Introduction
Purchasing an apartment in a multi-storey building has become increasingly popular in cities like Chennai, Trichy, Coimbatore, and Madurai. However, many buyers hesitate to commit to properties after construction due to uncertainties. One key document that can mitigate these concerns is the Construction Agreement. Understanding the critical aspects of this agreement ensures a smoother, legally-protected property purchase process.
1. The Importance of a Construction Agreement
A Construction Agreement is a legal contract between the builder and buyer outlining the terms and conditions related to the construction of a property. It serves as a vital safeguard, ensuring transparency regarding the property and protecting both parties during the construction phase. Buyers should be aware of all the clauses in this agreement to avoid potential issues.
2. Mandatory Registration Post-2012
Prior to 2012, there was no requirement to register construction agreements. Builders could collect payments from buyers without any legal obligations to complete the project on time. To address this, the Tamil Nadu registration department made the registration of construction agreements mandatory. This ensures that both parties are legally bound to honor the contract’s terms.
3. Registration Costs
Builders and buyers must now pay 1% of the contract value as stamp duty and an additional 1% as registration fees. If the agreement is not registered, buyers may struggle to enforce the contract legally if the builder defaults on the terms.
4. Payment Schedule
One of the most critical clauses in the agreement is the payment schedule. It should clearly outline how payments will be made, such as an initial deposit followed by payments at various stages of construction (foundation, first floor, second floor, etc.). This schedule helps the buyer track progress and ensure timely payments.
5. Late Payment Penalties
Buyers should thoroughly review any clauses that impose penalties for late payments. Ensure that the penalties are fair and reasonable to avoid unnecessary financial burdens.
6. Transfer Rights
The agreement should specify the rights of the buyer and builder in case of delayed payments. It should clarify whether the buyer has the right to transfer the property to another person or if the builder retains the right to sell the property in case of delays.
7. Government Approvals
Ensure that the construction agreement states whether the necessary government approvals (building permits, electricity, sewage) have been obtained. This protects the buyer from legal or logistical issues down the road.
8. Grace Period for Project Completion
Builders typically commit to completing the project within a specified timeframe, such as 18 months, with an additional grace period of 3 to 6 months. Buyers should verify that the timeline is reasonable and achievable.
9. Delayed Possession Penalty
If the builder fails to complete construction within the agreed timeframe, the agreement should specify a penalty (₹5 to ₹10 per square foot per month) that the builder will pay to the buyer for the delay.
10. Other Charges
The agreement must clearly outline who will bear additional costs such as building maintenance, electricity deposit charges, and expenses for common amenities like roads, parks, or public facilities.
11. Detailed Property Specifications
The construction agreement must provide detailed specifications about the property, including structural details, wall finishing, flooring, electrical fittings, kitchen, doors, windows, and amenities such as power backup, elevators, and security systems.
12. Five Types of Schedules in the Agreement
Construction agreements typically contain five key schedules:
- Schedule A: Describes the total land area where the apartment complex is being built.
- Schedule B: Specifies the Open Space Reservation (OSR) allocated to municipal bodies.
- Schedule C: Outlines the specific area being sold to the buyer.
- Schedule D: Provides details about the buyer’s unit, including floor number, square footage, and car parking space.
- Schedule E: Lists the specifications of the unit, such as the materials used for walls, flooring, electrical systems, and more.
13. Joint Venture Agreements
If the property is part of a joint venture between a landowner and a builder, the construction agreement should clearly outline the terms of the joint venture and how the profits or property rights will be divided.
14. Undivided Share (UDS)
After the construction agreement is registered, the undivided share of land (UDS) must be transferred to the buyer through a separate sale deed. The UDS represents the buyer’s portion of the land that corresponds to their apartment.
15. Dispute Resolution
The agreement should include a clause outlining the process for resolving disputes between the builder and buyer. Typically, arbitration or legal proceedings are the standard methods of dispute resolution.
16. Penalties for Builders
The agreement should clearly specify penalties for the builder if they fail to meet deadlines or complete the project as per the agreed specifications. This clause ensures that the builder is held accountable for delays.
17. Buyer Protection
To avoid legal complications, buyers should ensure that all terms in the agreement are clear and unambiguous. It is crucial to address any vague terms before signing to protect yourself in case of future disputes.
18. Avoiding Legal Hassles
Although some builders may advise buyers that registering the construction agreement is not necessary, it is highly recommended to do so. Registering the agreement protects the buyer from potential legal issues if the builder fails to honor the contract.
19. Expert Legal Consultation
It is always advisable to consult a legal expert before signing a construction agreement. A lawyer can review the terms, ensure everything is in order, and help the buyer avoid unforeseen complications.
Conclusion
A well-drafted and registered Construction Agreement is vital for protecting the rights and interests of both the builder and the buyer. Ensuring clarity in all clauses, verifying government approvals, and consulting legal experts can save buyers from costly disputes and delays. By understanding these essential aspects of the construction agreement, you can confidently proceed with your property purchase.
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