The DLF Verdict. What really happened and what is the future for home buyers?
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| The DLF verdict - What is it really? |
What were the objectionable clauses?
The CCI objected to 15 different clauses contained in the agreement with Belaire residents and DLF including what follows :
* Forfeiture of amounts paid by buyers in numerous cases.
* The builder can change land use or layout plan and alter the structures unilaterally.
* No exit option for the buyer except for non delivery of possession. This option merely entitles the buyer to refund of the amount paid without interest.
* The builder would control all common areas and maintenance.
* The builder can unilaterally create third party rights.
* No transparency on External Development Charges.
* The builder can cancel the entire project and get away without paying any penalty.
What were the grounds for action?
The Competition Act of 2002 prohibits any person or entity from entering into any agreement which causes or is likely to cause an appreciable adverse effect on competition within the country. It further mandates that any agreement entered into that is in contravention of the above provisions shall be void.
Section 4 of the Act also prohibits an entity from abusing its dominant position in the market by directly or indirectly, imposing an unfair or discriminatory condition in purchase or sale of goods or services. The CCI has concluded that DLF has abused its dominant position in Gurgaon and its one sided agreements do adversely affect competition. It is interesting, however, to note that a similar case from Rajarhat, Kolkata against DLF was dismissed as the informants were unable to prove the company’s dominant position in that market.
Are these practices unique?
The answer is no. Agreements incorporating one-sided clauses are the norm rather than the exception in the unregulated Indian realty sector, and most agreements are pretty much unfriendly on the flat buyer. The usual practice is that the buyer is presented with a printed agreement and given a few minutes to read it. Most builders do not permit flat buyers to have the same vetted by lawyers and also do not permit the draft agreements to be taken out of their office. If the buyer tries to discuss a change of any sort in any clause, chances are that the builder will flatly refuse to sell the apartment to you. We have personally seen numerous builders who refuse to even specify the individual shares of the flat buyers with the specious argument that the agreement is a “standard” one and therefore cannot be changed.
Can the clauses be changed?
Sure, why not? For example, in the state of Maharashtra, all agreements must conform to the model format prescribed under the Maharashtra Ownership Flats Act (MOFA). Clauses 1 to 5, 8 to 13, and 22 of this model agreement are statutory and must mandatorily form part of the agreement. Other clauses can and should be negotiated between the builder and the flat buyer if we are to see any semblance of transparency in this area
As an example of how most builders hoodwink flat buyers, the model MOFA agreement contains a recital, which almost all builders faithfully incorporate in their agreements, stating that the flat buyer has demanded inspection of all the relevant title documents, approvals, plans and permissions and the builder has granted the same. Builders usually add another sentence where the flat buyer confirms that he has satisfied himself about the title and permissions and will not raise any question in this regard in the future.
As we have seen earlier, most builders refuse to negotiate clauses of the agreement and also refuse to let the buyer inspect the documents. With such a situation prevailing, this sentence acts as the final nail on the coffin, for the hapless buyer who has never inspected the documents but has agreed, in writing, never to question them!
What is the future?
Frankly, there is not much one can expect from politicians who tend to favour builders. How else can one explain the minimal penalties for serious infractions by the builders and virtually no implementation of existing laws from the state governments? It is only the courts that have dispensed justice and helped the buyer and a special mention must be made here of the various consumer for a who have passed some exemplary judgements in recent years to stem the abuses by various builders. With the CCI’s decsion, it is clear that more people will now approach the competition watchdog for help, but then the CCI can only take action only if the errant builder is a dominant entity in the market in question. In a sector and in a market where the odds are so heavily stacked against the buyer, the action by the CCI in the Gurgaon episode does offer a ray of hope. If the competition watchdog lives up to its promise, as it has stated, of taking suo motu cognisance and opening investigations into other big real estate companies who are allegedly engaging in unfair practices, the smaller builders will have no option but to mend their ways.
Since this issue has come to the forefront due to the order against DLF in Gurgaon, it should also be noted that the CCI in its order has also specifically pointed out the role of the Haryana Urban Development Authority (HUDA), that allowed the realty major to arbitrarily change its plans. Following this observation will the concerned state government act against the errant officials? Will this action spur other state governments to be more vigilant? Further developments in this space need to be watched closely.
Excerpts from The Financial Express - India
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Related Articles:
1) DLF Verdict may land a lot of Indian real estate developers in soup
2) Indian real estate: Tough times ahead for realty firms like DLF, Unitech and DB Realty
3) The classic Indian tale of gold, egg curry and hot bikini babes!
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