This article is written by M.S. Unnati Khajanchi, from School of Law, Narsee Monjee Institute of Management Studies. This is an exhaustive article which deals with the various kinds of disputes and conflicts that happen in the Real Estate Sector and what are all the alternative methods except litigation to resolve the issues.
“90% of all millionaires become so through owning real estates.” – Andrew Carnegie
Dispute resolution or dispute settlement is the process of solving disputes between two parties whenever a conflict arises. The term dispute resolution is also conversely used with conflict resolution. Dispute resolution techniques assist the resolution between parties which include citizens, governments, business entities, and corporations. It can be done in many ways either in courts or using methods like Arbitration, Mediation, or Conciliation which are done outside the courts. One of the most affected industries that witnessed dispute resolution is the Real estate industry. Real estate refers to any physical or real property like land, buildings, air rights, or underground rights below the land or above the land. It also deals with the construction of new buildings like residential, commercial, or industrial buildings.
Kinds of dispute in the real estate sector
Disputes regarding the title of the property
It is important to have a valid title of the real estate property that you own. Due to the lack of proper digitized land records in our country, there are high chances that fraudulent activities may rise in the sector related to the title of the real estate property. When you buy a standalone property then title frauds are more common. To avoid title frauds one should always verify all the documents related to the property or you can take the help of a lawyer if needed. One can also buy Title Insurance, which can provide or give immunity to the person in case of property fraud.
Disputes between builders/developers and buyers
One should always buy properties from reputed builders only and if the person is not sure about the reputation of the builder, there’s always the Real Estate Regulatory Authority. One should never buy a property that is not registered and approved under RERA (which comes under the Regulation and Development Act, 2016 and its objective is to protect the purchaser and boost or increase the real estate investments) because any transaction between the builder and the purchaser related to property is nothing but a contract between the two and there have been many cases where the builder does not meet his duty according to the agreement, leaving buyers in the falter. To avoid all these cases, one should go with RERA approved property builders only.
Disputes regarding the inherited or willed property are also common
Disputes may arise when a person inherits the property through a will and others challenge the credibility or authenticity of the will. Conflicts can also occur when a person dies without writing a will (dies intestate). After taking all possible precautions through all the approved legal means these kinds of problems can be avoided by making a will and in case of intestate succession law is there to deal with the problems. When you buy a property one should always check that the sellers are clear title holders especially in the case of inheritance.
Disputes regarding non-provision of occupancy certificate
We see many flats/apartments or residential projects being completed, still, buyers are not allowed to move into their new home because until and unless the builder doesn’t get an occupancy certificate from the authorities, they will not allow them to move in. A delay in issuing an occupancy certificate happens because sometimes builders defy certain norms. To avoid these types of disputes one should ensure regular inspections of the property the person has purchased.
Misuse of rented/leased property
In India, disputes are common even when it comes to the rented or leased property. To avoid this kind of conflict one should make prior rules and regulations which must be clear to both parties.
Causes of real estate disputes
The lack of complete information or non-disclosure of facts by the owner or the possessor of the property is one of the basic and major causes of conflict in the real estate sector. In most cases, purchasers claim that essential information was not provided to them at the time of purchase. This also includes the dues of the property which are pending concerning tax and bills that were not cleared previously.
In recent times, we see a lot of issues and conflicts between parties related to the acquisition of land in cities like Greater Noida where farmers claim higher compensation for their lands and because of this buyers had to wait as the litigation continues for a long period of time and it affects the real estate sector adversely.
Delay in possession
In the present situation, due to delay in necessary approvals or permits like getting building permits or environment clearance or a non-agriculture permit and many more, which lead to delay in possessions of flats sometimes, even important projects also get deferred because of lack of funds. Purchasers, especially the ones who stayed in rented houses were put in such a situation where they have to pay EMIs along with monthly rents. In many cases construction of a building doesn’t even start for a long time because of delayed possession.
