Standardised property agreements are a good idea, but some pitfalls will remain

However, legal disputes over agreements should be adjudicated by the Real Estate Appellate Tribunal set up under the Real Estate (Regulation and Development) Act of 2016, rather than consumer courts, even though the plan for a uniform buyer-seller agreement in real estate has been initiated by the Consumer Affairs ministry. That’s because fragmenting the judicial process would only lead to more delays.

For all but the tiniest fraction of Indians, saving up for a home is the most important financial decision of all. For some, however, the dream of owning a home could turn into a nightmare for no fault of their own. They may pay all their dues and yet fail to get possession of their home because of default on the builder’s part.

It is to minimise the probability of such defaults that the government set up the Real Estate Regulation Authority (RERA). The process of creating such a body was initiated in 2013, in the final months of the UPA government. It was enacted in 2016 and its rules and sections were notified in 2017. RERA calls for disputes raised to the Real Estate Appellate Tribunal to be disposed of within 60 days – the 90-day deadline in the original draft was changed at the suggestion of the parliamentary committee.

The real-estate authority in each state is already empowered to settle disputes between builders and homebuyers. Even so, having a standardised agreement would facilitate dispute settlement and speed up resolution.

Amid all these positives, we must also recognise that homebuyers still face potential pitfalls. One of these is unclear titles. Land records remain a mess in most states, even those where records have been computerised. An individual might draw up a will bequeathing her listed properties to a chosen heir, proceed to sell some of the listed properties during her lifetime, and die without having changed the will. This could lead to legal disputes between the buyer of the property and its inheritor.

If a person dies intestate (not having made a will), and one of the heirs could sell the inherited property only for another heir to dispute the sale, leaving the buyer to fight a protracted legal battle. If that buyer is a builder, his customers are automatically dragged into the litigation. Adopting a modern system of land registration could avert these types of problems. In one such system, called Torrens title, every piece of land has its owner’s name directly entered into a government-maintained land registry, and ownership depends on whose name figures in it rather than any title chain.

Another source of risk for homebuyers is the developer’s financial indiscipline. If the builder has a diversified business, and imprudence or bad luck forces some parts of the business into insolvency, those owed money by the insolvent portion of the business could drag the solvent real-estate part into the insolvency proceedings, or the builder might find himself without the resources to complete the project as promised. However much RERA may try to enforce fines on the builder for delays and deviations from the contract, this is of little use if the builder goes bankrupt.

The solution might be to transplant to the real-estate sector the holding-company structure that the RBI mandates for diversified financial firms, which insulates banks from the possible failure of another financial firm owned by the group. A non-operative financial holding company could own the real estate arm, thus insulating it from other parts of the group.