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Things to Keep in Mind While Making a Flat Purchase Contract

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Things to Keep in Mind While Making a Flat Purchase Contract

Last updated: May 18 2009
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  • Things to Keep in Mind While Making a Flat Purchase Contract

    Hi All,

    I am getting a great deal on a flat with the price being quoted at more than 40% off the asking price. I wanted to make sure that the great deal i am getting does not get short changed by the builder when i take delivery, hence wanted to have a bullet proof purchase contract. If anybody can help me with the following it will be very helpful

    1. Any sample flat purchase contract. Its a 3 bedroom flat

    2. What are the milestones for payment. The builder wants an initial payment of 25% and after than he wants payment in equal time based installments. I would rather prefer a flat progress milestone (such as finish foundation pay 10%, finish wall construction 10% etc) with time based payment schedule. Any inputs on proper milestones to put in the contract for payment of the remaining 75%

    3. There is a car park which he will be providing me. What should be the language in the contract so that i have ownership of the land on which the car park is built. I do not want him to double dip and sell me the common area as parking spot.

    4. What should be the valid penalty clauses if he does not provide the flat to me in the suggested 10 month time frame. I did not want to get too greedy and put too onerous a clause. Anything which is reasonably accepted do share.

    5. Any other points which i should put in the contract that i might have missed.

    TIA
  • #2

    #2

    Re : Things to Keep in Mind While Making a Flat Purchase Contract

    If you pay peanuts you only get monkeys. If you get 40% discount then either the price was too high and even now must be bad or you are getting some peanuts in the future.

    Comment

    • #3

      #3

      Re : Things to Keep in Mind While Making a Flat Purchase Contract

      Hi There

      Normally for every project the builder follows a certain set of format with its terms and conditions for a contract agreement, it is very difficult to get them change the terms and conditions in the contract.

      That has what has been my experience, two issues which i faced problem with my builder.

      a) Price and schedule of payments agreed, but do not mention of time when he will hand over.
      b) He insisted on signing a sheet of paper which mentioned, all cracks developed after completion is the responsibility of the purchaser. I was not able to purchase the flat unless signed, I had to sign as had already made 50% of payment.
      c) Also payments were to be made when works commenced for 1st slab, 2nd slab. brickwork, plaster etc not when the activities were completed, which normally i would subscribe to, because there could be a huge time difference between commencement and completion.

      What I will suggest to you is ask for a draft agreement, please make sure of 3 conditions, time, price and schedule of payments.

      These are difficult times for the builder so would suggest, ask for as many terms and conditions in your favour.

      Many Thanks

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      • #4

        #4

        Re : Things to Keep in Mind While Making a Flat Purchase Contract

        Thanks MumbaiWorld for your helpful inputs

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        • #5

          #5

          Re : Things to Keep in Mind While Making a Flat Purchase Contract

          Originally posted by spaul View Post
          Hi All,

          I am getting a great deal on a flat with the price being quoted at more than 40% off the asking price. I wanted to make sure that the great deal i am getting does not get short changed by the builder when i take delivery, hence wanted to have a bullet proof purchase contract. If anybody can help me with the following it will be very helpful

          1. Any sample flat purchase contract. Its a 3 bedroom flat

          2. What are the milestones for payment. The builder wants an initial payment of 25% and after than he wants payment in equal time based installments. I would rather prefer a flat progress milestone (such as finish foundation pay 10%, finish wall construction 10% etc) with time based payment schedule. Any inputs on proper milestones to put in the contract for payment of the remaining 75%

          3. There is a car park which he will be providing me. What should be the language in the contract so that i have ownership of the land on which the car park is built. I do not want him to double dip and sell me the common area as parking spot.

          4. What should be the valid penalty clauses if he does not provide the flat to me in the suggested 10 month time frame. I did not want to get too greedy and put too onerous a clause. Anything which is reasonably accepted do share.

          5. Any other points which i should put in the contract that i might have missed.

          TIA
          Great to hear that such good deals are being offered in Chennai.

          As mumbaiworld said, most builders have their own(one sided) agreement format which they wouldnt change easily.

          Best way is to take a lawyers advise and go back to the builder with the professional inputs, if the changes/modifications are reasonable then the builder may agree to the changes.

          There are certain things you have to look out for

          Escalation cost - Normally there would be a clause that provides the builder to raise the construction cost when material cost increases.Make sure and clarify what qualifies for the rise.We have had many cases where the builder just increases the cost citing inflation when the steel/cement prices were stagnant.

          Specifications/amneties - make sure all the specifications from type of bricks/paint/tiles/switches/bathroom and electrical fitting etc are mentioned in the agreement.If not included, the builder would charge extra for all the additional requests/modifications.

          Delay clause - You maynot find this in the builders agreement.Reasonably one can ask for Rs 2/sqft for every month of delay.

          Contruction progress linked payment is what you should emphasis for as timely payment is mostly non-enduser friendly.The builder can levy interest if you delay payments and delay indefinately.

          If you are availing home loan, clarify the Pre-Emi / discounts that you can get if you can ask the bank to release the complete loan amount upfront.Nowadays banks are reluctant to do that and prefer releasing based on the construction progress.

          Regarding car park, it can be sold only if its covered.If someone is selling open car park(common area) it means the builder is fooling you.

          Clarify regarding the service tax, as per the new regulation I think its exempted.

          Finally and most importantly, at upfront 25%+ payment make sure you register the UDS in your name and enter in agreement with the builder only for the Construction and give Power of Attorney to the builder to build over your land.

          Comment

          • #6

            #6

            Re : Things to Keep in Mind While Making a Flat Purchase Contract

            Thanks a ton nabishek for your useful response.

