Critical aspects of the builder-buyer agreement

Critical aspects of the builder-buyer agreement
Dec 2019 , by , in Interviews

Simranjeet Singh, Partner at Athena Legal highlighted on the legal aspects of builder-buyer agreement.

The critical aspects of the builder-buyer agreement

A builder-buyer agreement is a legal document that lays down the terms that govern the sale of different kinds of property like a residential, commercial, etc. between the buyer and builder. It is the quintessential document from which all rights, duties, and obligations flow qua the subject property. It is in the interest of both the parties to have a well-drafted BBA clearly stipulating respective rights which would thereby protect the rights of both the builder and the buyer in the unfortunate event of a dispute that may arise, for eg. delayed possession, non-payment on the part of the buyer, defects in the building, etc.

The BBA is fashioned in the manner of an Agreement to Sell and lays down the basic provisions relating to the size of the property, building layout, delivery date, and construction standards. The agreement must be signed and executed by both the homebuyer and builder and serves as the official proof of the transaction.

It is relevant to mention that the Hon’ble Supreme Court has deliberated upon the one-sided clauses in the builder buyer agreements and has held then to be non-enforceable. The same was held in the judgment of Pioneer Urban Land & Infrastructure Ltd. Vs Geetu Gidwani in Civil Appeal 12238 of 2018. As such the builder must ensure that such one-sided agreements, which were a norm in the past, are not executed going forward as the same would be unenforceable in law and the builder cannot thus take refuge behind such clauses.

What are the often neglected terms and conditions that should be properly evaluated?

i. Timeline for Construction: The period when the builder will deliver the possession of the flat to the buyer must be stated unequivocally. Furthermore, the construction timeline should be specified as well as the consequences of non-adherence to the said terms must also be enunciated.

ii. Building Layout: The building layout must stipulate the sanctioned layout as provided to the concerned regulatory authority and there should be no divergence from the same. It is further imperative that the size be clearly mentioned along with any aspect of escalation in the size of the property, which would have to be clearly defined as to under what circumstances escalation is permissible and till what extent, as well as there should be prior consent of the parties in respect of any changes in the layout or escalation in the size of the property.

iii. Speculative Investor: The builder must add a provision in the BBA specifically seeking the purpose of the said investment in the project i.e. personal or investment. It is imperative as recent judicial trends have clearly stated that the builders will be granted a certain level of protection in case the property in question has been purchased for a speculative purpose.

iv. Cancellation: The cancellation clause has to detail the conditions when the allotment of the said property can be canceled. The same cannot be at the mercy of the builder or buyer. The said clause has to ascertain what would be defined as an event of default in case of non-payment of amounts due to the booking and further what are the steps that must be taken to rectify the default. Further the same should also give the right to the buyer to cancel the said booking for non-adherence to the terms of the BBA, which should also be clearly defined. It should further state as to what is the remedy available to the parties as in, whether refund or compensation would be payable in the case of default by the builder or whether the builder can forfeit a sum of money deposited with interest and if so then what amount would be deemed to be fit for forfeiture.

v. Completion Certificate: The responsibility must be placed upon the builder to obtain all relevant approvals/Certificates. The same is patently clear from the events as witnessed in the Amrapali case which has further been elaborated in the judgment Bikram Chatterji & Ors. vs Union of India in Writ Petition (C.) 940 of 2017, about the said builder passed by the Hon’ble Supreme Court. The builder-buyer contract must mention that the builder will be liable to provide the completion certificate when handing over the possession of the property. It is further relevant to mention herein that there must be a safety value in the form of a provision in the BBA which should stipulate the liabilities of the builder in case he offers possession without valid approvals. However, the said aspect has been dealt with to quite some extent by RERA.

How to ensure the agreement is unbiased towards each party (builder as well as the buyer)?

i. For ensuring that the terms are unbiased, one has to look carefully at the clauses which fix liability on both the builder as well as the buyers in case of defaults. However the same has more or less been duly addressed by the sample Agreement to Sell as provided in RERA. Moreover the judgment of the Hon’ble Supreme Court in the matter of Pioneer Urban Land & Infrastructure Ltd. Vs Geetu Gidwani in Civil Appeal 12238 of 2018 ensures that one-sided agreements would not be enforceable.

ii. It is relevant to mention herein that the draft agreement to sell as provided in RERA takes care of the concerns of both the builder and the buyer. It sufficiently deals with the rights, duties, and obligations of both the parties and the consequence of non-adherence to the same.
Importance of involving a property lawyer while buying property, flat or land.

i. When it comes to builder buyer agreements, and taking into consideration the fact that the agreement subsists for a period ranging from 1-3 years or more depending on the status of completion, it is necessary to keep in check the terms and conditions which can kick in case the delay occurs in the delivery of possession. The importance of involving a lawyer stems from the fact that he would be able to plug the loopholes in the BBA to ensure that the rights of his clients are protected at all times. Furthermore, the lawyer can even assist the intending purchaser in carrying out a due diligence on the builder before investing in the said property to ascertain whether all necessary approvals under RERA have been obtained by the builder for the said project or whether the builder is facing any insolvency proceedings before the Hon’ble NCLT.

ii. Furthermore, certain terminology if left vague and unenforceable as per law can hurt both the buyer and the builder. Furthermore, when it comes to the liabilities under the agreement to pay amounts to allottees/buyers in the form of say assured returns, pre-lease rentals, lease rentals, etc. the same must be consulted by a lawyer since defaults in making payments which are contractually due, can result in invocation of insolvency proceedings for a builder.

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