There is always a chance of the flat buyer being short-changed. It’s all about making a fair disclosure to her
Harsh Parikh and Abhiraj Gandhi
The current flooding across various states of India, which has caused destruction to property, poses a question: Who is responsible for making good the damage so caused? Can flat purchasers sue the developer for the damage or will they be required to absorb the losses?
Floodplains are lands adjacent to rivers and streams that are subject to recurring flooding. Owing to their continually changing nature, floodplains and other flood-prone areas need to be examined in the light of how they might be affected by development. The problem of flooding generally arises due to reclamation of floodplains.
In order to ascertain whether a developer is responsible for any destruction of property due to floods, it is pertinent to examine various aspects, including the agreements executed by the developer with the flat purchasers.
It also needs to be examined whether permission has been accorded by the appropriate development authorities to the developer for developing such lands. The floodplain areas would generally fall under the Coastal Regulations Zone and hence, approval from the state authorities -- for e.g. the Maharashtra Coastal Zone Management Authority -- would also become necessary. Furthermore, permission is also required to be obtained from the irrigation department and the ministry of environment, forest and climate change, to ensure applicable environment norms are not violated by developing such lands.
In addition to the above, the developer is also required to obtain other development permissions from the local municipal corporation concerned. An authority issues development permissions considering the contours and the location of the land, based on which the developer develops the same.
The other aspect which needs to be considered is whether any disclosures have been made by the developer to flat purchasers in their agreements to sell the piece of land and its surrounding area in a flood-prone area.
If the developer has taken all requisite permissions and approvals from the authorities concerned and has also made adequate disclosures to flat purchasers, then the developer cannot be held responsible or liable for any loss or destruction to the property as the buyer has purchased the flat after being fully aware of the above facts and circumstances.
The Real Estate (Development and Regulation) Act, 2016 (RERA) provides an option to flat purchasers to cause the developer to rectify structural defects in a building if such defects are identified within a period of five years from the developer handing over possession of the flat. However, destruction of property due to floods would not fall within the strict interpretation of structural defects contemplated under RERA and hence, the flat purchaser would not be able to take recourse to the provisions of RERA.
Generally, once the real estate project is completed and handed over to buyers, the organisation formed would obtain general insurance which would cover the property from the damage stemming from natural calamities, including floods. Hence, the flat buyer may not be out of pocket or left remediless if adequate insurance is secured with respect to the property.
In the case of under-construction properties, the developer itself would have to suffer any loss or damage, which may be caused to the property due to flooding, unless any specific right is reserved by the developer in the agreement which passes on such burden to the buyer(s).
However, if a developer has misrepresented to the buyer or does not disclose the fact that the land falls in a flood-prone area or is a reclaimed floodplain and the flat purchaser could not by ordinary prudence find out the above, then she can sue the developer for damage.Harsh Parikh is partner, and Abhiraj Gandhi principal associate, at Khaitan & Co. Views are personal.Subscribe to Moneycontrol Pro and gain access to curated markets data, trading recommendations, equity analysis, investment ideas, insights from market gurus and much more. Get Moneycontrol PRO for 1 year at price of 3 months at 289. Use code FREEDOM.