It Is Home Buyer’s Loss In The Force Majeure Event

The Centre has advised states to give legal protection to the real estate developers, permitting them to delay completion of building projects up to nine months due to the COVID-19 pandemic that has caused large scale disruptions, including reverse migration of construction labour to their native places. 

The Ministry of Housing and Urban Affairs has said in its May 13, 2020 advisory that COVID -19 should be treated as an event of 'Force Majeure'- an act of God, under Section 6 of the RERA, 2016. The net effect is that the home buyers will get delivery of their units after a delay of at least nine months as the regulators would extend the registration and completion date by six months automatically with an option for further extension of three months. The developers would pay no cost to the home buyers. All the clauses of the agreement signed between the developers and the buyers, providing for penal interest for delayed possession, would stand suspended. 

Fair enough! After all, COVID-19 is certainly an act of God and the builder is confronted with a situation that is out of his control with a two-month lockdown and vast disruption in the labour supply, along with difficulties in the movement of material like cement and steel. So, the developer gets a big relief under the Prime Minister's economic package. It is certainly a deserving proposition. The developer does not gain; but the government has made sure that the builder does not lose either, with the extension of the Force Majeure. 

So, who loses in the bargain? Certainly, the home buyer loses; she or he would get possession of units late and there is no redressal. What about the relief provided to her or him by the Reserve Bank of India, allowing banks to put a moratorium of six months on payment of EMIs. Does it not square the deal vis-a-vis 'Force Majeure' extended to builders? Not really. Because, the builder does not have to pay any interest on delay in handing over possession of the dwelling units. On the other hand, the home buyer has only been given deferment of EMI payment; without waiver. The EMI, under a moratorium for six months, would be added to the tenure of the term loan with the disadvantage of compounding. 

In its 'Regulatory Package' of May 23, unveiled by Governor Shaktikanta Das, the RBI made it clear that the interest shall continue to accrue even as the EMI is under six-month moratorium. 

''Given the extension of lockdown and continuing disruption on account of COVID-19, all commercial banks (including regional rural banks, small finance banks, and local area banks), co-operative banks, All-India Financial Institutions, and Non-banking Financial Companies (including housing finance companies) are permitted to extend the moratorium by another three months i.e. from June 1, 2020, to August 31, 2020, on payment of all instalments in respect of term loans (including agricultural term loans, retail and crop loans). Accordingly, the repayment schedule for such loans as also the residual tenor will be shifted across the board. Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period''. 

The justification given by Finance Minister Nirmala Sitharaman for the 'Force Majeure' given to builders was that carve-out would destress the troubled real estate sector. The advisory by the Ministry of Housing and Urban Affairs to states was, '' These measures will de-stress real estate developers and ensure completion of projects so that home buyers can get delivery of their booked houses with new timelines''. 

The revised timelines would form part of the fresh registration issued by the state regulators, under RERA, to the builders. Several state governments, including Uttar Pradesh, with a huge backlog of projects in Noida, have already given such a dispensation to the real estate companies. 

It is not that the real estate developer does not deserve extension of time, under the 'Stop-The-Clock' principle of the 'Force Majeure'. The point is why not include the home-buyer in the process. Builder's obligation towards home- buyers, as regards interest on delayed possession is waived. But the home buyer's burden of EMI, including interest, is compounded. Why are home buyers not covered in the 'Force Majeure'? 

The author is a Delhi-based senior journalist