ISSUE VII : The flipside of property maintenance arrangements: Do homebuyers have a choice?

1. Introduction

In the last decade, the cityscape of Delhi and surrounding National Capital regions like Gurugram, Faridabad, Ghaziabad and Noida have undergone tremendous transformation. Several group housing societies have mushroomed in these regions and are developed by well-known developers such as DLF, Supertech and Prateek Group.

Many of these follow the common model of a builder-buyer agreement (“BBA”) to make sales to prospective homebuyers or investors, wherein the latter have the option to procure an apartment (or plot of land) based on different payment plans. In essence, the BBA equates to an agreement for sale without the grant of possession to a purchaser. There have been several legal developments in this space especially concerning grievances of homebuyers with delayed possession, discriminatory penalties and interest rates and, absconding developers. However, here we are concerned with another prominent issue, which arises once possession of the immovable property is granted to a homebuyer i.e., maintenance of a real-estate project.

2. What are Maintenance Agreements?

Every group housing society, or colony has some common areas[1] and under the Real Estate (Regulation and Development) Act, 2016(“RERA Act”), the promoter of a registered real estate project[2], which includes a developer and/or land owner, is accountable for consistently providing for the maintenance of essential utilities, key infrastructure and recreational services in lieu of periodic maintenance charges payable by the residents of such society.[3] Typically, this obligation is captured in a maintenance agreement executed between the parties. However, once the allottees of a society form and elect an association, commonly known as the Resident Welfare Association (“RWA”), the maintenance activities shall be handed over to it and the developer moves out of the picture. It is then the RWA’s prerogative to provide maintenance services and recover periodic payments.[4]

Draft maintenance agreements are provided to an allottee at the time of handover of possession, or at the time of execution of a BBA. Usually, there is no debate on the contents of the maintenance agreement because a developer has the requisite expertise and is well informed about the project, its facilities, amenities and nuances and is thus, better placed to provide these services. An RWA would have to expend reasonable resources to obtain the necessary information in order to provide for adequate maintenance facilities itself, or through a third-party service provider.[5] As a result, these agreements are often non-negotiable with onerous provisions that are disadvantageous to homebuyers.

Maintenance charges are usually computed based on the super area[6] of a unit and differ depending upon the size and scale of a project and the developer’s reputation and outlay.[7] The developer may even seek quarterly, bi-annual or annual maintenance charges, in advance, at the time of handover of possession. And, with a homebuyer desperate to procure possession in a delayed project, maintenance charges are not the first grimace. Many developers then engage its preferred third-party agency, often without taking the homebuyers, or even an RWA (if formed), into consideration. In such cases, maintenance charges paid by the homebuyers are collected by the developer, who then pays the chosen service provider.

3. Prickling Issues

At first glance, a homebuyer has no reason to raise an objection against the developer choosing a maintenance agency. However, this in effect, deprives the homebuyers of their right to choose or otherwise change the maintenance agency in case of deficient services. Moreover, in several instances, developers have found ways of appointing themselves as the go-to maintenance services provider through an affiliate or group entity. They are thus able to maintain control over the overall maintenance of a project, ensure a steady source of income, and gain access to security deposits such as maintenance security, sinking fund contributions and such like.

In fact, there have been instances wherein homebuyers have formed RWAs to maintain a project but the developers have completely ignored their existence and refused to hand over maintenance operations. This is best illustrated through the case of Paras Tierea, a housing society project of Paras Buildtech India Private Limited. It is alleged that the developer has refused to acknowledge the RWA and has filed false FIRs against residents who have raised protests against the poor construction quality and inferior maintenance services being provided by the developer’s facility management company.[8]

4. Grievance Redressal: What are my options?

Real Estate Regulatory Authority (“RERA”): Aggrieved homebuyers can make a complaint to this authority under Section 31 of the RERA Act, if the developer does not meet its obligation under Section 11. Section 11 of the RERA Act stipulates obligations of developers towards the homebuyers, which includes the duty to provide proper maintenance of housing facilities. Thus, until the promoter acknowledges the RWA and transfers the responsibility of maintenance to an RWA or similar association, it is responsible for providing and maintaining essential services at a reasonable charge. Additionally, the promoter is required to recognize and facilitate the constitution of an RWA under section 11(4)(e) of the RERA Act.

