RE: LEGAL OPINION ON DEED OF AGREEMENT AND IRREVOCABLE GENERAL POWER OF ATTORNEY A/C. Mr. X.
We refer to your letter dated 15.11.2005 on the above subject.
We have perused the draft Deed of Agreement and Irrevocable General Power of Attorney referred to us. Your queries have been dealt with below in seriatim.
1) What penalty clause needs to be in the agreement so that the building is constructed and what happens if the apartment is not built?
Under the terms of the existing draft agreement, for the period beyond 48 months the landowners shall only be entitled to rent. Under the existing terms of the agreement, no penalty can be claimed in addition to the rent. However, it is commercial issue for the landowners to be decided. Normally the amount collectable as rent(s) from the Developer increases if the delay is say for more than 6 months. Depending on the Agreement between the Developer and the land owners such clause may be inserted.
Now the question remains what happens if the project is not built within the prescribed period. Broadly speaking, if the project is not completed within time, the landowners would have two options, either to accept the delay or to terminate the contract.
In this instance, by virtue of clause No.11 (a) the construction period of the project has been stated 48 (forty eight) months from the date of starting the construction work with a grace period of 6 (six) months thereafter. But no indication has been given when the construction shall commence. In such a situation while the commencement date is indefinite, the project completion date also becomes indefinite. There should be a specific stipulation as to the same.
Further, in accordance with clause No. 12 (c) the developer shall be entitled to continue the construction beyond the above period by paying rent to the landowner, which may give an indication that the landowners have accepted any delayed construction.
In the premises, the landowners should consider first whether to set a definite period of construction or not. If the landowners shall decide to set a definite period then in the event of breach by the developer, landowners may have an option to terminate the contract. After such termination, should the landowners intend to retain any amount paid by the developer, that should be incorporated by way of a specific provision to such effect.
The last scenario would be if the Developer abandons the Project. Such situation does not seem to have been covered in the Agreement. Usually the Developer in case of unjustifiable abandonment becomes liable for compensation and damages.
2) AMFL is not authorised to mortgage the said land to any financial institutions for the purpose of Bank borrowing in building the apartments. Prior clause needs to be in the agreement.
This is a commercial issue. There is no legal bar in imposing such restrictions upon the developer. But a practical problem may arise, in that, without mortgaging the project land, the developers may not find sufficient fund to complete the project on time. This issue can become a catch 22 situation.
However, as the landowners so intend, we are of the view a clause may be incorporated in the agreement in following terms:
‘That the FIRST PARTY/BUILDER COMPANY shall not create any charge or mortgage on ‘schedule A’ property or any portion thereof with any schedule bank, financial institution or any other person or organisation with a view to obtain any loan or for any financial gain.”
c) The ratio between the AMFL and the Landowner is 60:40. Should it be based on constructed space and the apartment numbers?
Our answer is yes. Basically, apart from the common space, the landowners and developers share the ownership in all other spaces in a project.
The schedule of the draft agreement is vague and we therefore suggest incorporating the following issues in the agreement:
i) Total numbers of the apartments to be built in the project.
ii) Details of 32 apartments to be owned by the landowners, their flat number(s), floors and measurement.
iii) Total numbers of car parking to be created on the ground floor and sharing of such parking space.
d) Is there any other issue the Landowners should consider?
The following changes should be made in the Deed of Agreement :
i.) In Clause 3 – “after getting written approval from the SECOND PARTY/LAND OWNERS” should be incorporated after the words ‘property and’ in the 4th line.
ii.) In Clause 5 – From the 1st line ‘of any size’ to be deleted.
iii.) In Clause 16 – In the 2nd line the phrase ‘attested photocopies of the’ should be incorporated after the word ‘necessary’.
iv.) Clause No. 24 be deleted .
The following changes should be brought in the IGPA:
i.) In the 2nd para of the 3rd page the date of the execution of the Deed of Agreement to be inserted.
ii.) Paragraph No. 14 – It is advised to insert “ Subject to obtaining written approval from the SECOND PARTY/LAND OWNERS” at the beginning of this paragraph.
iii.) Paragraph 18 should be deleted.
Should you have any further query do not hesitate to contact to us.
For: “The Lawyers & Jurists”