Modification in the layout
Any sort of change can also give rise to conflicts among purchasers because earlier any changes made in the plan or design of a project must be approved by the two-third majority of purchasers. But now, things are different, laws have changed and in many upcoming projects, we often see changes in the plan or layout.
Due to the lack of transparency, it creates mistrust and chaos among buyers. Unlike other sectors where most of the time people get information readily, but in the real estate sector agents don’t get everything served on a platter. Instead in some cases buyers also have to struggle to get inside or detailed information about the project documents or approvals.
There have been many cases of encroachment of environmental norms because of the increase in urbanization. For example, the land is vacant beside a national park and for the welfare of the environment many projects near that sanctuary are erratic and this ultimately leads to disputes between constructors and buyers who had invested their money in these projects. Not only this, there are many other issues like construction waste, sewage disposal, noise pollution, etc which also create conflicts amongst them.
Not having a proper regulatory system to overlook the activities or who can command its transactions, the real estate sector has witnessed many cases of unscrupulous players, who have cheated investors through fraudulent activities. To eliminate this activity, buyers have to be more aware and should become more responsive to thoroughly check all the credentials of the builder, their track record, and most importantly, their goodwill in the market. Discounts and freebies should also be checked or examined carefully by the buyer. This is important because there have been many instances where new builders have sold the same property to different buyers.
If the amount of brokerage is not decided before making the contract then this situation may sometimes create conflicts because at times the non-payment of brokerage fee to the real estate broker/agent can lead to dispute or quarrel.
There are often disputes related to high maintenance charges because sometimes residents or buyers are not satisfied with the quality of services that are given to them. But buyers need to pay some amount as maintenance charges to the residential society on a monthly, quarterly, or on an annual basis. There is a society’s welfare association (RWA) which takes care of the maintenance charges even if the resident is not satisfied with the services.
We all know that how the judicial system of our country works and that matters take a long time to get settled – sometimes even decades have passed but the dispute isn’t resolved. This causes a lot of inconvenience to the parties because litigation is a very expensive means of solving disputes and not everyone can spend so much.
It is one of the most frequently used modes of dispute resolution where parties settle a dispute by way of communication in which both parties satisfactorily make a compromise or agreement which favours both parties. In the real estate sector when parties land in a conflict or dispute they hesitate to approach the courts because litigation is not cheap in this sector. Real estate disputes are also common in India as many people from rural areas to urban areas of India have land-related issues that result in disputes. Poor land record maintenance, unclear mentioning of land titles, and several more types of land feuds have emerged in India as mentioned above. A PRS India survey shows that on average a land dispute in India takes over 20 years to get resolved. So negotiation helps them by way of settlement and it is a time-saving process too, where people can save a large amount of time in comparison to normal litigation methods in a cost-effective manner. Negotiation features in some of the most standard arbitration clauses. One clause that indicates this feature is,
“Any dispute arising out of this agreement shall be tried to be settled friendly by the Parties. If the Parties are unable to settle the dispute friendly within 30 days, then the disputes shall be resolved by way of arbitration.”
Thus, negotiation is a prerequisite for the parties to commence arbitration or litigation in most dispute resolution clauses. This process makes sure that trivial as well as some important matters get settled without being escalated unnecessarily to a formal dispute resolution process.
Non-adjudicatory third party intervention
It is a form of dispute resolution where an impartial third party assists the parties in resolving their disputes. Non-adjudicatory methods of conflict resolution include negotiation, conciliation, and mediation. Historically the methods of non-adjudicatory dispute resolution like mediation, conciliation, and arbitration are historically more primordial than Anglo-Saxon antagonistic systems of law. Among traders and businessmen when there was East India Company’s rule in India and also before the pre-British rule, mediation was a common practice in India. The disputes arising in business associations or between members of the association were resolved by way of mediation.
