Who will fix false promises of channel partners?

Track2Realty Consumer Confidence Report 20:20 looks into the grey zone of real estate transactions where the brokers/channel partners make false promise to the buyers, often without the consent/knowledge of the developers. Can RERA fix the issue or there are still grey zones? 

Women professionals, Women in real estate, Male dominated Indian real estate, Women branding Indian real estate, Female brokers in Indian real estate, Track2Realty, Indian real estate news, India property marketWhen Rakshit Punetha bought a house in one of the newly launched projects he was promised by the broker that as an early bird offer he would get all the wooden work done in his apartment. He was also promised that he would be given money back as a referral reward for inviting friends & family who would book the apartment on his recommendations.

Within six months, he realized a foul play as the referral reward was never honoured once his couple of friends & colleagues bought the apartment with his reference.

“I suspected it the first time when the broker stopped taking my calls. I then approached the developer directly who clearly told me there has never been any such referral reward programme or promise of interiors in the apartment. Since all the promises made by the broker were verbal I did not even had the legal option left,” says a dejected Rakshit.

Aarti Mahajan, another homebuyer had more or less similar experience that made her realize that more often than not it is not the developers but the brokers who mislead the buyers in their eagerness to sell the project quickly and move ahead. The legacy of the mistrust is then passed on to the developers who maintain they never made any such offer.

“It is easy for the regulator to catch hold of the big fish if they do not come forward to get registered with the RERA. But the real problem is with the small size brokers who are the face of the industry for an average homebuyer. It is indeed heartening to see that the brokers and all sort of channel partners are being forced to get themselves registered with the RERA,” says Aarti.

A welcome beginning

Now that the Real Estate Regulation Act (RERA) brings the brokers into its ambit, the question that still stands is: What are the grey zones left which are not defined in the prescribed Act? What if the broker or builder has made the verbal promises to the buyer? What would be legal position if the marketing firm/broker misleads the buyer without the knowledge or consent of the builder?How can buyer be compensated if he has bought the property on the promise of misleading claims?

Unfortunately, there are more questions than answers as many of the misleading claims by the brokers & channel partners are often not documented or advertised. In common practice, a verbal commitment by a sales agent is often taken as the promise by the developer.

Anuj Puri, Chairman of ANAROCK nevertheless sounds optimistic when he says that RERA renders brokers and agents punishable if they do not comply and abide with the regulator’s strictures ruling. Previously, smaller brokers had an unrestricted play on the Indian residential real estate marketplace, and many of them thrived on misinforming or under-informing their customers.

“With RERA, homebuyers who use the services of real estate agents and agencies will be protected and have access to quick legal redressal in case of faulty business practices. In fact, brokers who made their money out of the ignorance or unwitting trust of clients will now be eradicated from the marketplace,” says Puri.

There is no denying that the Real Estate Act has provisions to better agents’ service. However, the grey zones still exist and implementation of the RERA in its letter and spirit is still questionable.

Ground realities 

Brokers & channel partners often make lofty promises even without the knowledge/consent of the builder

Many of the misleading claims of the builders and/or brokers are only verbal

RERA can not take cognizance of the misleading claims of brokers unless documented & signed by developers and/or brokers

Buyers must get promises documented, especially the ones that are not part of marketing brochure and advertised claims 

Legal standpoint

The legal position is pretty clear on the issue. Advocate Aditya Pratap of Bombay High Court says if a real estate agent/firm misleads buyers with false information, then numerous legal ramifications arise which are of a Criminal and Civil character. Firstly, such an Act would amount to cheating under Section 420 of the Indian Penal Code, 1860. Secondly, if the buyer has signed a contract on the basis of such false promises, it would amount to misrepresentation under Section 18 of the Indian Contract Act, 1872. Further, such an agreement would be voidable at the instance of the buyer under Section 19 of the Indian Contract Act.

“The Real Estate brokerage would face penal action under Section 62 of the RERA Act. This would imply a penalty of INR 10,000 per day of default subject to a maximum of 5% of the project cost. Further, if the real estate agent is acting on behalf of the developer and the latter has given him a broad authority to do such things, then the developer would also face civil liability under Section 237 of the Indian Contract Act,” says Aditya.

The disputes may also arise where a builder has given broad mandate to agents. Thus, even if a builder has not authorised the information but his agreement with the agent gives the latter broad authority to market the project by all means, then Section 237 may apply. 

Finally, the buyers would also have their existing remedy under the Consumer Protection Act of 1986. With the emergence of RERA, a complaint can be filed to this effect under Section 31 of the Real Estate Regulation Act, 2013.

Madhurendra Sharma, a Supreme Court advocate nevertheless admits that the Act cannot help those buyers who continue to trust the known/unknown agents on the verbal commitments. He nevertheless admits that all the nitty gritty detailing is tedious for a product like house where a lot of promises are subject to various ‘ifs’ and ‘buts’.

“It is too early to iron out all the grey zones that exist in the housing market. Though RERA has tried to work upon the loopholes that were being exploited by the unorganized brokers and channel partners, a lot will depend upon the homebuyers’ education and awareness in the final analysis. As of now, my advice is to get the legal help and have most of the promises documented,” says Sharma.

Anomaly with Act

A rough estimate suggests real estate broking is INR 18,000-crore industry with over five lakh real estate agents across the country. This is when the real estate broking in India is less than one per cent of the global size of the industry. Imagine a scenario where the brokers adds up to significant numbers in future.

There are three independent parties in a typical new project sale transaction – the promoter, the middleman (also known as the broker or an agent) and the buyer. The Act seems to have considered just two parties in a deal with the agent being a part of the promoter’s side. In reality, often the agent is a separate entity who is only representing the two sides for his own commission. He is naturally not bothered about the future trust deficit between the two parties.

Sections 9 and 10 of the RERA Act cover the role of a real estate agent. The power, duties and responsibilities of an agent or a middleman have been defined in a manner where it leaves a lot of issues unaddressed.  

The Act gives the impression that it is only for the agents who are associated with the promoters or are involved in a sale transaction related to any new project. The scope of the Act needs to be widened to resale transactions and to lease or rental transactions.

Alok Gupta, a patron member of The Estate Agents Association of India makes it a valid point when he says that the Act should also define the role of the electronic media. The industry has witnessed a deluge of portals and social media pages which are neither authentic nor regulated. “Same property is shown and sold across portals by different agents and ‘owners’ with widely different features. Shouldn’t the electronic portals selling real estate across the country also be registered and regulated under RERA?”

In a nutshell, the grey areas of housing market that were being exploited for long could still be exploited, if the homebuyer does not learn the art of risk mitigation in the housing market. The law can only prohibit a developer or broker to not advertise or make misleading claims in writing. But the false verbal promises can not stand to the legal scrutiny for a trial.

Many a times these false promises are made without the consent of the developers and unless the claims are documented and signed by both the builder as well as the brokers, the RERA can not take the cognizance.

By: Ravi Sinha


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