Builder-buyer agreement: Better after Rera, but buyers must remain vigilant

The Supreme Court of India recently ruled on the forfeiture clause in builder-buyer agreements. The case involved Godrej Projects Development and a buyer who had booked a flat in the Godrej Summit project in Gurgaon. Upon cancellation of the booking by the buyer, the builder sought to forfeit 20 per cent of the basic sale price (BSP) according to the agreement. However, the National Consumer Disputes Redressal Commission (NCDRC) and the Supreme Court deemed this excessive and ruled that the deduction cannot exceed 10 per cent of BSP. The case has focused the spotlight on builder-buyer agreements and the need for buyers to watch out for one-sided and unfair terms in them.

 

Scenario has improved post-Rera 

Before the enactment of the Real Estate (Regulation and Development) Act (Rera), agreements for sale were heavily skewed in favour of builders. “They had onerous clauses for project timelines, penalties for delays, and dispute resolution, which adversely affected buyers’ interests,” says Soumya Banerjee, partner, AQUILAW.

 

Builder-buyer agreements tended to be one-sided. “Delivery schedules frequently stated 36–42 months but were vague about when this period began. While buyers faced severe penalties of up to 24 per cent per quarter for late payments, builders could raise property prices citing shortages of raw materials. In certain instances, builders could demand an additional 20–30 per cent if property areas were changed,” says  Neha Gupta, principal associate, Athena Legal.

 

Builders could also cancel allotments for late payments but did not have to pay a penalty for altering development plans. They also levied transfer charges on buyers switching ownership before possession.

 

Rera has ensured greater balance in these agreements. “Every state now has a model builder-buyer agreement that developers must adhere to,” says Adnan Siddiqui, partner, King Stubb & Kasiva, advocates and attorneys.

 

Uploading an agreement on the state Rera portal is mandatory for registration. “This ensures that agreements largely follow the model prescribed by the state Rera authority, with minimal deviations,” says Banerjee.

 

“Rera now requires developers to file a deviation form if they modify agreements from the standard format,” says Harsh Parikh, partner, Khaitan & Co.

 

Key points to check 

Despite these improvements, buyers must carefully review agreements before signing, given the significant financial commitment.

 

·         Payment terms: Buyers must verify the total payable amount. “Ensure that there are no hidden charges or scope for arbitrary cost escalations,” says Siddiqui.

 

He warns against unreasonable interest rates for delayed payments. Banerjee says the interest rate charged must align with rules enacted by state Rera.

 

Gupta notes that payment schedules, including down payments, instalments, and interest, must be detailed in agreements. Banerjee emphasises that the schedule should align with progress in construction.

 

Agreements allow builders to terminate contracts if buyers fail to make timely payments. “Review the interest charged or penalties imposed in such cases,” says Parikh.

 

Suresh Palav, partner, IndiaLaw LLP, advises buyers to check the refund policy in case of cancellation of purchase by the buyer.

 

·         Property title: Buyers must ensure the property title is clear. “The builder must confirm the land is free from all encumbrances,” says Banerjee.

 

Encumbrances include loans or mortgages against the property. “Buyers can request an encumbrance certificate, which details loans taken and any outstanding dues,” says Gupta.

 

·         Possession timeline: Buyers should seek a definite possession date. “A fixed handover date should be specified in clear terms,” says Siddiqui.

 

Ambiguous clauses, such as delivery within 100 days of construction commencement, call for caution. “Buyers should be provided either a fixed possession date or a firm date for the start of construction,” says Gupta.

 

Delays should attract clear penalties. “There should be clear penalties for delays and a transparent refund policy for extended delays,” says Palav.

 

·         Force majeure clause: This clause covers delays due to unforeseeable events like natural disasters, legal disputes, and so on.

 

Buyers must ensure this clause aligns with the state Rera authority’s model agreement. Builders often expand the scope of force majeure clauses to delay possession without paying compensation.

 

“Pay heed to clauses related to penalties or termination in case of breach of agreement by either the allottee or the developer,” says Parikh.

 

·         Defects liability: Buyers should examine the defects liability clause. This requires builders to fix material and structural defects within five years from possession.

 

Remedies available to buyers 

-  Rera: Buyers can file a complaint with the Real Estate Regulatory Authority if a builder breaches contractual obligations, delays possession, or violates agreement terms.

  -  Consumer court: Under the Consumer Protection Act, 2019, buyers can seek remedies such as compensation, refunds, or penalties if a builder engages in unfair or deceptive practices.

  -  Insolvency proceedings: If a builder becomes insolvent and fails to complete a project, buyers can initiate insolvency proceedings under the Insolvency and Bankruptcy Code, 2016.

  Source: AQUILAW