MOFA Vs RERA: How builders are liable for defects in construction

Published: May 4, 2018 3:57 PM

Stringent defect liability provisions in favour of buyers enhance the confidence of customers as it assures them that they get what they paid for.

MOFA, RERA, MOFA Vs RERA, liability for defects in construction,  residential propertyBuyers primarily buy residential property for end use and would like the same to be defect-free and free from any further uncertain expense.

In any development project, it is important to ensure that the quality of the product being delivered by a developer to the allottees is good and durable. By casting obligation on the developer to be responsible and liable for any defects that arise within a given period, the law forces the developer to use quality material and resources in construction. In certain states like in Maharashtra, existing law, being Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act 1963 (MOFA), provided remedy for structural defects. The Real Estate (Regulation and Development) Act, 2016 (RERA) has made the provisions far more stringent for the developers and beneficial to the flat buyers.

Buyers primarily buy residential property for end use and would like the same to be defect-free and free from any further uncertain expenses or to deal with problems that they are incapable of handling due to lack of expertise. Stringent defect liability provisions in favour of the buyers enhance the confidence of customers as it assures them that they get what they paid for.

Under MOFA, if any defect in the building or material used is brought to the notice of the developer within a period of 3 years from the date of handing over the possession of the flat by the developer to the customer, the developer has to (i) rectify the same, if rectification of such a defect is possible, without any further charge being levied on the customer; or (ii) if it is not possible to rectify the defect, then the developer would be required to pay a reasonable compensation as is determined by the competent authority. However, the challenge under MOFA is that the competent authority is non-functional and, therefore, if any customer desires to take recourse to the defect liability provision of MOFA to ascertain compensation, it would need to approach the civil court.

Under RERA, in case of any structural defect or any defect in workmanship, quality or provision of services or any other obligation of the Promoter as per Agreement for Sale is brought to the notice of the Promoter within a period of 5 (five) years from the date of handing over possession of the flat to the allottee (i) the Promoter has to rectify the defects within 30 days, without any further charge to the allottee; (ii) in case the Promoter fails to rectify such defect within the agreed timeline, the aggrieved allottee would be entitled to receive appropriate compensation in the manner as provided under the Act.

MOFA covered only structural defects in a building or any defective material used. However, under RERA the cause of action arises in case of structural defect or defect in workmanship, quality, provision of services or any other obligation as per Agreement for Sale. The scope of defects under RERA has been widened to bring in all possible problems which may arise of inferior quality of men/consultants or materials used or contractual promise made by the developer.

The time period also changes from 3 years under MOFA to 5 years under RERA. It appears previous subjectivity is changed to objective criteria one being a structural defect which is easily identifiable by Architect and experts in the field and the other being defects arising out of provision of services or any other obligation of the Promoter as per Agreement for Sale. The only grey area under RERA would be usage of the word workmanship. It may be argued by the developers that such workmanship would be limited to workmanship relating to design linked to structural stability of the building/development.

With the huge competition in the real estate market in Mumbai, all reputed developers in Mumbai endeavour to use the best contractors, architects, design experts and best products while developing their respective projects. However, the apprehension which many developer face is that such stringent provisions of RERA may be misused by some unscrupulous allottees to as a tool of harassment and means of achieving much more than the law requires or their entitlements.

Further, it has also been observed that the legislators are serious about the aspect of defect liability because under MOFA there was no time period within which the Promoter had to rectify or cure the defect. Since under MOFA there is no time period fixed to cure the defect, it is expected that the promoter is to cure the defect within a reasonable time and if it is not curable then pay compensation. However, under RERA, there is a time fixed for rectification or cure of defect, failure on which entitles the purchaser to claim compensation.

In so far as Maharashtra is concerned, the provisions of RERA vis-à-vis defect liability will prevail over the provisions of MOFA.

In case of complaint under the relevant provision the enforcement authority under RERA has an overwhelming duty to protect the interest of all the stakeholders and take a balanced view of any complaint and grant appropriate redressal if and as may be required.

(By Sudip Mullick, Partner, Khaitan & Co, and Harsh Parikh, Principal Associate, Khaitan & Co)

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