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CCI purges abusive conditions from DLF-buyer agreement

Makes it buyer-friendly, a break from the builder-centric pacts so far

BS Reporter  |  New Delhi 

The Competition Commission of India (CCI) has modified the buyer-builder agreement in the case of ‘abuse of dominance’ by the country’s largest realty player DLF. At least 16 sub-clauses, found abusive and unfair have been deleted. The “overall architecture of the agreement has been changed,” according to the Commission, which changed the pact on the directions of the Competition Appelate Tribunal (Compat). The next hearing of Compat is on January 9.

Calling it a “model agreement” for the real estate industry, the CCI has balanced it, making it buyer-friendly, a change from the builder-centric pact so far.

According to a PTI report, CCI said, "The apartment buyers agreement has been amended such that the abusive and unfair conditions present in the original one-sided agreement have been removed".

Among other things, the Commission mandated the company to inform buyers about the change in layout plans, if any. CCI has pointed out that payment would be subject to the company abiding by construction milestones. Also, group housing projects must be constructed in line with the layout plans, floor plans and specifications. Builders will also have to adhere to the compensation promised to the buyers in case of delay in construction or delivery of flats.

DLF declined comment.

DLF was slapped with a penalty of Rs 630 crore by the CCI in August 2011 and March 2012 for abusing its dominance through unfair buyer-builder agreements in three of its projects: DLF Belaire, Park Place and Magnolias.

Ashok Chawla, chairman, CCI, told Business Standard the agreement had been amended to include local land laws of the state concerned. “Local land laws have to apply in these agreements,” he said. Many commercial terms, where there were issues arising out of abuse of dominance, have been changed.

“The modified agreement could serve as a benchmark for the industry”, Chawla said.

In the case of DLF’s Belaire Group Housing Project in Gurgaon, the payment clause in the buyer-builder agreement read “the apartment allottee shall make all payments in time … and as may be demanded by the company from time to time, and without any reminders.” CCI modified it to “subject to the company abiding by the construction milestones, the allottee shall make all payments, on demand by the company”.

While the DLF pact said, “Time is the essence with respect to the allottee’s obligations to pay the price of the apartment in line with the schedule of payments…”, CCI made it, “Time is of essence for the company as well as the allottee. The company shall abide by the time schedule for completing the construction, creating the facilities and handing over the apartment to the allottee”.

Compat had asked the CCI in March to pass an order specifying the extent to and the manner in which terms and conditions of the apartment-buyer's agreement needed to be modified.

CCI observed certain clauses in the agreement gave DLF a sole discretion in respect of making changes in zoning plans, usage pattern, super area, carpet area and for alteration of structure, and even allowed it to change the location of the apartment, and, if a refund became due, no interest was payable by the builder.

“No rights had been given to buyers for raising objections,” the Commission observed. Even if the buyers had paid the full amount, the builder could create mortgage on the property of the buyers for raising finance for its own purpose, CCI said. “DLF inserted such clauses which made exit next to impossible for buyers”. In case of delay by the builder, DLF was to pay compensation of Rs 5 per sq feet a month, equivalent to about one per cent an annum interest, while in the case of delay in payment by the buyer, the interest charged was 15 per cent an annum for the first 90 days and 18 per cent thereafter.

"It is a path-breaking document that has listed down the Haryana Development and Regulation of Urban Areas Act and Apartment Ownership Act, 1983. Most of the clauses in these Acts are not abided by the builders", said Sanjay Sharma, managing director, Qubrex, on the 104-page document .

Another expert however argued that the acceptance of the modification in agreement will have to be accompanied by the proof of dominance of the builder in the relevant market by Compat.

CCI deleted the clause which said that in case Company abandons the scheme or becomes unable to give possession within three years from the date of execution of this Agreement…the Company shall be entitled to terminate the Agreement whereupon the Company’s liability shall be limited to the refund of the amounts paid by the Apartment Allottee with simple interest at the rate of 9 per cent per annum for the period such amounts were lying with the Company and to pay no other compensation whatsoever. However, the Company may, at its sole option and discretion, decide not to terminate this Agreement in which event the Company agrees to pay compensation at the rate of Rs 5 per sq. ft. of the super area per month.

CCI has also removed the clause which said that in case of delay due to reasons beyond the control of the company shall be entitled to the extension of time for delivery of possession of the said Apartment the Apartment allottee agrees not to claim compensation of any nature whatsoever.

First Published: Fri, January 04 2013. 01:15 IST