By Dr. Sanjay Chaturvedi, LLB, PhD
In the era following the implementation of the Real Estate (Regulation and Development) Act (RERA), the real estate sector is undergoing a significant transformation toward transparency in both transactions and development processes. This robust legislation has brought under its protection various stakeholders, including fund providers, private equity, international hedge funds, external commercial borrowings, foreign direct investment, and small investors, by establishing Real Estate Authorities in every state. Given that housing is a state subject, each state has tailored its regulations while adhering to the overarching objectives of protecting real estate purchasers.
A pivotal case in this context is PCIT Vs Vaidyanathan (Bombay High Court), where the court underscored that title to property is conferred upon issuance of the allotment letter. Subsequent installments and the formal delivery of possession are procedural follow-ups, thus establishing the date of allotment as the time of property acquisition, as supported by pertinent CBDT circulars.
The relationship between a homebuyer and a builder commences immediately once the builder receives earnest money, advance, or token money. This transaction creates enforceable third-party rights, which cannot be unilaterally terminated but must adhere to the stipulations of the Agreement or Allotment letter. In this context, an allotment letter serves as a binding agreement, acknowledging a builder’s commitment upon receiving an advance for property.
The Agreement for Sale is a crucial document in real estate transactions. Traditionally, these agreements were biased in favor of builders, with homebuyers often compelled to sign under predefined terms. However, RERA has revolutionized this practice by introducing a standardized Agreement for Sale. This document not only binds both parties but also mandates execution upon payment exceeding 10% of the purchase price. Regions like Tamil Nadu strictly enforce this standard without deviations, while Maharashtra permits modifications to the model agreement provided the core objectives remain intact. Similar adaptations are seen in other states following Maharashtra’s lead.
The Agreement for Sale now formally recognizes a builder’s right to impose charges under Section 19(6) of RERA, encompassing maintenance and other fees, alongside crucial termination clauses. One significant concern for parties is the Force Majeure clause, which has evolved to include economic downturns as builders deem these circumstances beyond their control, alongside traditional factors like war, civil disturbances, and material shortages. Although buyers often accept these terms as standard, derived from state housing acts and now embedded in RERA, their applicability can be contentious.
The Bombay High Court, in Writ Petition 2737 concerning Neelkamal Properties Pvt Ltd, highlighted that although Force Majeure provisions exist, buyers should not suffer due to a builder’s poor planning. The court advocated that builders can delay project completion due to permissible reasons but must compensate buyers accordingly. Conversely, in a RERA case, it was argued that while buyers might owe interest on delayed payments, builders should also fulfill their financial obligations to ensure project continuation under subvention schemes.
Balancing the interests of buyers and builders is crucial, as disproportionate burdens can jeopardize the overall project and affect all associated buyers.