Further, the RWA’s right to provide maintenance services has been explicitly recognized by Haryana RERA in a recent order.[9] While observing that the matter is sub-judice before the Punjab & Haryana High Court, the authority granted the RWA the right to maintain the project and held that:

The respondent is to abide by the directions of the statutory enactment i.e., as per provisions of section 11(4)(d) & (e) of Real Estate (Regulation and Development) Act, 2016… RWA is authorized to take care about their essential issues w.r.t. security, horticulture, power back-up and garbage collection. However, the costs shall have to be borne by the RWA”.

Consumer Protection Act, 2019 (“CPA”): This is another avenue wherein homebuyers can file a complaint under Section 17 of CPA for “deficiency of service” and “unfair trade practices” by the developer. Homebuyers are considered as consumers and can file complaints for redressing multiple issues such as delayed possession of apartments, arbitrary costs, structural defects, failure to provide promised utilities, and maintenance issues before the appropriate consumer forum.[10] Moreover, in 2020, the Supreme Court has also[11] upheld that homebuyers can seek relief simultaneously before RERA, as well as the Consumer Forum.

Consumer forums have also shown willingness and promptness in dealing with maintenance and facilities related issues agitated by aggrieved homebuyers. For instance, circa 2016, the National Commission awarded compensation to each homebuyer/complainant and, remarked[12]:

“It is thus clear that some deficiency on the part of the OPs stands proved… Parks, not properly maintained. Parking places are not covered. This is a deficiency in service on the part of the OPs. There is no inner door in drawing room. Strangely, there is no washbasin. Tiles in kitchen, bathroom and latrine were replaced by the poor materials. Whitewash, flooring quality and height of the boundary wall were not up to the requisite standard. At the eleventh hour, after you have made lot of exercise, incurred money and wasted precious time, you may not be in a mood to abandon that Scheme. The opposite parties are interested to leave you in the lurch, but you have no other option, but, to string with it…You are a helpless person facing an arrogant, despotic, high-handed capricious personality, who does not understand your position”

Competition Act: Though the Competition Commission of India (“CCI”) will not be the first choice for a homebuyer seeking relief against a developer, the latter can certainly be penalized for any anti-competitive conduct and/or abuse of its dominant position. In this context, reference can be made to the judgment in DLF Limited.[13] CCI found DLF to be dominant in the residential real estate market and held that it had abused its dominant position through several onerous clauses in its BBA, which were one-sided. These clauses included the developer’s rights to levy maintenance charges and to choose a maintenance agency. CCI proposed amending the clauses and providing greater freedom to RWAs to choose the maintenance agency.

However, this judgment is seldom followed in other real estate developer-homebuyer matters before the CCI as, in most cases, the developers don’t have a dominant market share in the relevant market. But there is hope, that this might change, thanks to the minority verdict in Ram Nivas Gupta v. Omaxe Limited[14] (“Omaxe”). In this case, the homebuyers complained that the BBA gave the developer the sole right to appoint a maintenance agency and determine the amount payable towards maintenance charges. Moreover, the maintenance agency nominated was also sponsored by the developer and this amounted to a tie-in arrangement.[15] Though the majority bench ruled that there was no abuse of dominance, as prima facie, Omaxe did not have a dominant position in the relevant market, the minority found anti-competitive conduct on the basis of “after-market abuse” by Omaxe.

5. Conclusion  

As homebuyers move closer towards delivery of possession of their property, the road steadily trudges uphill. At the outset, it is important to read the BBA carefully and raise objections against clauses, which disenfranchise the buyer of their right to choose a service provider and undermine their status as a homebuyer. Unfortunately, developers tend to rather obstinately hold onto such clauses concerning maintenance, as these are avenues of income and have become the “standard” in the Indian real estate sector.

