Saturday, 28 May 2016

Do Well-Drafted Redevelopment Agreements Protect Flat Owners? No!

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 act suo 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. 

Redevelopment is inherently painful, like getting your teeth pulled without anesthesia!
 

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.

CURRENT STATUS

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
9821588114
krish.kkphoto@gmail.com

Wednesday, 25 May 2016

Redevelopment Alert! How Builders make Bakras of Flat-owners

Mumbai, 25th May, 2016: While we are sitting in the comfort of our homes, an unfolding tragedy is transforming proud flat-owners into paupers and destitutes who will die in tiny rented homes, senior citizens homes or in the houses of their children, and the memories of the flats that they once owned will be cremated with them. In the name of redevelopment, millions of flat owners are being led like sheep to the slaughter – not only humble salaried workers, unthinking housewives, aged pensioners, over-dependent widows, but also doctors, lawyers, CAs, MBAs, MNC executives, bureaucrats, businessmen, tech-savvy housewives and career-women. Cooperative housing societies are full of financial illiteracy, ignorance of ground realities, overconfidence and gullibility. The redevelopment mantra of cooperative housing societies is: "jo sabka hoga, woh hamara hoga, bharosa rakho" i.e. "What happens to others will happen to us, so have faith."

A few thousand builders with names like "Shah Group of Builders", Kamala Group, etc, exploit these millions of bakras to build up their fortunes. In the building industry, "group" does not mean a company and its subsidiaries, it just just means a motley bunch of builders temporarily collaborating to hunt down a society of flat-owners like a pack of hungry wolves surrounding a flock sheep.

From the point-of-view of a builder, redevelopment is like hunting or trapping sheep. Every builder actually thinks in terms of taking over or "acquiring" a society and its assets. (Indeed, there are estate agents who specialize in "society-acquisition" i.e. bundling up the society-members in agreements, and transferring it to the highest-bidding builder.)

Please remember, redevelopment is basically a cooperative housing society (owner and possesser of the land and building) giving a civil contract to demolish their old building and reconstruct a new one while utilizing extra FSI and TDR. Since housing societies can't afford to pay the contractor, they give him permission to construct extra flats and sell them to make a profit.

Yes, these contractors need to draw up architectural plans and get dozens of permissions and clearances from the civic authorities, and also mobilize multi-crores of project finance. Because of the lengthy, weighty and complex nature of this relationship, societies enter into lengthy contracts called Letter Of Intent (LOI), Memorandum Of Understanding (MOU), Development Agreement, Alternative Accommodation Agreement (also known as Individual Agreement or Tripartite Agreement), "Irrevocable Consent", Power Of Attorney (POA) etc.

BEWARE, MISCHIEF IS IN THE CONTRACT DOCUMENTS

These contract documents are typically drafted by lawyers paid by the contractor/builder. By the wordings of the various documents, the nature of the actual contract (i.e. the contract of a property-owner with a civil contractor) is distorted. What emerges from the clever wordings is a different sort of contract, wherein the civil contractor appears like an equal party with the society, and not a mere contractor. The wordings make the builder seem like a purchaser or owner of the premises, to whom the society hands over all control. Words and clauses are included to endow the "builder" with all sorts of rights and entitlements over the property, stripping the housing society and the flat-owners of all their legal rights, including the right to revoke the contract if the builder fails to perform his contractual obligations. Unfortunately, almost all the society members sign on these papers without reading and understanding the implications; and the few who protest are also eventually forced to sign by the sheepish majority

After this paperwork is stamped and registered, the flat-owners come to believe that the builder is now the whole-and-sole owner and possessor of their property. So, society members and office-bearers start thinking of their redevelopment contractor as a "dhani", "mai-baap", benefactor and an absolute owner and possessor of the plot and building. People lose all sense of control over the society and its property, which is actually their collective property.

Chairman, Secretary and Treasurer start behaving like the builder is an all-knowing, all-powerful god who can do no wrong. Anybody who criticizes or questions the builder's competence or intention is treated as a public enemy; the entire society gangs up and socially boycotts them.

Flat-owners are hypnotized into believing that they have got an "exchange offer" from the powerful builder: "You give me your old and dilapidated flat, I will gift you a 25% bigger flat, plus lift and extra amenities, plus corpus fund, plus adequate compensation for rental payments". So, flat-owners forget that the "builder" is actually a civil contractor and that the profits from sale of extra FSI actually belongs to themselves collectively, not the builder. They forget that all the extras that they are getting are theirs anyway, and that they have enabled the civil contractor to make a large profit by taking the lions' share.

It is normal for builders to make the office-bearers behave like their employees and agents, and make the office of the society shift to their own office. Commonsense dictates that the society's office-bearers should maintain an at-arms-length relationship, and should not share the voluminous files, registers, certificates, books of account, minutes books etc. with the builder, who is the opposite party in the contract. Sadly, the exact opposite happens, i.e. the society's office-bearers share each and every document and information with the builder, while denying access to their own society's members. 

Office-bearers feel hatred and contempt towards their society members, especially those who question or oppose the builder. Secretaries, chairmen and treasurers hand over the society's records lock-stock-and-barrel to the builder, to keep them safe from the so-called "non-cooperative members" who question the redevelopment. With this handover, the housing society loses all control over own fate. If ever a need arises to go to court, even the office-bearers will be unable to do so.
Redevelopment is a land-grab by unscrupulous builders, and all semblance of legality is only a pretense and a facade.
 
Office-bearers feel hatred and contempt towards the members of their society, especially those who question or oppose the builder. Secretaries, chairmen and treasurers hand over the society's records lock-stock-and-barrel to the builder, to keep them safe from the so-called "non-cooperative members" who question the redevelopment. With this handover, the housing society loses all control over own fate. If ever a need arises to go to court at any point in the future, even the office-bearers will be unable to do so... and this is something nobody wants to admit or even discuss.

