: The past few years have seen the rise of a new monster called pre-launch. This practice has caused a lot of heartache and many property buyers have found themselves at the not so tender mercies of the builders. What is pre-launch?
Typically a builder starts marketing the flats that he will build in the future even before the plans are approved by the municipal authorities or other plan-sanctioning authority. The builder does not execute any agreement with the buyer for the simple reason that there is no flat that he can sell. Usually, non-binding documents such as 'expression of interest' or ' memorandum of understanding' are made by the builder, which offer little or no protection to the hapless buyer in the event of any dispute with the builder.
Why do people buy in pre-launch?
Usually the reason is plain simple greed on the part of both the builder and the flat buyer....
The builder lures the buyer with the temptation of lower prices which will appreciate significantly in a matter of weeks or months once the plans are approved. This may well happen but the more likely scenario is a delay of many months in plan approvals or worse, no approval at all.
Risks involved
In pre-launch, the builder is collecting money upfront and there is no guarantee that he will deploy the funds in the same project. He may use your money in some other project or for acquiring land. If something goes wrong with the fund deployment, your project will also get stuck for lack of funds. It is interesting to note that Dubai faced the same situation prior to the huge collapse in the property market in 2007. The government tried to stem the problem by making it compulsory for builders to utilise funds collected for a specific project in...
that project alone. Obviously, it did not work. Another major risk you run is if the plans do not get approved at all for some reason. For example, when the Coastal Regulation Zone (CRZ) restrictions were introduced in 1991, many projects in Mumbai were hit by the same and ground to a halt. Builders, who had been constructing in a hurry while awaiting mandatory permissions, suddenly found that the permissions would not be forthcoming. The result was that the buyers who had booked the properties got stuck.
Consequences
In the absence of a proper registered agreement, the builder has the freedom to blackmail you in many ways. In recent times, numerous cases have come to light where builders have forced buyers to accept a different unit than what was agreed, pay much more than the agreed price as the property prices shot up, delayed possession for months or years with little or..
No legal standing
The builder has no right to sell something that does not exist. Moreover, there are laws in some states which prescribe the procedures to be followed while booking a flat. For example, the Maharashtra Ownership Flats Act, 1963, mandates that a builder must, before accepting any advance or deposit from a flat buyer, sign, execute and register the agreement as per the law. The format of the agreement has also been prescribed under the act and the builder is duty bound to give details of all permissions and approvals taken by him and none of this happens if you book in pre-launch.
What should one do?
Refuse to book a flat until and unless all building permissions are received by the builder. Go ahead and appoint a competent professional to check these permissions and confirm that they are in order. Finally, insist on signing and...
registering the agreement with the builder so that your rights and the builder’s obligations are spelt out in black and white.
Author is a chartered accountant and Mumbai based property expert...
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