Redevelopment Alert # 2. Well-Drafted Agreements Don’t Protect Flat OwnersPosted: May 29, 2016
29th May, 2016, Mumbai: If the Development Agreement is well drafted, then flat-owners are safe, right? Well-drafted contract documents protect the flat-owners if the builders don’t honour the contract, right? NO, WRONG! A well-drafted agreement doesn’t give you automatic protection; it gives you the LEGAL RIGHT TO FIGHT to dismiss or penalize a non-performing builder… but you will definitely have to wage a legal battle, and your society will be your enemy, not your supporter. Why?
REASON NO. 1: NO SUO MOTU ENFORCEMENT. Law enforcement agencies and courts are not required to actsuo motu to defend your individual legal rights. Therefore, you have to go to great lengths to convince enforcement agencies and/or courts that (a) you have a certain right under the contractual agreement (b) your right has been violated and (c) you (and not just your society) are a party to the contract. Each of these points have to be proved by you, otherwise your complaint is summarily dismissed. Enforcement agencies and courts are not sympathetic to you; at best, they are indifferent, and at worst, they are biased in favour of builders.
REASON NO. 2: FLAT OWNER IS NOT A PARTY IN DEVELOPMENT AGREEMENT. You, the flat-owner, are not the “society” within the meaning of the law. Only the society i.e. the managing committee and more particularly, the office-bearers, have authority to enforce the contract signed with the builder, because the society has signed the contract with the builder.
REASON NO. 3: SOCIETY IS THE LEGAL OWNER OF YOUR FLAT. The law does not recognize you as the “owner” of your own flat; the cooperative housing society is the collective owner of the entire building and compound, and you are only enjoying your flat by virtue of being a member. Therefore, in the eyes of the law, you generally have no “right” to go to court for the enforcement of a contract between the society and the builder.
REASON NO. 4: POLITICS IS NECESSARY. You can only derive your “legal right” with the support of the society. Therefore, you should earn a “political right” to speak and argue. If you are alone or in a tiny minority, or if you are easily silenced, then you have no political right, even if what you say is 100% true. To get justice, you must gather support from other members. If the society’s office-bearers are unwilling to impose penalties, invoke the bank guarantee, or cancel the builder’s contract, then you, the ordinary members, are mostly powerless. Getting the builder dismissed by the society is a political battle rather than just a judicial battle. This battle has to be fought in general-body meetings, and in the minds and hearts of the office-bearers and general body members.
REASON NO. 5: REDEVELOPMENT IS INHERENTLY UNSAFE. A housing society entering redevelopment is like an out-of-control passenger bus with an alcholic driver drinking vodka. Even if everything is perfect at the start of the journey, things can go rapidly downhill at any turn. As a passenger, you may clearly see things going wrong, but you are not in a position to turn the steering wheel or press the brakes.
THE CASE OF KUNDAN APARTMENT, JOGESHWARI EAST
There are many lessons to be learned from the experience of Kundan Apartment, a small building with 15 members in Jogeshwari East, stuck since 2010 due to non-performance of Tanna Developers. Tanna Developers (or Tanna Realtors as per this website) is a partnership firm headed by managing partner Pathik Tanna and represented by Chartered Accountant Jignesh Tanna.
Without verification of Tanna Developers’ credentials or following 79A Guidelines, the society appointed Tanna Developers in 2010. Tanna applied to MCGM’s Building Proposal Department and got the IOD (Intimation Of Disapproval) in October 2010. And after that, the builder just froze. No actions whatsoever. Zero. So, five of the 15 flat owners, in view of the builders’ continuous non-performance over six years, want to oust them.
CLAUSES FAVOURABLE TO FLAT-OWNERS
1) Kundan Apartment’ LOI says: “redevelopment work shall be completed within 18 months from the date of IOD/Commencement Certificate. On failure the Letter Of Intent shall stand withdrawn and the developer shall not be entitled to claim anything from the society.” Another clause says, “TDR shall be purchased in the name of the society, and upon termination of the Development Agreement/MOU, the said TDR shall be the property of the society”. Read para h of LOI:
2) Stamped and registered DA upholds these clauses. DA confirms that terms and conditions are “more particularly recorded in the Letter Of Intent and the Memorandum Of Understanding”. Read para Y of DA .
3) DA says that “Society… will hand over vacant and peaceful possession of all their respective tenements to the developers… within 15 days from the date of Commencement Certificate.” Read para 3A of DA.
4) Bank guarantee mentioned in DA is Rs 50 lakhs – less than market price of even one flat. DA says that bank guarantee can be invoked by society “on demand without demur and enforceable on the certificate of the said society to the concerned bankers that the developers have not completed the construction within the total period of 24 months…” Read para 23 of DA.
