How not to get Jaypee-d

Published on 13 Dec 2017 by Tushar

Buying a "dream" house is one of the most difficult and life-changing decisions that one needs to take. One of the key components of any such decision is being aware of the legal agreements that are entered into at the time of buying a house. The most important of such agreements is the tri-partite agreement entered into amongst the home buyer, the builder/developer and, the bank, in case the purchase is financed by a bank loan. Sadly, in India, such agreements tend to be loaded against the home buyer!

Here, we try and break down for you what you need to know about such agreements. Read on to make your decision a prudent and safe one!

Buyer beware - No one knows it better than you!

Since it's your hard earned money, you are the best judge of whether there is something fishy in the paperwork provided by the builder/developer. If, however, legal terms tend to give you a headache then we suggest going to an "expert" property lawyer. Some of the key things you should keep a look out for are: 

  1. Title Deed - confirms that the builder has legal rights to the property in question, which can then be passed on to you. Ask the best property advocates in India to have more details.
  2. Release Certificate - relevant, if you are buying the property from the "first" owner and not the builder/developer. Helps you confirm that the property is not mortgaged in favour of a bank.
  3. Land use- the property must be located on land capable of being used for residential purposes. The builder should have documents to establish this.
  4. Local Approvals - all relevant and necessary approvals to develop and construct should be in place.
  5. Tax Receipts - relevant, if you are buying the property from the "first" owner and confirms no pending tax dues.

The "Missing" Carpet Area  - 1000 sq. ft. = 750 sq. ft.!

While buying a flat, do keep in mind that what you see is not what you get! When a builder/developer shouts out from fancy brochures that the area of the flat is this much - bear in mind that this is an aggregate number which includes the area allocated to common areas such as a staircase, lobby etc. (super built-up area). So, the actual flat may end up being 25-30% smaller. Accordingly, if you don't want to spend time figuring out the "missing" kids room, we suggest keeping in mind the following: 

  • thorough research before deciding on the builder/developer - analyze past trends
  • check the tri-partite agreement for the actual "carpet" area of the flat - see if you can have this frozen
  • consider and buy the property based on the carpet area
  • check the tripartite agreement to see what protections you have in case of a carpet area discrepancy.

Hidden Sharks - We did warn you!

Additional charges

Always note that propety advertisements only mention the base prices. By the time you are ready to move in, additional charges such as electricity and gas connection charges, club membership, PLC charges, parking slot charges etc. have been added and what you end up shelling out is 25-40% higher. This could lead to your finances ending up in a mess! 

Price Escalations

Sometimes tri-partite agreements may include clauses that allow the builder/developer complete discretion to raise prices in the future due to a variety of reasons. So, the home buyer ends up being constantly bled!

Transfer Charges

This one tends to be a big one - any further transfer of flats handed over by a builder/developer requires certain charges to be paid to the builder/developer. So, they tend to keep making money out of the flats!

Change in Area

Quite a few times agreements may include clauses which in effect allow the builder/developer to completely alter plans, designs and property specifications. This would in spirit make a tri-partite agreement redundant! Do make sure that the tri-partite agreement clearly mentions that any revisions in the cost would only be applicable in case there is a change to the carpet area and not the super built-up area. If not done, prices could escalate by almost 10-15%.

Changes in Building Plan

Any changes to the building plan should only be made with the consent of the home buyer. Some state legislation and regulations do provide that taking of such consent is a mandatory requirement. Whether mandatory or not, a home buyer should insist on something similar being there in the agreement to avoid any changes or price escalations. 

Helpful Checklist

- consider actual drawings instead of sample flats while buying

- thoroughly review the agreement before signing. Always, helpful to also have a lawyer to review

- do a detailed diligence. Again, helpful to have a property lawyer in India to do it as well

- always ask for underlying documents or permissions before agreeing to any price escalations

- always helpful to factor in the cost of every additional facility upfront and then document it

- have written or documentary proof/evidence in relation to any changes, alterations or correspondence with the buyer

- always have a lawyer to help you with remedies available to you as a home buyer. For eg. now buyers can directly approach the National Consumer Disputes Redressal Commission (NCDRC), the apex consumer forum in the country following a decision of the Hon'ble Supreme Court.

Legistify connects you with the best lawyers in India and top Chartered Accountants in India with simple telephonic conversation or email. Call us at 846-883-3013 or send us an email at [email protected] to get started.


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