STEP-BY-STEP "TAKE OVER" OF THE HOUSING SOCIETY:
  1. Office-bearers start frequenting the builder's office if they have become his partners or employees. Project Management Consultant (PMC) also becomes one with the builder, although he has been appointed by the society to safeguard and guide society members.

  2. Office-bearers start holding confidential meetings with the builder and/or PMC. They start acting like rubber-stamps and start putting their signature and seal wherever the builder wants them to. They become totally incapable of opposing the builder's point of view. 
     
  3. Maintenance bills, society's minutes of meetings etc. start getting issued from the builder's office rather than society's office. (The upgrade in stationery and colour printers used is usually noticeable.) The builder's office accountants start managing the society's routine work, and maintenance cheques etc. are collected and deposited by the builder's staff. 
     
  4. Society's chequebooks, passbooks, Fixed-Deposit certificates, etc. are quietly passed on to the builder's office. The builder gains control over the Repair Fund, Sinking Fund, Fixed Deposits, and other bank accounts.

  5. Routine pre-monsoon repairs stop being done, and blown-out lightbulbs and broken gutter-lids stop being replaced. The office-bearers argue, "Why waste money? The building will be demolished in a couple of months." Not even a rupee is spent on minor repairs and upkeep, and the quality of life in the building deteriorates. 
     
  6. General body meetings are held at the builder's office or at a nearby party-hall at the builder's cost. Dependency becomes imprinted on the minds of the general body members, and they feel incapable of holding any society meeting on their own. They suffer from feelings of guilt and anxiety if they hold separate meetings without the knowledge of the builder! Other society members, if they find out that such meetings are held separately, are quick to inform the office-bearers and the builder. 
     
  7. The builder and managing committee cannot be questioned in even minor matters. They cannot be held accountable, because any question or any attempt to hold them accountable is presented to the unthinking majority as "non-cooperative members opposing redevelopment". The builder, office-bearers and loyalists then launch a social-boycott campaign against the so-called non-cooperative members, and may even pass resolutions against them in general body meetings.

  8. The builder puts up large hoardings showing that he "owns" this plot. Without consulting anybody in the society, he changes the society's name (e.g. "Ram Krupa Cooperative Housing Society" is suddenly advertised as "Sunshine Towers, a quality project of Gupta Lifesyle Developers"). Without laying a single brick, the builder is now starts advertizing 2BHK, 3BHK etc. in the new project and receives lakhs and crores of rupees as booking amounts from early-bird investors. Thus, the builder starts creating claimants to the society's property, and the society has no say in any of this! 
     
  9. When the builder gets the crucial IOD (the so-called "Intimation Of Disapproval" which is actually an Intimation Of Approval) from Municipal Corporation, all the flat-owners breathlessly start awaiting the demolition of their building within a few months, and they mentally prepare to vacate their houses and move to leave-and-licence (rental) houses for the next 24 to 36 months. If the office-bearers haven't already deposited the entire lot of society's files, registers, etc at the builder's office, they will probably do it at this juncture, because "Yeh sab leke kahan-kahan ghoomenge?" If the society's records were until now stored in the building, e.g. cupboards in the pumproom or in the staircase landings, or a tiny society office, all the office-bearers start thinking that these box-files are a huge burden with only nuisance value and no practical value. The records of old societies weigh at least 40 kgs, and require several large cartons or gunny bags to carry. They are too voluminous to be stashed into safe-deposit boxes in banks, and office-bearers don't want to keep them in their rented temporary accommodations for the next few years. 
     
  10. If the rental amount paid by the builder is adequate, then most of the building's residents may live dispersed in the same neighbourhood or nearby localities. But if the society's members have agreed to accept inadequate rental amounts, then the society's members will seek rental accommodations in faraway suburbs or neighbouring cities like Vasai-Virar, Ambarnath, Kalyan, Panvel and Vapi. Some old folks return in their native villages, hundreds of kilometers away, while others go to live in old age homes and ashrams.

After the society members have dispersed from the plot and the builder has taken vacant possession, his power has become 100% and their power is down to zero. The society members are now totally powerless to control anything. The cooperative housing society has ceased to exist in reality, although it theoretically exists. If all goes well, and the builder finds it convenient, profitable and feasible, the society's building will rematerialize in its new avatar after a few years.

WHAT HAPPENS IF THE BUILDER DOES NOT DELIVER THE NEW FLAT?

If for any reason all does not go well, and the builder does not complete the construction and hand over their flats to them, the former residents of the society are bhagwan-bharosey, along with the investors who entrusted him with crores of rupees. Can they all go to court? In theory, yes they can. In practice, however, it will be a miracle if they even land up in court, leave alone get favourable orders. Because they will just be a bunch of bitter, quarrelsome former neighbours without any papers to prove their entitlement. And how will they locate their office-bearers, who in all probability have gone absconding because they don't want to want show their faces to their former neighbours?

Will this dissimilar bunch of confused and aged people, who have lost their entire life-savings and all their society documents, overcome all these challenges and stake their claim in court a decade or more after their building was demolished and their documents were lost? Will the courts listen with a sympathetic ear, when they can afford only the cheapest and most inexperienced lawyers? Will the contractual documents, which were drafted by the builder's lawyers by signed by all these educated idiots, enable them to get justice in the end?

Not bloody likely. It will just be another sad story for which there will be no court judgments and no case laws, and newspaper reports or television exposes... because nobody will be around to tell the tale.

ISSUED IN PUBLIC INTEREST BY
Krishnaraj Rao
9821588114
krish.kkphoto@gmail.com