MahaREAT - Escalation Costs Are Only Permissible From Execution Of Agreement Until Due Date Of Possession

Background Facts

Homebuyers (Appellant) purchased their respective flats in the builder's (Respondent) project named Mannat Towers which was a project under the Slum Rehabilitation Authority (SRA) Scheme located in Chembur, Mumbai.

The homebuyers entered into agreements for sale with the builder between 2007 and 2010 expecting possession between January 2011 and July 2011. The total sale consideration of the flats ranged from Rs. 17.36 lakhs to Rs. 34.86 lakhs.

The builder received the occupation certificate for the project from the competent authority on November 4, 2019. After receiving the certificate the builder raised a final demand from the homebuyers on the grounds of the escalation of construction costs during that period.

The homebuyers objected to these additional demands. Subsequently the builder terminated the booking of the homebuyers flats on the grounds of non-payment of the demands raised by the builder.

Aggrieved by this, the homebuyers filed separate complaints before the authority seeking possession, delayed interest and the setting aside of the additional demands. Through its orders dated January 27, 2022, April 8, 20220 and February 28, 2022, the authority directed the builder to provide possession to the homebuyers after payment of dues and interest for delayed possession.

Since the authority rejected the request to set aside the demand raised by the builder for the escalation of construction costs the homebuyers filed separate appeals before the tribunal. The tribunal clubbed these three appeals together for common adjudication.

Observation and Direction by Tribunal

Tribunal referred Clause 10 of the agreement for sale which stipulated provisions related to the escalation of cost. Clause 10 mentioned that the builder has power to make decisions for any increase in the cost of building materials if the prices go up due to unavoidable situations.

Tribunal noted that builder failed to provide sufficient evidence to support the claimed escalation costs. As a result tribunal concluded that escalation costs can only be allowed for the period from the execution of the sale agreement until the due date of possession as stated in the agreement.

Tribunal held that the builder claims to recover the escalation cost for the construction of the building was not valid. The tribunal concluded that this claim was neither in line with the terms of the agreements for sale nor in accordance with the law.

The tribunal also held that the demands raised by the builder for additional payments were unlawful. Therefore, the tribunal set aside the authority's order to the extent that it denied the request to cancel the demand letters.

Case Title: Chandrakant N. Shendkar & Anr. Versus Shri Sati Builders and Developers Pvt. Ltd. Along with 2 others

Citation: Appeal Nos.AT0060000000053734, 93909 and 133986

Date of order: 13.11.24

Click Here To Read/Download The Order