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Real estate in India has been much criticized for lack of transparency and the unfair advantages exercised by big builders. One of the major hurdles faced by the apartment owners in India is that whenever they want to sell any flat owned by them, they are being asked by the builders to pay a transfer fee before they can sell off the flat. Usually the amount is big and the owner has to part with a large sum of money due to the unfair demand on the part of the builder.
Transfer fee: What is it and when is it charged?
Let’s assume you have purchased a flat from a builder. Afterwards, when you want to sell the flat to a third person, the builder comes in and charges a transfer fee. The builder exerts unfair influence demanding the payment of the fee, failing which the builder would not grant you the no objection certificate (NOC), making it hard for you to sell the flat.
The owner has to pay an amount of around Rs 200 to Rs 1,000 per square foot to avail the NOC, thus taking the amount payable to the builder up to as high as Rs 15 lakh in some cases.
Transfer fee is being charged by cooperative societies and service societies as well. Now let us examine various kinds of transfer fees charged by various bodies and whether they have any legal basis.
Transfer charges by society
Cooperative housing societies levy transfer charges and transfer premiums according to the bylaws. The transfer fee charged by the society has legal basis as in an existing cooperative society, the owner of flat only holds a share in the society and enjoys the right to occupy the particular flat. The amount is decided by the members of the general body of the society.
However, it should be mentioned that a payment of more than Rs 25,000 to the society would make the agreement between the society and the buyer null and void as it would amount to unlawful consideration under Section 23 of Indian Contract Act.
Transfer charges by service societies
Sometimes a society is formed to take care of maintenance, repairs, etc. When the service society demands transfer charges from the owner, then it is illegal. The service society has no relevance in matters of ownership of flats and hence cannot charge any transfer fee.
Transfer charges by builder
There is no legal basis on which a builder can levy transfer charges on the apartment owner. However, numerous complaints have been brought to the forefront related to illegal demand of transfer fee by the builder. According to complainants, the builder succeeds to exert influence as banks and home financing companies demand that the buyer procure a no objection to mortgage certificate from the builder, failing which the loan cannot be availed. Also, the builder takes on the responsibility to form society or condominium and can manipulate undue influence by leaving out a particular owner’s name as member of the society.
Why transfer fee to builder is illegal?
1. It violates the Transfer of Property Act, 1882; which states that ‘a transfer of property, passes forthwith to the transferee, all the interest which the transferor is then capable of passing in the property and in the legal incidents thereof’. According to the Act, the owner alone holds the full right to property and the builder has no right, title or interest over the property post registration of the property in the name of the owner.
2. It violates the Indian Contract Act, 1872. It is an extra contractual demand made by the builder on the buyer, which infringes the buyer’s ownership rights.
3. It cannot be equated with the cooperative society’s share transfer fee. A cooperative housing society is the legal owner of the building and the plot of land and the buyer is only a share holder. A builder has no rights over the ownership of the buyer’s property and hence if the buyer wants to sell the property off to a third party, then no payment can be demanded on the part of the builder.
4. As per the complaints coming from metros like Mumbai, many builders argue that they are working on behalf of the cooperative housing society (CHS) to be formed in the future, but in reality they obstruct the formation of CHS so that they can continue to collect the transfer fee.
5. The builders threaten that upon non payment of transfer charges, the buyer would not be able to sell off the flat. This is a punishable offense under Section 384 and 385 of Indian Penal Code (IPC).
6. The undue influence exerted by the builder is prohibited by Competition Act, 2007. Imposition of unlawful transfer fees by builders is deemed ‘abuse of dominant position’ as defined under section 4 of the Act.