Sunday, February 10, 2019

Redevelopment Agreement Flaws - Article 1


1.Delays in Redevelopment Projects; `Extension of Time’ Clause

We own a house in Mumbai after investing a lifetime of our savings and at the time of its redevelopment, place it in the hands of a builder without essential scrutiny & care, just believing on the big dreams he has projected. Many times, this results in decade of wait languishing in some rented apartment, at the most fighting a court case with the builder.

In many cases, builders have got the buildings vacated and demolished. The residents were paid rents for shifting to alternate rented accommodations for first 2-3 years & afterwards the builders have stopped paying any rent, mostly taking advantage of glitches in redevelopment agreement. Under such circumstances, the residents who have migrated to other areas or at different places, staying in the rented accommodations, become totally unorganised & unable to fight the might of the builders & suffer endlessly, at the most, fighting prolonged civil court cases.

We need to stay alert, take care and apply our mind during essential scrutiny of redevelopment project particularly during tendering process. In this series of articles, I aim at providing some important inputs useful in scrutiny of redevelopment project. 

Hi friends, I am Shrikant Chavan, practicing Architect, Civil Engineer, Project Management Consultant (PMC), working in construction industry since last 37 years. Since last about 8 years I have been involved in many redevelopment projects as Project Management Consultant. During this period, I had also an opportunity to study the redevelopment projects in which I was not involved, since on many occasions the people individually approached me for consultations regarding their concerns about such projects. In these cases, the most unfortunate people were the one who were shifted to temporary residence, their building was demolished & after couple of years they have to pay their own rent since builder has stopped paying rent & their project has not even commenced. Some other concerns have been :- 1. Builder had stopped the construction & rent payment due to non-availability of funds, 2. After dragging project for 4-5 years, the builder has expressed that the additional carpet area has to be drastically curtailed considering present recession, 3. Builder has used FSI more than allowed in agreement for saleable component & rehabilitation area has to be reduced. These are all unfortunate cases where these people have to either fight out the prolonged court cases or be at the mercy of the builder & allow him to complete the project at his own conditions, will & wish. There are many others, who have not yet completed the process of finalising the tender for redevelopment of their buildings. These people can use the inputs mentioned in this series of articles.

INPUTS ON VARIOUS ASPECTS OF REDEVELOPMENT PROJECTS
In this series of articles, I will try to offer some inputs, which I have evolved from my last 8 years of involvement in redevelopment projects.  I have many of the time been approached by individual residents of buildings undergoing the redevelopment proposals. These individuals were highly worried & stressed-up considering that the property that they have gained with lifetime of their earnings at stake.  Generally, they were ignorant of the various processes & details involved in these projects. So my inputs are aimed at these people. In this series, I aim at providing inputs on general redevelopment procedure, role of PMC, feasibility report, tender, important clauses like extension of time, termination, bank guarantee etc.

TENDER CLAUSE ON EXTENSION OF TIME
The endless delay in project completion is the main issue in most of the redevelopment projects. So I will first discuss the `extension of time’ clause in this series of articles on redevelopment issues, considering its importance in progress & completion of redevelopment projects. If compared with the normal construction projects where the contractor has no income source from the project work except through routine bills (called RARs i.e. Running Account Receipts) which is controlled by PMC/ Architect, the redevelopment project developer has income source from bookings on saleable component which is not under control of PMC. In redevelopment project, delayed project adversely affect the society members, particularly in timely recovery of their rents from the developer & on other rehabilitation compensations. Considering these differences & taking lessons from the fact that in most of the delayed redevelopment projects the unscrupulous developers have stopped paying compensatory rents to the society members, I am of the opinion that the extension of time clause should be linked to the schedule of construction (bar chart) in such a manner that for delay in each activity, when the construction schedule (bar chart) is rescheduled, if the project completion date shall be required to be extended, the developer should be asked to deposit post-dated cheques for rent & other compensations for the extended period, prior to acceptance of extension with revised construction schedule. To simplify it, suppose the PMC observes during his visit to the site that the activity of completion of work up to plinth level is expected to be delayed by 2 months. He asks the developer to submit his revised schedule with reference to the delays in activities observed during his site visits. When the developer submits the revised construction schedule it reflects that the delay in activity affects the overall completion of the project & the project shall be delayed by 2 months. The project which is to be completed in 24 months shall now take 26 months to complete. The developer has already handed over to the members of the society the post-dated cheques for initial 24 months. So now, prior to getting sanction for the revised construction schedule & extension of time, the developer shall have to hand over the two month’s post-dated cheques for 25th & 26th month. The developer has to deposit these cheques & get the revised schedule & extension of time sanctioned reasonably in advance of the concerned ongoing activities so that the revised schedule is not disturbed in anyway. The failure on the part of the developer to comply with this requirement shall be treated refusal of performance by the developer & hence such breach may result in revocation or suspension of power of attorney and/ or termination of agreement. Here, it is needed to remember that the agreement to be valid in law should be fair to all parties involved in agreement & many times the normal termination clauses tend to be unfair to the developer in the redevelopment agreement particularly if we consider the heavy investment of the builder. Hence on the subject of termination clause, I plan to write a separate article in this series.

