Legal Issues in Real Estate Projects: Developer vs Landowners

Legal Issues in Real Estate Projects: Developer vs Landowners

Construction sector is one of the key driving force behind the economic boom of our GDP. Amongst the same, it has become very lucrative for the landowners in urban areas to jointly develop land with developer company. This not only generates a lot of upfront cash for the landowners, but also landowners are able to develop the land within spending any capital.  Due to the too attractiveness of the deal, land owners sometimes avoid to do the due diligence of the developer companies and new developer companies for making a quick buck also avoid due diligence of the land owners. There are number of real estate Company established in this field. They made agreement to the landowner who willing to handover the land to the Real Estate Developer Company for construction. In this field numbers of contract established between land owner and Real Estate Developer Company whether they follow the formalities of contract under Contract Act, 1872 or relevant laws made by the government of Bangladesh for this field. Without knowing proper law, unconsciously land owner faced many problems. Also number of dispute arises between the parties. For safeguarding the interest of land owners against developers, the government enacted The Real Estate Development and Management Act in 2010. Also the Government has recently issued circulars where it has been suggested as mandatory for the developer companies to obtain registration of REHAB, thereby ensuring certain quality and standard.

In this article will try to provide significant information that will help landowner who inter into a contract to the Real Estate Developer Company for construction.

1. Joint Venture Agreement:  Normally after prolonged negotiation, The First Document that is being signed between the Landowner and the Developer is the Joint Venture Agreement. This Agreement defines the share percentage of Developer and Landlords, time schedule, advance payable, delay and penalty.  Under section 10 of The Real Estate Development and Management Act, 2010, Landowner is obligated to sign and execute this Agreement. There is no legal obligation to register this Agreement.

2. Power of Attorney: Under Section 10 of the Real Estate Development and Management Act, 2010, the Land Owner is required to also execute a Power of Attorney in favour of the Developer. This will allow the Developer to apply to RAJUK/ CDA for approval for layout plan, execute sale agreement to third party buyers and do other necessary work. 

3. Formalities of Contract Act, 1872: The contract made by the between the landowner and the Real Estate Developer, they should follow section 10 of the Contract Act, 1872 which deal about essential element of valid contract.

4. Written contract: Handing over land to a Real Estate Developer must be made written form with mutual consent who legally competent to contract under Contract Act, 1872 without fraudulent intension. Terms and conditions of the contract must be writing down in the contract. Consequence of breach of contract also insert in the contract.

5. Delay in Handover: According to section 15 of The Real Estate Development and Management Act, 2010. In case of delay in handover of the allotted portion of the apartment/ plot of land, the land owner will be entitled to compensation as agreed in the deed of agreement entered between land developer and land owner. Also the land owner will be entitled to rental compensation as per mutual agreement which must be written in the deed of agreement.

6. Delay by Landowner- Pursuant to Section 28 of the same Act, if the Landowner fails to hand over the possession of the land to the developer as per the terms of the contract, land owner shall be liable to penalty not exceeding Tk. 10 lacs and/or imprisonment not exceeding 2 years. Also pursuant to Section 29 of the 36 of The Real Estate Development and Management Act, 2010, the Landowner will be liable for penalty and/ or imprisonment if he cancels the Power of Attorney executed in favour of the Developer without providing 30 days notice.

7. Dispute Resolution:  According to section 36 of The Real Estate Development and Management Act, 2010, in case of dispute between land owner and developer, the parties will try to resolve mutually at first attempt. However, if such an attempt fails, then the resolution of the disputed matter shall be governed by the arbitration Act, 2001.

8. Transfer of due portion: According section 30 of The Real Estate Development and Management Act, 2010, when a land developer does not transfer the possession of the due portion of real estate to the land owner as per the contract entered by the land developer and owner, then the land developer shall be punishable with an imprisonment for a period not exceeding two years or with fine of Tk 2,000,000 or with both.

9. Breach of Performance of contract: The land owner may file a suit for specific performance of contract under the Specific Relief Act 1877 against the developer company for possession of the allotted apartment/ plot of land. The land owner may file a writ under Article 102 of the Constitution against the Ministry of Commerce, keeping the registering authority of the developer company and the developer company as other respondents in the writ petition.

Both landowners and developers are advised to carefully negotiate the terms of the developer agreement in order to avoid future dispute. Special consideration need to be given as to possibly delay and hand over of such projects, as it may impose criminal liabilities to the developers. Also Land owners should also be careful on too lucrative offer which is not at par with market offers.

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