The techniques of Non-Adjudicatory Dispute resolution are generally less formal and it encourages parties involved in a dispute to communicate with each other to search for solutions that satisfy both parties. In this way, their relations don’t tamper and both time and money are saved. In contrast to the judicial or arbitration process, the techniques or methods of non-adjudicatory dispute resolution like negotiation, mediation and conciliation are exclusive, casual, mutual, easy and smoother, far-seeing, and interest-based that results in a modified and multidimensional agreement between both parties, which is a win-win situation for both the parties which is reliable as both the parties have voluntarily consented for the same. The process may be disputed on the basis of intending to replace the public adjudication process on critical judgments and issues but it instead reduces the pressure on the current courts’ system by saving time and settling cases that unnecessarily squander the time of courts. And in the real estate and construction sector which witnessed a lot of cases per year in India this method is a boon as both parties get a chance to collaboratively settle the case at both parties’ interests and wishes. It’s just a mediator supporting the negotiation process without any recommendation which is facilitative or conciliator who actively advises both the parties and makes recommendations for the parties involved in the negotiation. Still, as a practice, mediation and conciliation are still in their nascency in India as a large set of the population is not aware of the techniques and it needs further recommendations.
Adjudicatory dispute resolution
Adjudication is the process in which an impartial third party holds the authority to decide a matter that is disputed through the form of giving a judgment that is binding on both the parties. The most popular form of Adjudicatory dispute resolution is the court systems but it is carried out in various other forms too. Other forms involve methods like arbitration, mini-trials, and private judging that are processes of Alternative Dispute Resolution, also known as ADR, as discussed in the other section of the article. These are processes that take place outside the court systems. Court based processes are more formal than any other processes like the ADR. The adjudication process is expensive when it comes to monetary cost and thus it is difficult for some parties to take their case to the court of law. The case accessibility is removed from the client’s hand and is in control of the lawyer. The decision made may lack expertise in the particular area as judges, the decision-makers may lack the knowledge in the area of dispute and are generalists too. Adjudication results in win-lose outcomes and this leaves a narrow chance that parties will come to a collaborative solution that can be gained by way of settlement. Courts are often overbooked and due to this several delays are caused and the cases start to cause serious problems to the disputants. On the other hand, adjudication processes have also proved to be advantageous in the Real estate sector as the process produces a final decision which both parties are obliged to respect and follow. The judgments of litigations are based on precedents and are authoritative too.
Adjudicatory dispute resolution is, in general, the most common form of dispute resolution in the real estate or construction sector and has developed significantly over the world. Disputes in a construction contract have two very specific characteristics–
(1) they are technical in nature;
(2) unless resolved fast and efficiently, they may have a negative impact on the project.
While addressing these issues, it’s at the discretion of the parties to choose from a wide range of dispute resolution mechanisms which primarily includes Dispute Boards, Litigation or Arbitration and Expert Determination. Dispute Boards and Expert Determination are more often used as an interim mechanism to iron out disputes which may arise during the execution of the project. Additionally, the contract will exquisitely provide for either litigation and arbitration to solve and settle the dispute between parties.
Scope for alternative dispute resolution mechanisms in real estate
In the real estate sector, Alternative dispute resolution (ADR) can be used in numerous ways. Each party involved in the expansion, administration or management, acquisition and sale of the real estate, understands the implications of lengthy litigations and the impact that conflicts have on it for costs that are involved in resolving the dispute is even more expensive. Nevertheless, whenever a dispute arises, ADR can chip in and address the issue or conflict in a quick and cost-effective manner. ADR acts as an alternative to costly and lengthy litigations. In many cases, it widens the options available for resolving disputes and minimizes the costly litigations. The most commonly disseminated and used forms of ADR are arbitration, negotiation, and mediation. To opt for any of these methods one has to first determine the eccentricity of the dispute and the need of the parties involved to control costs, have a definite judgment with respect to that dispute, and also, most importantly, it maintains confidentiality and privacy of the parties.
