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adProperty News

Will builders compensate the delay
Source : The Hindu Property Plus Published On : 2008-06-07 City : Chennai

      Construction Agreement will guide the negotiation in handing over the apartment, writes R.L.Narayanan

     Any plan to buy an apartment involves cost calculations, finance and a good workable agreement with the developer. When you have them all in place, you would go ahead and buy it.

     You would have mutually agreed on all terms and conditions and you look forward to the date of delivery of the completed apartment. Everything goes well till the completion of the apartment gets delayed and the date of delivery gets postponed. What do you do then? How do you move forward?

     Delivery is a matter relating to performance of contract. As In most cases, the developer enters into a Joint Development or a Joint Venture Agreement with the owner of the land concerned. Based on this arrangement, the developer obtains suitable approvals from the municipal and other authorities. The developer would also enter into Agreements in the nature of Construction Contracts and an Agreement for Sale or a combination of these agreements with prospective purchasers.

     The Construction Agreement or the Agreement, in which the terms and conditions relating to the construction are incorporated, will be the guiding factor in deciding the rights and obligations of the parties.

     A typical Construction Agreement will include a preamble which will include description of parties and the main objective which is sought to be achieved.

     The Agreement, may, thereafter contain clauses which are in the nature of definitions and/or interpretationsA price is also agreed for the delivery of the apartment completed in accordance with the specifications.

     There could be a clause for variation of price. There could also be a clause for escalation of price. Normally, escalation is related to cost of the materials going up significantly during the period of the construction.

     The Agreement will also contain clauses relating to terms of payment, penalties in case of defaults, schedule of progress and delivery, conditions for taking delivery, rights and obligations of the parties, payment of liquidated damages for delay, post delivery liabilities that may be undertaken by the developer and various other matters depending on a case-to-case basis.

     The remedies of the parties will be based on the terms and conditions contained in the Agreement.

Anticipated approvals

     Usually, the developer enters into a Construction Agreement when the plans are approved or approval is imminent . However, there may be cases where the Construction Agreement is entered into on the basis of anticipated approvals. In such cases, it is difficult to have a realistic timeframe as the Agreements are normally worded in a manner that the delivery is to be effected within a particular period from the date of final receipt of approvals by the developer. In such cases, possible delays and status of the project must be discussed upfront and agreed upon by both parties. Any delay must be duly informed and negotiated.

     The next vital factor that one has to see is whether time is of essence of your Agreement with the developer. The normal interpretation, insofar as this factor is concerned is that, in matters like this, time is not the essence of the Agreement. In all probability, the wordings contained in the Agreement will be to the effect that time is not the essence of the Agreement.

     If time has to be the essence of the agreement sufficient care and consideration should be given to this and agreed upon in writing.

     If the delay in completion is attributable to a factor which could not have been reasonably foreseen or which is beyond the control of the developer, then the position of law in such cases is that any reasonable delay will be excused. As to what is reasonable or otherwise, it depends on the facts and circumstances relating to each case.


     From your end, an important matter and an obligation that will be seen is whether you have made the payments promptly and without default. If you have defaulted payments at any point of time notwithstanding the fact that the non-payment is based on strong reasoning employed by you, you may not be in a position to claim any relief on the ground that there is a delay in delivery of the apartment.

     If you have accepted a specified sum of damages or a specified amount for the period of delay, as per the terms of the Agreement, then this is the maximum amount that can be received by you. In most of the Agreements, there is a provision for price variation or escalation. You have to note the difference between variation and escalation. For example, if you require any additional facility or amenity other than as provided in the standard specifications, it could be at an additional cost resulting in price variation for the apartment.

     An escalation on the other hand, is the right of the developer to demand extra payments from you, for the same apartment for which you had earlier fixed the price. This could be owing to escalation of cost of materials or cost of labour or by introduction of certain taxes, etc which are ultimately levied to your account.

     Usually, there is a percentage fixed by the developer for such escalation. Alert buyers must take cognisance of this factor and keep track of the cost factor with the developer. Developers on their part have to inform the buyers in time.

     Your claim for compensation may be met with a counter claim that the developer has incurred higher cost owing to escalation of cost of materials, labour, etc and the situation will result in conflict. In such situations, it is advisable that you act with prudence and calm.

     The nature of the Agreement is such that the developers will insulate themselves from unpredictable claims, including damages for delay. If the delay is inordinate or there is total non-delivery, there is no doubt that you must be alert in exercising your rights. However, if it is not substantial or where the developer is willing to compensate you with the agreed quantum of payments, it is best to accept this. Avoid a confrontationist attitude based on the wordings contained in the Agreement. However, when it comes to getting what you have bargained for, stand up and be firm. Litigation should be ventured into only if it is unavoidable and is of a nature that vindicates your rights.

The author is partner, RANK Associates, Advocates, Chennai



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