Thursday, May 6, 2010

Handle with Care

It is important to be aware of what is happening around us. we must pay attention to every detail and every discussion that is to take place with the builder. Right now we are the owners of our house, but during redevelopment we have to safeguard our interest.

Therefore it is imperative that society members should tread cautiously and firmly in matters of drafting part of the redevelopment agreement (RDA), especially since after signing such an agreement, residents have to vacate the premises and hardly have any control over the project.

They usually have to wait for the builder to give them repossession of their flats. While drafting an iron-clad agreement, one needs to visualise every possible setback and provide answers and remedies against possible eventualities, so that the builder's interest in completing the project continues till the end.

These are some of the common issues which crop up:

The tax liability may differ depending upon whether such a transaction is undertaken between the individual members and the builder, or between the society as a whole and the builder. Also, drafting the agreement can have implications when tax liabilities arise at that point of time.

The bank guarantee which the builder is generally made to give should be drafted simultaneously along with the RDA. The draft of the bank guarantee should be simple and not tied up with conditions. In a nutshell, it should state, that except for calamities like floods, earthquakes or a war, the reconstruction will be completed in the specified time, or at the very least, within the grace period. Failing this, the guarantee would be irrevocable. The bank guarantee should be irrevocable even if the builder fails to pay or honour any of the cheques of rent for alternative accommodation.

• To ensure that the builder completes the reconstruction project, he should be permitted to sell his portion of construction undertaken in proportion to the total construction being completed.

The builder must execute individual agreements of all the flat owners otherwise a situation may arise where one of the flat owners wants to invoke the law if he is not satisfied with certain aspects of construction or progress of the project. Also, the secretary may take it lightly. In that case, a member may not have locus standi under the law without an individual agreement. If other society members have shifted to different places it may not be possible for an individual member to assemble everyone or to call a general meeting.

• If the builder is allotting additional area per flat, stamp duty and registration procedures must be completed since an unstamped and unregistered document is not enforceable in law.

• Every detail pertaining to the construction specifications, construction material, amenities etc. should be specified in the RDA. Anything that is vague will work against the interest of members.

• Under the RDA, generally a lump sum amount running into a few crores is given to the society. But then the builder sells his part of the units and new members get admitted, which means that the new members will also be entitled to a share of these funds of the society.

To avoid such a situation, funds received should be distributed to members or should be credited proportionately to their individual accounts.


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