DLF case: CCI seeks changes in builder-buyer agreement

CCI order, which will now be taken up by Compat, aims at making the agreement more equitable to buyers
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First Published: Thu, Jan 03 2013. 04 52 PM IST
Earlier, the Competition Appellate Tribunal (Compat) had directed CCI to specify the extent and manner in which the terms and conditions of the apartment buyers agreement need to be modified. Photo: Pradeep Gaur/Mint
Earlier, the Competition Appellate Tribunal (Compat) had directed CCI to specify the extent and manner in which the terms and conditions of the apartment buyers agreement need to be modified. Photo: Pradeep Gaur/Mint
Updated: Fri, Jan 04 2013. 12 22 AM IST
New Delhi: The Competition Commission of India (CCI) on Thursday passed an order seeking significant modifications in the apartment buyer’s agreement entered into between India’s largest real estate company DLF Ltd and those purchasing homes from it.
The changes are aimed at making the agreement more equitable to buyers, according to the competition regulator.
The case, in which the builder was fined Rs.630 crore for abusing its dominant position, relates to its Belaire project in Gurgaon.
Subsequently, DLF faced a similar ruling over its Park Place project in Gurgaon.
On 29 March, the Competition Appellate Tribunal (Compat) had directed CCI to specify the extent and manner in which the terms and conditions of the apartment buyer’s agreement need to be modified.
The CCI order will now be considered by Compat.
In its 104 page order on the proposed modifications, CCI disallowed any additional construction beyond the approved building plan. It also said the builder will no longer have sole ownership of open spaces within the residential project area not sold to the allottee and has suggested a joint ownership mechanism among the owners.
“This will be a contentious issue, which the builder will likely raise objection to,” said M.M. Sharma, a New Delhi-based lawyer dealing with competition law issues.
CCI said the so-called “time of essence clause” will now be applicable to both builder and allottee. This clause is typically found in contractual agreements and allows one party to hold the other liable in case contractual obligations are not fulfilled by the latter. In the present case, the liability is only on the allottee and not on the builder.
Sharma said this was a welcome step as it would make the terms of the contract fairly balanced in favour of both parties.
Significantly, CCI has dropped the indemnification clause from the model agreement. Such a clause hedges an owner from legal issues related to the builder fulfilling contractual obligations.
The new model agreement also stipulates that payments made by the allottees to DLF be linked to construction milestones. The clause relating to owners joining an association formed by the builder on their behalf has also been deleted.
CCI has also made significant changes to the clause related to the termination of contract between owners and DLF. DLF had approached Compat, challenging the CCI order in which it had imposed a Rs.630 crorefine on the real estate company.
CCI, in its August 2011 order, said DLF was “a dominant enterprise” which had violated the provisions of Section 4 of the Competition Act 2002 by entering into an agreement with apartment allottees that was “one-sided, abusive and unfair to the allottees”.
In a release issued Thursday, CCI said that “the apartment buyers agreement has been amended such that the abusive and unfair conditions present in the original one sided agreement have been removed”.
“The Commission in its order has also considered the relevant provisions of the laws applicable to the development of group housing projects in Haryana, particularly the mandatory requirements which must be followed by every developer/builder, but which were not followed by DLF Ltd in this case,” the order further said.
This order was passed under section 27(d) of the Competition Act.
A DLF spokesperson declined to comment on the matter, saying it was sub-judice.
“Whether a real estate company is dominant or not, DLF was found to be dominant because it was big, most of them follow the same format pattern that flows from big players in the market,” CCI chairman Ashok Chawla told the PTI on 1 January. A New Delhi-based property consultant, who didn’t wish to be named, said there may not be a major impact on DLF, even if the order finally went against the firm.
“The penalty would probably be negotiated for less. But this would set a precedent and there would be a larger impact on other real estate companies in not only making buyer agreements tighter, but also in terms of acquiring approvals before project launch and overall transparency,” he said.
Another property consultant, who refused to be named, said that the supplementary measures would have a mixed impact on DLF.
On CCI dis-allowing additional construction beyond the approved plan, he said that was a balanced step, because buyers are informed of a project with certain specifications when they sign the agreement and the developer ought not to make too many modifications after that.
However, DLF is likely to contest the condition relating to no longer having sole ownership of open spaces in a residential project, the consultant said. “The developer sells apartments and amenities to the buyers, but changing the terms and conditions of ownership would have financial implications on the firm and would not be easily accepted,” he said.
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First Published: Thu, Jan 03 2013. 04 52 PM IST
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