Toxic contracts and refusal of reimbursement continue despite RERA


The Real Estate (Regulation and Development) Act 2016 (“ the law ”) entered into force four years ago with lofty promises and aspirations. The law aims to protect the interests of consumers and establishes an arbitration mechanism for the rapid settlement of disputes between buyers and builders. When it came into force, the law was hailed as a groundbreaking piece of legislation that would raise the bargaining status of homebuyers to a level where they could stand up to the wealthy and powerful builders. The example of Maharashtra reveals that this has not been the case so far.

Maharashtra was the first Indian state to establish the Maharashtra Real Estate Regulatory Authority (MAHA RERA) to implement the provisions of the law. MAHA RERA has a dedicated website where buyers can file complaints online; view decisions issued by MAHA RERA or the Maharashtra Land Appeals Tribunal; keep an eye on registered projects and documents submitted by builders to MAHA RERA at the time of obtaining registration; among others.

While welcome, none of this translates into one of the primary purposes of the Act: to protect the interests of home buyers.

Two sharp issues have long troubled homebuyers and triggered the advent of the law: toxic contracts and denial of repayment. Needless to say, the bargaining power between a buyer and a large real estate company is disproportionate, immoral and unreasonable. As the Bombay High Court made clear while confirming the constitutionality of the law in the case of Neelkamal Realtors Suburban Pvt v Union of India (2017), the idea behind the law was to prevent builders from invariably incorporating unilateral terms into sales contracts and to leave individual buyers with little choice but to sign on the dotted line.

Relevantly, the Law and the regulations which follow from it provide for models of contractual documents to be used by the builder when concluding a sale transaction. The Regulations also provide (as Annex A) for a model sales contract to be used by builders. Aside from a few minor shortcomings, the terms and conditions incorporated into the model largely balance the rights and obligations between the builder and the buyer.

But like any other law, the problem lies in the implementation of the Regulations.

After a quick read of the models uploaded by some builders in Maharashtra, it appears that builders continue to subject homebuyers to unreasonable and one-sided terms and conditions. The terms and conditions specified in the Regulations are not used in the template uploaded to the MAHA RERA website, or are used only selectively. This is alarming because MAHA RERA has the duty to take note of the contract models submitted by the builders when requesting the registration of projects and to ensure that they comply with the regulations, before granting approval. plans. In fact, non-compliance with the Regulations is also a valid reason for canceling the registration or approval of projects.

MAHA RERA’s failure to take swift action against builders for failing to comply with the model contracts stipulated in the Regulations has caused great hardship for homebuyers. In practice, at the time of booking, homebuyers are required to complete and sign a take it or leave it request form and pay the amount of the reservation. The application form contains many terms and conditions that are completely one-sided and almost every term and condition leans in favor of the builder and to the detriment of the rights of the buyer.

Of most concern of all is the builder’s right to unilaterally cancel the transaction and forfeit the deposit paid by the buyer in the event that the buyer fails to purchase the property. It is rare for the buyer to have a sample of the sales contract at the stage of submitting the request form or even when paying the reservation amount.

Following the signing of the request form, another payment request is issued which, combined with the amount of the reservation, represents 10 percent of the total sale price of the unit. Relevantly, according to the law, the execution and registration of the sales contract is a prerequisite for the builder to demand additional money from the buyer in respect of the transaction. Shortly thereafter, an award letter is sent to homebuyers asking them to come forward and complete the registration process within 30 days of the date of that award. Usually, the award letter places a “refusal burden” on the buyer and is deemed accepted if the buyer does not respond within the stipulated time frame, which is often less than two weeks.

This is of concern as the terms and conditions of the request form are repeated and the buyer has no choice but to accept the award. The award letter states that homebuyers must come forward and complete the registration process within 30 days of receiving the award letter. In some cases, builders would simply send a sales contract template that does not contain the relevant annexes or contains incomplete details about the buyer and the property. The problem becomes more serious when builders do not send or delay sending the sales contract to homebuyers.

There may be circumstances that home buyers do not wish to proceed with the transaction (such as inability to organize funds), or home buyers wish to change the terms of the sales contract. In both cases, the builders threaten the buyers to terminate the registration or face confiscation of the advances paid. Worse yet, homebuyers are often coaxed into paying stamp duty before signing the sales agreement so that they don’t cause a nuisance at the negotiating table in the future. This whole process places the builder in an advantageous and dominant position. The following are incessant demands for payment of stamp duty and registration of the unilateral sales agreement.

In accordance with the law, the buyer has 45 days (including a 15 day reminder) to complete the registration process and in the event that the buyer does not do so, the builder is required to return all monies. and advances to the buyer, including the amount of the reservation. . A quick reading of the draft Sales Contract posted on the MAHA RERA website reveals that some manufacturers have omitted this clause in their Contracts, for reasons they are better acquainted with.

MAHA RERA is increasingly seen as a toothless organism which at times did not carry out its own orders.

In the past, MAHA RERA refused to admit disputes between buyers and builders on the grounds that the buyer had already sought redress under the Consumer Protection Act. MAHA RERA has also illegally refused to process refund requests from home buyers, stating that the law does not confer any power on the Authority to grant refunds in certain situations. In some cases, MAHA RERA has criticized buyers for going to consumer courts for redress instead of going to the Authority. In some cases, complaints go unlisted for hearing for months. The orders placed by MAHA RERA are not respected by the manufacturers and the Authority has washed its hands declaring that it is unable to order execution. The President of the Authority has no judicial experience and, therefore, established legal principles are not taken into account.

Overall, it seems that the Law and Regulations are there only in theory and not to be applied in practice by the builders. From the stage of signing the application form and payment of the amount of the reservation until the stage of taking possession of the apartment, buyers remain at the mercy of the builders. This must change.

Views are personal.

The author is a lawyer.


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