The RERA Act specifically provides for maintenance to be handed over to the association of allottees and for the promoter to facilitate the setting up of such an association.  Thus, it is essential for homebuyers to unite and form such bodies and, even consider registering the same as a trust or society to further legitimize operations. However, this in no way implies that individual homebuyers have no remedies and can file complaints under CPA and RERA. Though the CCI does not have the power to provide compensation to homebuyers, it can nonetheless act as a deterrent to unscrupulous developers.

There also emerges scope for reform in the existing laws. For instance, it may be a good idea to amend the RERA Act to include a provision preventing developers from imposing unfair conditions in the BBA. RERA could also provide a strict timeline within which a developer shall acknowledge an RWA and hand over maintenance of the real-estate project. In the end, it is only fair, that those paying for maintenance have their say in the choice of a service provider.

Author
Aastha Mathur

[1] Common areas are defined in Section 2(n) of the Real Estate (Regulation and Development) Act, 2016, as-

(i) the entire land for the real estate project or where the project is developed in phases and registration under this Act is sought for a phase, the entire land for that phase;

(ii) the stair cases, lifts, staircase and lift lobbies, fire escapes, and common entrances and exits of buildings;

(iii) the common basements, terraces, parks, play areas, open parking areas and common storage spaces;

(iv) the premises for the lodging of persons employed for the management of the property including accommodation for watch and ward staffs or for the lodging of community service personnel;

(v) installations of central services such as electricity, gas, water and sanitation, air-conditioning and incinerating, system for water conservation and renewable energy;

(vi) the water tanks, sumps, motors, fans, compressors, ducts and all apparatus connected with installations for common use;

(vii) all community and commercial facilities as provided in the real estate project;

(viii) all other portion of the project necessary or convenient for its maintenance, safety, etc., and in common use

[2] Refer to the section and explain the registration aspect in this context

[3] Section 11(4)(d) of the RERA Act provides that the promoter shall be responsible for providing and maintaining the essential services, on reasonable charges, till the taking over of the maintenance of the project by the association of the allottees

[4] See: Are you ready for the maintenance charges of your flat, Economic Times, available here [accessed January 22, 2021]

[5] It is pertinent to note, that there are multiple independent utility services providers who can always pitch in and provide maintenance, often at cheaper rates than those charged by the developer entity

[6] Section 2(k) of RERA defines “carpet area” to means the net usable floor area of an apartment, excluding the area covered by the external walls, areas under services shafts, exclusive balcony or verandah area and exclusive open terrace area, but includes the area covered by the internal partition walls of the apartment. However, developers prefer to use super area, which adds the area occupied by common areas, including the corridor, the lift lobby, the elevator, etc, to the total built-up area. In some cases, developers even include amenities such as pools, gardens and clubhouses, in the common area. In this manner they are able to charge an even higher rate of maintenance charges, which are disproportionate to the carpet area of a unit

[7] For instance, a unit measuring 2500 sq. ft. in super area could be charged maintenance charges @ INR 3 per sq. ft. each month, which equals INR 7,500

[8] See: Paras Buildtech silences homebuyers with brute power, Track2Realty, available here [accessed January 22, 2021]

[9] Tatvam Resident Welfare Association v. Vipul Limited, Complaint No. 1277 of 2018 [Haryana RERA]

[10] The appropriate forum can be chosen on the basis of pecuniary and territorial jurisdiction under Section 34 (Jurisdiction of District Commission), Section 47(Jurisdiction of State Commission), and Section 58 (Jurisdiction of National Commission) of the CPA

[11] Imperial Structures Limited v. Surinder Anil Patni, Civil Appeal No. 3581-3590 of 2020 (SC)

[12] Resident Welfare Association v. U.P. Awas Evam Vikas Parishad, I (2016) CPJ 392 (NC)

[13] Belaire Owner’s Association v. DLF Limited, [2011] 109 SCL 655 (CCI)

[14] Ram Nivas Gupta v. Omaxe Limited, 2012 CompLR 1132 (CCI)

[15] Tie-in arrangements are defined in Section 4 of the Competition Act, 2002 as any agreement requiring a purchaser of goods, as a condition of such purchase, to purchase some other goods. These arrangements are punishable with fine amounting up to 10% of the relevant turnover of the violator in the preceding three years

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