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Delayed completion
23/10/2007 The Star
ARTICLES OF LAW By BHAG SINGH
A person who buys a house from a housing developer is not bound to wait
indefinitely for it to be completed.
THE purchase of property invariably, on most occasions, involves a developer
and a buyer. The individual buyer is, in the ordinary course of events, in a
comparatively weak bargaining position when dealing with a developer. This
is so because for the individual buyer, it may be a one-off transaction, but
for the developer, it is all in the course of business.
The state has provided a measure of statutory protection for the house
buyer, through the Housing Development (Control and Licensing) Act 1966,
which requires housing developers to enter into an agreement with house
buyers in a prescribed form.
According to the Act, “housing accommodation” includes any building or
tenement which is wholly or principally constructed, adapted or intended for
human habitation, or partly for human habitation and partly for business
premises, but does not include an accommodation erected on any land
designated or approved for commercial development.
The legislation does not ensure an entirely trouble-free transaction for
house buyers. Rather, it seeks to require the housing developer to assume
certain basic obligations which cannot be contractually avoided.
A house buyer may find himself aggrieved when the housing developer fails to
complete construction of the building on time – that is, within 24 months
for housing accommodation, and 36 months for compartmentalised units.
Upon purchase of such a property and if the construction of the building is
not completed on time, can the buyer withdraw from the transaction and ask
to be compensated? Or must he wait until the construction of the house is
completed and only then sue the developer for late delivery?
A reader says that he bought a house from a housing developer and made a few
progress payments. But that was more than 24 months ago and the house is
only less than half completed. To make matters worse, work seems to have
slowed down and appears to be headed for a standstill. Can he ask for a
refund of the money he has paid, and is he entitled to compensation for the
loss he has suffered?
He says that the value of similar houses in the vicinity have appreciated by
20% and if this is to be taken into account, then the loss he has suffered
would be equal to 20% of the price of the property that he has purchased.
Time is of the essence
The rights of the house buyer as well as his obligations are statutorily
provided for in Section 24 of the Act which provides for the Minister to
make regulations for the purpose. Regulation 11 makes it mandatory for a
housing developer to adopt the Standard Sale and Purchase Agreement in
Schedule G.
The Standard Agreement, through Clause 8, declares that time shall be of the
essence of the agreement. The effect of this clause is that failure by the
developer to complete the house within 24 months, exceptions excluded, would
entitle the house buyer to withdraw from the transaction.
The effect would be that the house buyer would be entitled to treat the
developer as being in breach and therefore bring the contract to an end. The
consequence of this would be to require the developer to compensate the
buyer. Halsbury’s Laws of England states:
“Where one party to a contract has committed a serious breach by a defective
performance or by repudiating his obligations under the contract, the
innocent party will have the right to rescind the contract; that is to treat
himself as discharged from the obligation to tender further performance, and
sue for damages for any loss he may have suffered as a result of the breach.
The breach itself does not terminate the contract, the innocent party having
the right to elect to treat the contract as continuing or to terminate it by
rescission.”
This illustrates the importance of a clause making time of the essence.
Thus the house buyer would be entitled to bring the Sale and Purchase
Agreement to an end and not proceed with the purchase of the property. What
happens in such circumstances?
Refund and compensation
Understandably, the purchaser would be entitled to a refund of the money
which he has paid as the initial deposit as well as any progress payments.
Also, he should be entitled to interest on the money which the developer has
held and is now required to pay back.
The Standard Sale and Purchase Agreement does not prescribe the interest
rate for such a situation in which a refund becomes due. But in the Sale and
Purchase Agreement, the interest rate stipulated as being payable by the
buyer on account of delay of progress payments is 10%. The same rate could
logically be adopted as being applicable.
However, this would only allow the house buyer to get back his own money and
be compensated for being deprived of it.
What about further losses? As stated by our reader, the price of the
properties in the vicinity had in the meantime gone up and the house buyer
has been deprived of the benefit of the appreciation which he would
otherwise have enjoyed.
Certainly the house buyer should be entitled to be compensated for the loss.
Section 74 of the Contracts Act 1950 provides for the entitlement to
compensation for a party that is aggrieved by a breach of contract. This
section reads as follows:
“When a contract has been broken, the party who suffers by the breach is
entitled to receive from the party who has broken the contract, compensation
for any loss or damage caused to him thereby which naturally arose in the
usual course of things from the breach, or which the parties knew, when they
made the contract, to be likely to result from the breach of it.”
How the compensation should be computed can be the subject of a separate
discussion. |