            1. Any suggestion on lawyers or any place where i can get hold of decent real estate lawyers or regular lawyers in Chennai who can review real estate contracts would be helpful.

            2. As you mentioned there is general mention of escalation cost, will ask for specifics.

            3. Specification / amenities - missing in the current agreement. will incorporate them

            4.Delay Clause - the owner of land is different from the builder. If the owner delays registering in my name there is a 10% penalty on the owner and if the builder delays there is Rs 1 / sq. ft / month. But if i delay payment there is 24% penalty. I wanted to have a more equal sided contract for owner, builder and me. Hopefully its not too much

            5. Car Park, since i am new to buying flats have a basic question. So the area which is on the ground floor and open (ie not covered by any ground floor flats) is NOT considered common area? Doesn't the builder still have to sign that piece of land which he allocates for car parking in my name along with the 1/16th piece of the land which is area for the flat.

            TIA

            Comment

            • #7

              #7

              Re : Things to Keep in Mind While Making a Flat Purchase Contract

              Originally posted by spaul View Post
              Any suggestion on lawyers or any place where i can get hold of decent real estate lawyers or regular lawyers in Chennai who can review real estate contracts would be helpful.
              Any Practicing civil lawyer would be able to help you in this regard, there are many who claim to specialize but its always better to take more than one opinion.In India we dont have professional setup to handle these activities.

              Most of the banks provide such services for a nominal fee and they hire renowned professional practitioners for checking the documents/approval/valuation.

              Originally posted by spaul View Post
              Delay Clause - the owner of land is different from the builder. If the owner delays registering in my name there is a 10% penalty on the owner and if the builder delays there is Rs 1 / sq. ft / month. But if i delay payment there is 24% penalty. I wanted to have a more equal sided contract for owner, builder and me. Hopefully its not too much.
              Looks like this project is a joint venture development.I dont understand why the owner is being brought into the picture here.Its a seperate agreement between the land owner and builder which states the share and percentage.Generally PoA is given to the builder by the land owner and the builder can register the land to the buyer after the sale.Anyways the penalty clause does look one sided.

              I am not very much familiar with this and am leaving it to others to answer.

              Originally posted by spaul View Post
              Car Park, since i am new to buying flats have a basic question. So the area which is on the ground floor and open (ie not covered by any ground floor flats) is NOT considered common area? Doesn't the builder still have to sign that piece of land which he allocates for car parking in my name along with the 1/16th piece of the land which is area for the flat.
              The car park can be sold only if it is part of the building.Simply put, If it is not clearly depicted in the building plan approval, you dont pay the builder for it.

              If I am not wrong, The car parking space is not seperately registered along with the UDS.You have to ensure that something like "for this flat/apartment the parking space as depicted in the approval plan attached in the annexure has been alloted and sold to the purchaser" is clearly mentioned in the sale deed and agreements.

              The remaining common area is handed over by the builder to the flat owners association that is later formed to maintain the common amenities.The association can rent out the common area or allot the area for parking if they want.
              Last edited April 15 2009, 03:06 PM.

              Comment

              • #8

                #8

                Re : Things to Keep in Mind While Making a Flat Purchase Contract

                Dear friend,

                In the case of covered car parking, the covered area under the I floor, i.e., partial area left in the ground floor, mostly in the front & road side, the UDS for the floor area of the car parking is also added with the UDS for the flat area. In a recent purchase of a flat by my clsoe relative, for a GF + FF project of 4 nos. in one building, there are 4 covered car parkings, one for each flat ( car parking costs Rs. 1,50,000 each) and the UDS of each car shed is 38 sq. ft. which got added to the UDS ( 948 sq. ft. ) of the flat ( 1398 sq. ft. saleable area ) totalling to UDS of 986 sq. ft. and got registered.

                ks2071746

                Comment

                • #9

                  #9

                  Re : Things to Keep in Mind While Making a Flat Purchase Contract

                  Deviation in plan

                  Guys,

                  I am right now trying to purchase a flat in chennai. Thanks for all the tips above. However, the one i noticed, is the deviation in the plan from the CMDA approved one. The flat i am currently negotiating for purchase, is quoted as circa 1350 sq ft in dimension, but the CMDA approved plan does not reflect the same. On querying this to a lawyer friend he said such deviations do happen. Should i take some precautions while drafting an initial agreement with the builder?

                  Thanks in advance,
                  Sujatha.

                  Comment

                  • #10

                    #10

                    Re : Things to Keep in Mind While Making a Flat Purchase Contract

                    Originally posted by Sujatha View Post
                    Guys,

                    I am right now trying to purchase a flat in chennai. Thanks for all the tips above. However, the one i noticed, is the deviation in the plan from the CMDA approved one. The flat i am currently negotiating for purchase, is quoted as circa 1350 sq ft in dimension, but the CMDA approved plan does not reflect the same. On querying this to a lawyer friend he said such deviations do happen. Should i take some precautions while drafting an initial agreement with the builder?

                    Thanks in advance,
                    Sujatha.
                    CMDA rules allow many deviations in a different way. For example many places like a toilet in the rear or a car park (covered) are not part of the calculation for FSI. Your builder has to price that too. So he will divide the entire super built area by the number of flats, proportionally and charge you. So if you sum the areas of all the flats and divide by land area the number wont be 1.5 as many on this forum seem to claim. It will be close to 1.85 for sensible builders, 1.65 for bookish builders and 2+ for super duper builders. U can live with 1.85 for sanity and below that u must be a typical Chennai patham pasali and 2+ is for gamblers. Cheers.

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