Ignore contracts for construction at your peril

U Mg Mg’s problem is too common to many of Yangon’s would-be condominium unit owners. He signed a contract a couple years ago to purchase a unit in a building in Mingalar Taung Nyunt township where construction shows no signs of beginning.

It has been two years since he inked the contract with the developer and put down a K20 million deposit, but so far not so much as one shovel has hit the ground.

The developer is ready to start, U Mg Mg said, but added in this case the problem is on the landowner’s end, as there is a dispute about whether they have the right type of land to get a government permit.

Delays can affect any of the three main parties in a construction project. Landowners can turn out to have problems with their title and face difficulties getting a permit. Developers can run short of money or lose interest in the project or otherwise not build. And people who buy units before construction is complete are often at the mercy of developers.

In U Mg Mg’s case, he said a stronger contract between the developers and the landowners would have ensured building actually began on time or have been cancelled, while a stronger contract between him and the developers would allow him to have cancelled his investment and reclaim his deposit after construction did not begin.

Crucial in formal, contracted agreements is that dates for development must be specified and clauses allowing parties to back out must be formalised – or people and businesses risk sinking money into projects with no progress in sight.

“Developers and landowners should clearly state in the contract when building will begin,” said U Mg Mg. “If a date isn’t specified in the contract and the construction company doesn’t start, the owner can’t do anything but sit and wait.”

Land owners ought to exercise caution when selecting a developer or risk being stuck with an empty lot and a developer without the interest or ability to build, say insiders.

Some landowners insufficiently research construction firms’ history or are otherwise duped when signing a contract to build on their land, said U Aung Min, manager of Myat Min construction.

Likewise, some developers also find out the “landowner” does not have proper title, complicating efforts to build the project, he said.

“If there’s weakness in the agreement, the two sides should not build the contracted building, because if they do it can be a problem,” he said.

In U Mg Mg’s case, the developer has applied for a YCDC permit, but the type of the land is in dispute and making it more difficult to get a permit to proceed, said U Mg Mg.

“We can’t cancel the contract because it says the developer has two years after starting work to finish the project – but digging hasn’t started because of the land possession problem,” he said.

The developer is frustrated by having to wait for the landowner to solve the issue over the status of the land. U Mg Mg added developers should also closely check what type of land they are building on before proceeding.

Development companies say that while they are often blamed for projects not starting, the problem is sometimes on the landowner’s side.

“There should be phrasing in every contract that says if construction doesn’t start a year after signing, the contract is cancelled,” said U Aung Min. “Landowners also shouldn’t try to contract a construction company if they don’t have permission to build the project.”

Taw Win Construction director U Thura Zaw said he has also faced this problem, signing a contract to build a five-storey build in South Okkalapa township.

Although the land in South Okkalapa is registered in the landowner’s name as grant land, YCDC will not allow building to begin due to “legacy issues”, he said.

“So we can’t construct the building in time, and face many problems with presale buyers,” he said, adding he has waited two years for the situation to be resolved.

Yet developers themselves often overreach or underperform.

Developers sometimes sign up to build several projects, but only build the most lucrative ones first, letting others languish, said U Yan Aung, manager of Asia Builders Construction. Also some developers run out of money while developing.

Although many developers want to sign contracts they have prepared themselves, it is best to hire a professional lawyer to make sure everything is in order, he added.

Buyers also need to be careful when agreeing to purchase a unit before work starts.

Mandalay-based lawyer U Tin Maung said legal experts work to help their clients understand what they are agreeing to when they sign a contract. If done properly, pre-sale buyers can arrange to have their deposit returned to them under a contract if certain targets are not met, he said.

However, for those who have already signed a contract that is not specific enough and now face problems, it is usually best to try and solve the issues through direct negotiations rather than turning to government officials, he said.

It can take a long time for the government to get to the bottom of some cases, he added.


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