WHY THIS IS GOOD FOR FLAT-OWNERS
a) The society has the upper hand and the contract is subject to a tight deadline. The clauses clarify that Tanna may suffer major losses due to dismissal, forfeiting the cost of TDR, permissions, sanctioned plans, incomplete construction etc. Tanna will not be entitled to claim anything from the society.
b) The 18-month deadline for redevelopment is repeatedly stressed. The bank guarantee can be revoked if the builder does not complete the building in 24 months.
c) DA specifies that society members will give vacant possession only after the Commencement Certificate (CC) is received.So flat owners are still in possession of their own houses – a huge relief.
LOOPHOLES FAVOURING THE BUILDER
a) Development Agreement defines the deadline as 18 months from the date of “IOD-CC”. The loophole is that IOD-CC is not a single certificate of permission, IOD (Intimation Of Disapproval) and CC (Commencement Certificate) are two separate permissions. The builder is required to fulfill dozens of conditions specified in the IOD in order to get CC. Tanna Developers, who failed to perform the necessary actions to procure the commencement certificate, can argue that because they did not get CC, the 18-month clock has not started ticking till date.
Counter-argument no. 1: Whose duty is it to fulfill the IOD conditions and procure the CC? The builder’s. The builders’ non-performance has resulted in their not getting CC… and therefore, they cannot use non-arrival of CC as an excuse.
Counter-argument no. 2: The validity period of the IOD is two years. Tanna Developers was supposed to get CC before the IOD expired on 18th October 2012. He did not get CC, but if we take the last date of IOD validity, and count 18 months from there, the deadline for completing the redevelopment would expires in April 2014. Since they hadn’t even commenced redevelopment on that date, they breached the contract, and LOI automatically stands withdrawn.
But only five of the society’s 15 members are speaking up against the builders. As a whole, the society has no political will to hold the builders accountable!
b) The society cannot invoke the bank guarantee because Tanna Developers have not furnished the bank guarantee till date, six years after signing the agreement. Far from telling him to furnish the amount, the managing committee held a meeting in 2015 where it agreed to the builder’s demand to reduce the bank guarantee to Rs 21 lakhs! Unless the society i.e. managing committee, certifies that the builder has failed to meet contractual deadlines, nobody else has the full legal authority to say so. Thus, the Tanna Developers may go on delaying with the managing committee’s blessings!
BUILDER HAS HIJACKED SOCIETY’S RECORDS!
Kundan Apartment has a huge problem. With the connivance of the elected managing committee, the builder has seized control of the society’s entire records from 1978 till date — bank account books, minutes books, share register, nomination register etc, society registration certificate, bye-laws… the whole bundle! Therefore, unable to submit the society’s records for inspection, the managing committee was dismissed by the Deputy Registrar of Cooperation in February 2015, and an administrator was appointed. The dismissed managing committee still did not hand over its documents to the administrator. In July 2015, the Deputy Registrar passed orders for search-and-seizure of the documents from the managing committee members, and requested police force for this. In October, the managing committee handed over a tiny fraction of the records and the administrator wrote to Jogeshwari Police Station that their assistance was not required. Then the Deputy Registrar developed amnesia. In response to correspondence from the dissenting society members, he started asking, “What documents? In whose custody?”
Three of the five members opposing the builder were briefly appointed by the Deputy Registrar as the Authorized Committee. Despite their best efforts, the missing papers did not emerge. Within three months, elections were ordered to be held, and the former managing committee is back in the driver’s saddle on current date. So, without the society’s essential records, how to go to court? The society and its members are handicapped.
While they were in the Authorized Committee, the dissenting members served Tanna Developers a Legal Notice that pointed out that as per the clauses of the DA, LOI etc, their contract automatically lapsed in April 2014, upon expiry of the maximum allowable period within which the construction was to be completed. It can of course be argued that the Authorized Committee is not the elected managing committee of the society, and cannot serve such a notice. But it can be argued on the other side that the words “On failure, the Letter Of Intent stand withdrawn and the Developer shall not be entitled to claim anything from Society” have an automatic effect, and therefore, no fresh resolution or even legal notice of the society was needed to give effect to these words.
At present, neither side is talking to the other. In this atmosphere of mistrust and vengefulness, the residents of Kundan Apartment are anxiously awaiting another monsoon that will drench its cracked RCC beams, columns and plaster. The elected managing committee, which covers the structure with tarpaulin in some monsoons, seems inclined to allow the building to get thoroughly soaked this year, as if to say, “If you don’t want Tanna Developers, we can all go to hell”.
The sad story of Kundan Apartment will not end until the society pulls itself from the grip of this builder, unites its 15 members and calls for fresh tenders from its redevelopment.
ISSUED IN PUBLIC INTEREST
By Krishnaraj Rao