Advantages of alternative dispute resolution
Contracts are agreements between two parties where contracts are enforced and enacted and wherever two minds meet then there is a very high possibility that conflict will arise. The use and advantages of ADR are directly linked to contract enforcement and management of it. In almost every sector or in many cases wherever ADR is used, it has built itself as a part of the contract, wherein parties involved have formerly consented to this process, to make agreements on possible problems which may appear in the future.
The real estate sector or construction businesses are highly technical in nature and it is necessary to take a vigilant move and are required to be dealt with by professionals who have the requisite knowledge about the field and utmost understanding of the domain. ADR has now become a need of people in the real estate sector because of its evolving nature and for that ADR service providers should know the market very well. They not only need to understand the intricacy or complications of the field but also have an in-depth knowledge of the various facets of land, thereby enabling them to provide custom-fit solutions for disputes.
Need for specialists, in dispute resolution processes
There is a need to hire someone who is a specialist or professional in ADR because he would have in-depth knowledge about the various facets of construction and infrastructure development in the real estate sector. Various parties approach specialist dispute resolution services or organizations or either referring to resolution boards or mediation councils; they should be assured that the professionals overlooking the dispute/conflict have the requisite skill set to understand the nuances of the same.
As per the data, no government before has attempted to streamline the existing land laws or laws related to the Real Estate sector. The Parliament must repeal the laws that create conflict in the Real Estate sector after the Law ministry and law commission creates a database of such laws. Greater administrative capacity and inclination to execute the rule of law must be ensured by the government. The coordination between governments and departments who control data regarding Real Estate can be achieved through policies is mentioned as follows:
- We can create a separate Ministry for subjects that come under Real Estate to look into the policies to improve it and which will also serve as an agency for everyone.
- Proper efforts should be made to increase coordination between ministries to increase proper functioning of the system which will help in resolving disputes rapidly.
- An important dispute under the real estate sector is caused by the land boundary disputes between the revenue department and the forest departments, so proper coordination between these two departments is necessary.
- The government should also ensure that their officials are highly educated and have in-depth knowledge about the field so that they can implement proper rule of law.
Real estate sectors involve sizable money transactions and sometimes the disputes may happen in transaction processes too. The Real Estate sector has been a victim of hefty frauds in the past few decades where the consumer did not get the display flat, apartments, etc. For the construction of large malls and public interacting places, Real Estate heavyweights have tried to cheat farmers and locals to snatch their land, and in return, farmers have suffered heavy losses as the amount offered to them was not worth the land they lost. To combat these conflicts Government must act in an unbiased way as it has been witnessed that many government officials and leaders have also been involved in providing benefits to their own family and kin over land and apartment deals. As more strict laws and procedures will be followed to tackle the conflicts and riggings, the problem existing in the Real Estate sector will narrow down and fair practices will also keep our economy floating, as the real estate sector contributes largely to the economy and GDP.
As we have seen throughout the article that the Real Estate sector has been heavily linked with disputes. Many disputes occur mainly in the rural parts of India where illegal possession of the land, unclear mentioning of land titles, corrupt patwaris, and their poor land records lead to conflicts among people. The reasons for the clogging of courts with land disputes cases are because laws keep conflicting with each other and administration’s non-compliance with the laws according to a Centre for Policy Research’s Land Rights Initiative (CPR-LRI) study. The study tells about the main sect that comes under the Real Estate i.e Land. The study also tells the following facts:
There are approximately 7.7 million people in India who get affected by conflicts/disputes and fight for over 2.5 million hectares of land, which has threatened investments of more than 14 lakh crore. Land disputes cases in Supreme Court account for 25 percent of all cases which is the largest set of cases in Indian courts. Of this 25 percent, 30 percent includes cases related to the acquisition of land. Many surveys say that 66 percent of all civil cases are related to land disputes or property disputes. According to the survey on average, a case related to land acquisition takes 20 years from its creation to resolution. The numbers shown by the data are horrifying when compared to countries that have well-established law and order like us.
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