Can You Expect Project Delay Penalty If You Have Defaulted In Your Payments?

If you as a buyer have agreed to and signed a contract with the developer, it is understood that you have done your due diligence and have thought of all aspects before signing the contract. However, what you may have assumed to be a harmless clause may sometimes put you in a tight position.

Take the example of Mohan Shankaran. He invested into a project which was meant to be delivered in 2013 but has not got possession yet. Meanwhile, he had made three late payments for which he had paid the interest. But, the buyer-seller agreement reads: The possession penalty is not payable to the defaulter members. Shankaran is in a fix now. There are many like him today.

There are certain things that the buyer must keep in mind while signing an agreement. One, a builder-buyer agreement is prone to be lopsided, mostly working out to the former's benefit. Ideally, a buyer should get such points, if any, rectified before paying the booking amount. However, we agree that it may be difficult to come across a builder whose contract works in the favour of buyers. Therefore, if you as a buyer feel that you have been cheated, you must do the following:

Talk to the developer. In Shankaran's case, despite a few late payments, he cannot be considered a total defaulter because he did pay the penalty.

If the developer is not ready to negotiate, you may have to take it up legally against him. Do not hesitate to hire a lawyer's services.

There have been some noteworthy court rulings that have worked in favour of the home buyers. In the case of Shri JL Sethi Vs Senior Citizen Home Complex Welfare Society, the National Consumer Disputes Redressal Commission awarded an 18 per cent interest as penalty for delayed possession because the developer was charging 18 per cent for delayed payment from the consumers. It upheld what the ruling in the case Sovintorg India Ltd Vs State Bank of India, 1999, where the apex court held that the interest should awarded on equitable grounds or for compensation and damages. Therefore, in this light, a lopsided builder-buyer agreement is not sacrosanct.

Warning signs

Here is what you should find out before your sign a buyer-seller agreement:

Does the agreement talk about penalty clauses?

Does the developer have a good track record?

Has the developer refused compensation to homebuyers earlier?

What are the conditions under which the developer asks for a reasonable extension in the delivery?

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A developer is not always at fault

Courts may protect you only if you come out clean. In Shankaran's case, may be the court will lend an ear. But, there are times when the buyers have defaulted leading to financial loss or project delay for a genuine developer.

During the economic slowdown, a chain of delayed payments by homebuyers led to developers borrowing from NBFC's (non-banking finance companies) at exorbitant rates, between 16-18 per cent rates and from private equity funds which went up to 20 or even 24 per cent.

Pressure groups can help

It is a well-acknowledged fact that a collective, non-violent approach towards handling an unfair situation is always better. Generally, in cases like Shankaran's, the homebuyer would be a singular defaulter. For such buyers, it is always good to connect with home buyers in the same project or pressure groups who voice such collective concerns. Facebook, Twitter and WhatsApp real estate groups are also there to help you. It helps spread awareness and could be the quickest way to reach an otherwise travelling, busy or unreachable managing director of a developer company.  

Also read: Want Someone To Voice Your Concern? Approach Real Estate Pressure Groups