Realty bites PDF Print E-mail
Thursday, 18 August 2011 00:00
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In a move that will have far-reaching implications for the real estate sector that is growing at 30% per annum thanks to a rapid growth in disposable incomes and urbanisation, the Competition Commission of India (CCI) has fined DLF R630 crore (7% of average turnover during 2009-11) for abusing its ‘dominant position’ to the disadvantage of consumers. The company can challenge the CCI ruling in the Competition Appellate Tribunal. The executive director of the DLF Group has made it clear that the company is exploring all available legal options, and believes that it has a strong case. But whichever way this particular case goes, CCI has raised really important issues that are part of street-speak but broadly ignored by the ‘system', due to a continuing absence of any single sectoral regulator.


CCI started investigating this case after the owners’ association of the the Belaire building complex in Gurgaon complained that DLF had used its position of strength to dictate the terms of a buyer’s agreement that put allottees in an extremely unfavourable situation. The agreement includes clauses giving DLF the right to change the layout plan without consent of the allottees, charge allottees for preferential location but give refund without interest in case the location isn’t provided, change the super area unilaterally while binding the allottees to pay additional amounts, and command an exit clause that allows the company to abandon the project without penalty but subjects the allottees to a punitive penalty for default. In the last instance, the builder is liable to pay compensation at R5 per square foot per month for delays beyond 3 years (which CCI calculates, adds up to 1% per annum) but any payment delay on the part of the buyer draws an interest of 15 % per annum for the first 90 days, increasing to 18% after that. Most notably, Belaire buyers signed up for 19 floors of 368 apartments but got stuck with 29 floors of 544 apartments. Plus, they still haven’t gained possession, in part because many sales were pushed through before DLF got the necessary clearances. The CCI investigation says buyers were told about the clearance delays 13 months after they had made the bookings. According to CCI, buyers had paid up to 33% of the total consideration before a single brick was laid.

So far, a strong component of DLF’s defence has been that the conditions included in the Belaire agreement are consistent with common industry practices. This is plausible but not defensible.


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