'Act of God' Causing Construction Delays? How To Avoid It
Home buyers prefer going for under-construction properties primarily for two reasons – first, these are more affordable than ready-to-move-in properties; and second, the satisfaction of entering into a brand-new house is immense. However, homebuyers are often left red-faced when developers delay project delivery owing to a number of causes. In many cases, developers cite the force majeure clause to win legal battles. In their excitement to complete the paperwork as soon as possible, buyers often overlook this crucial clause while entering into an agreement with developers. This clause, in fact, facilitates delayed possession.
What is Force Majeure or Act of God in Real Estate?
Originally a French term translating superior strength in English, force majeure stands for an inevitable accident or 'Act of God' in legal parlance. Events that can neither be anticipated nor controlled fall under this category. Recognised under the Indian Contract Act, 1872, force majeure gives a party more time to perform its contractual obligations for things beyond its control.
Generally, all agreements between developers and buyers have the force majeure provision. It is incorporated to protect the developer against uncertainties. However, the clause is sometimes used by developers to put vague incidents and derive benefits. For example, some housing projects in Noida Extension were kept on a standstill over a land acquisition row; developers have been citing high input costs and labour unrest under force majeure to claim relief.
In fact, many real estate cases have been rejected by the National Consumer Disputes Redressal Commission (NCDRC) for using arbitrary grounds. These include cases where developers have cited shortage of sand due to a curb on illegal sand mining mafia, lack of water as court stopped use of ground water for construction, shortage of labour due to government schemes and economic meltdown for delaying housing projects. Recently, the Maharashtra Real Estate Regulatory Authority has also ruled developers can not use the force majeure clause for financial crisis and lack of approvals in any project.
Buyers may easily challenge such instances in court under the 'wilful delays' category.
Terms that have to be fulfilled to prove that a crisis is force majeure.
Externality: The cause must not have been brought about by the defaulting parties, and the act should be beyond the control of the party.
Unpredictability: The cause must be unforeseeable and inevitable.
Irresistibility: The party could not have avoided the cause, and the execution of contract must be rendered wholly impossible. However, for claiming force majeure, the parties have to prove they exercised caution on their part.
Here's a look at how the clause functions and what are the things that need to be kept in mind:
What qualifies: Natural calamities such as floods, drought, epidemic, earthquake, volcanic eruption, along with wars and government decrees, could be admitted under force majeure. However, labour strikes, market fluctuations, commercial considerations, increased input costs, litigation, etc, could not be claimed under this provision.
Scope: The force majeure clause does not entirely relieve the defaulting party from performing its contractual obligations but only suspends the performance for the time being. The contract between the parties can also explicitly mention the duration for which the force majeure can be claimed.
The right checks
To ensure the developer does not invoke force majeure arbitrarily, a home buyer must ensure certain conditions are inserted in the written contract. These may include an exhaustive list of all acceptable conditions which qualify under force majeure, appointing an expert to decide whether the party took reasonable steps in case of a crisis and requirement of a notice before invocation of the clause. Also, the clause must be explicitly spelt out in the contract if developers want to take benefit out of it.
Also, the developer may be asked to take an insurance cover to compensate the buyer in case an unforeseen calamity takes place and the former has to cite force majeure to claim relief.