The construction schedule is the time-bound schedule of different activities of redevelopment project in bar chart format (specimen listing minimum activities required to be mentioned should be annexed to the redevelopment agreement), mentioning dates of commencement and completion of each major activity, in such a way that the agreed completion of the redevelopment project exactly tallies with the completion shown in the bar chart. This bar chart shall be inclusive of activities such as, preparation of draft plans by the Developer’s Architect, approval by the Society of draft plans, submission of proposal to municipal authority, applications for permissions/ NOCs to different statutory/ government bodies as applicable, obtaining of IOD/ commencement certificates/ all other necessary permissions/ NOCs, vacating the existing accommodations of society members & shifting them to their temporary accommodations, demolition of existing buildings, major construction activities including foundation, work up to plinth, each slab-wise structural/ RCC work, masonry work, windows, doors, internal & external plaster, waterproofing of toilet/ bath room floor, roof terrace floor, basement, internal finishing work (including door & window fixing, kitchen platform work, flooring, skirting, dado, fixing of fittings & fixtures & all internal amenities each as separate activity),  internal & external painting, underground & overhead water tanks, , internal & external plumbing, sewage disposal system, internal & external electrification, water supply system, lift installation, firefighting  system, area drains, open space development, compound wall and other miscellaneous works up to obtaining occupation certificate & rehabilitation of society members. The bar chart shall be in the format as approved by the PMC, wherein the PMC shall have authority to insist on indicating any activity as a separate activity in the bar chart & to insist on indicating the work force & tools & plants to be employed on the work for each activity each day. This bar chart shall also indicate the scheduling of samples for approval & procuring the required materials.
I have observed, generally in the redevelopment agreement that, apart from initial about 24 months of period of completion the extension of 6 months to 1 year is allowed & for any further delay it is the developer is held liable to pay certain amount per day as liquidated damages. In the absence of very specific terms in redevelopment agreement particularly the details of actions to be taken in such situation, nobody can question the developer till these periods are over for the further rent amount & in the end after 2 or 3 years the developer stops to pay abruptly & these unorganised society members can even not meet the builder. The society is at mercy of the builder or at the most enters into a long drawn civil court case. In the court the team of builder’s lawyers easily find out the escape routes / loop holes in such loosely worded ambiguous redevelopment agreement.
Here, somebody may bring out that, now the RERA provisions can discourage the builder from delaying the project. It is true that the RERA provisions have made the builders more alert particularly regarding timely completion of the project. But since the RERA do not provide for the rent & other compensations of the redevelopment rehabilitation component, the society members won’t get the required protection in this aspect under RERA.

Linking construction schedule to the extension of time on basis of each activity has many benefits :- 1.The main benefit is that the members will be assured of getting rent for their temporary accommodation well in advance,
2.The project shall be planned more realistically & responsibly,
3.It will bring clarity about the entire project,
4.The actual work progress shall be closely monitored,
5.It shall provide more control in hands of the society to handle the work progress systematically,
6.It shall  instill fear in builder’s mind from the beginning of the project that, if he delays at any stage or activity, he will have to face consequences immediately,
7.Delay in any activity shall also be publicised & may affect, on getting booking on saleable component.

In next article I will offer inputs about the different reasons to be permitted for the delay i.e. for extension of time limit.

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