. The builder has also started the work at the site and has started attracting investment from the public. As per the initial plan, the project is to be completed in 4 years. However, due to the litigation against the acquisition of the land, the builder could not proceed further and the project is now stalled. When the investors or the Flat Owners question the builders at the delay in completion, the builders show their track record and also show the pendency of litigation from time to time for the delay. The investors are worried at their investment.

Case – 2 – Analysis:

The reputed builder referred may choose to pay the investors back in the course considering the reputation in the market. However, the Flat Owners or the individuals may not be in a position to damage the reputation of the builder in a big way considering their limitations and aggressive advertising campaign by the builders and also maintenance of high-profile professionals. The builders know as to how to attract investment by starting new companies and it would be difficult for the Flat Owners to do a roving enquiry into the minute details of the project or about the builder. Even in the case, there may not be any effective co-operation among the investors and individually it would be extremely difficult for them to go for legal recourse.

I have just given two examples at the complications when it comes to investing in big projects and complications with the builders. To avoid the complications in future, the investors should never be negligent when it comes their interest and it is advisable to be vigilant always and get the professional advice without any negligence. It is also very difficult to blame the builders alone and from their side, there may be genuine grounds or difficulties too. In the recent past, these incidents are happening very frequently.

Note: the views expressed are my personal and do not represent any particular case or organization.