Things To Check In A Builder-Buyer Agreement

Law
23-Aug-2023
blog-img

The terms and conditions of a real estate transaction between a property developer (the builder) and a person or business purchasing the property (the buyer) are outlined in a builder-buyer agreement, sometimes referred to as a builder-buyer contract. Throughout the building and transfer process, this agreement acts as a fundamental framework that establishes the rights, duties, and obligations of both parties. It is a thorough agreement that aids in avoiding potential misunderstandings, disputes, and legal complexities during the property transaction.

Various parts of the property acquisition are described in the agreement, including the property's specs, cost, payment schedule, date of possession, fines for delays, and any extra amenities or services the builder may have promised. The agreement might also include provisions for changes, flaws, upkeep, and dispute resolution procedures. The builder-buyer agreement strives to protect both parties' interests by guaranteeing that the home will be developed and delivered as promised and that the buyer will make all required payments on schedule.

This agreement is crucial because it ensures that everyone engaged has a clear grasp of the project's requirements and expectations. It offers customers legal protection against potential wrongdoing or broken promises by builders and a foundation for requesting remedies in the event of any issues. 

The Role Of RERA And CPL (Pre And Post-Scenarios)

RERA

The Real Estate (Regulation and Development) Act, also referred to as RERA, improves the real estate market's openness, accountability, and efficiency, it was passed in 2016. The builder-buyer agreement is significantly impacted by RERA both before and after it is put into effect. RERA's Function in the Post-Scenario:

Delivery on Schedule: RERA requires developers to follow the project completion schedule outlined in the builder-buyer agreement. The developer is responsible for paying the buyer compensation if there is a delay.

Quality and Specifications: Builders are required to deliver the project in accordance with the agreed-upon specifications. The customer is entitled to seek remedies if there are discrepancies.

Advance Payment: Before signing the builder-buyer agreement, developers may not request an advance payment of more than 10% of the total cost of the property. This shields consumers from unnecessary financial risk.

Escrow Account: Each project's escrow account must be kept separate by the developer. To prevent money from the project from being diverted to other initiatives, it can only be taken out for building.

CPL

The consumer protection laws are intended to give customers a framework for addressing problems with deceptive business practices, contract violations, and unfair practices in the real estate industry. Important Features of the Post-Consumer Protection Law Scenario:

Transparency: Builders are now compelled to register their developments with regulatory bodies, giving prospective buyers comprehensive project information. This comprises the project's schedule, requirements, and financial information.

Advance payments: These rules frequently place a limit on the amount of advance payment a builder may request prior to the project's completion. This provides customers with financial security and stops builders from requesting large upfront deposits.

Project Delays: According to RERA, builders must finish projects by the deadline. If there are delays, builders might need to pay customers for the time lost.

Quality Standards: Contractors are now responsible for completing projects that adhere to the required design and quality standards. Buyers have the right to request that errors or poor work be fixed.

Common Issues And Tips To Deal With It

The following are typical problems that can occur in a builder-buyer agreement and how to handle them:

Possession Delay: One of the most frequent problems is the failure to deliver the property within the specified time frame. To address this, make sure that the contract specifies a certain date for taking possession along with consequences for the builder who fails to deliver on time. To safeguard your interests, you can bargain delay compensation terms.

Modification of Specifications: Occasionally, builders may alter the property's specifications without first seeking the buyer's consent. Include a condition stating that any changes must be communicated to and approved by the buyer prior to implementation to prevent this.

Construction Quality: Disagreements may arise when advertised quality and actual construction differ. Make sure the agreement includes particular information about the building materials, finishing, and other pertinent details. Consider adding a clause that calls for independent quality checks at various building phases.

Cancellation and Return: The terms of cancellation and the return procedure should be expressly stated in the agreement in the event that the buyer needs to cancel the agreement due to unavoidable circumstances. This can help to prevent disagreements about the terms and methods of refunds.

Title and Ownership: Make that the builder has a clear title to and ownership of the site as well as the required building permits. The contract should have provisions outlining remedies in the event of title disputes and safeguarding your ownership rights.

Default by Builder or Buyer: The contract needs to cover both parties' defaults. Whether the buyer is late with payments or the builder is not meeting deadlines, it should describe the repercussions of default.

Payment Schedule and Extra Fees: Clearly describe the payment schedule, which includes the first down payment and future installments. Be on the lookout for any unforeseen or extra fees that can apply. Ensure that all fees are clearly stated in the contract and that no additional fees may be imposed without both parties' approval.

Force Majeure: The project's progress may be impacted by unforeseen circumstances like natural disasters or legal changes. Include a force majeure provision to address these circumstances and specify what should happen if there are delays as a result of such occurrences.

Maintenance and After-Sale Purchase: Indicate the builder's obligations for maintenance services following possession. See also Maintenance and After-Sale Services. This can include a time frame in which the builder is in charge of fixing any flaws or problems that surface after the buyer takes possession.

Dispute Resolution: Include a process for resolving disputes, such as arbitration or mediation, in case disputes do occur. This may help shorten drawn-out legal disputes.

What Is The Supreme Court’s Stand? 

Here are a few significant judgments:

1. Lucknow Development Authority v. M.K. Gupta (1994): This case laid down the principle that when a builder constructs buildings and sells them before obtaining the completion certificate from the concerned authority, the sale is not legally valid. The Supreme Court held that builders cannot transfer property to buyers until all necessary approvals are obtained.

2. Haryana Urban Development Authority v. Sarwan Singh (2010): In this case, the Supreme Court held that any clause in a builder-buyer agreement that seeks to bind the buyer to one-sided terms is considered unfair and is against public policy. The court stressed that builder-buyer agreements should be balanced and should protect the interests of both parties.

3. Unitech Resorts Ltd. v. Dipak Kumar Singh (2018): This case highlighted the liability of builders to compensate buyers for project delays. The court ruled that builders have to refund the entire amount paid by the buyers, along with compensation, in cases where the project is excessively delayed, and the buyers want to withdraw from the project.

4. Imperia Structures Ltd. v. Anil Patni (2020): The Supreme Court emphasized that a builder cannot compel a buyer to accept possession of a property before obtaining the necessary occupancy certificate. It upheld the principle that buyers are entitled to take possession only after the property is deemed fit for habitation by the local authorities.

5. Amrapali Group Case (Multiple Judgments): The Amrapali case involved several judgments addressing the mismanagement of funds and delays in completing projects by the Amrapali Group. The Supreme Court took various measures to protect the interests of homebuyers, including directing the government to complete the stalled projects.

6. Jaypee Infratech Ltd. Case (Multiple Judgments): Similar to the Amrapali case, the Jaypee Infratech case dealt with the insolvency of the company and the plight of homebuyers. The Supreme Court ordered the completion of the projects and set up a committee to monitor the process.

How To Draft The Agreement? 

Section 13(2) of RERA states that the builder-buyer agreement must have each and every minute detail. The particulars that are to be mentioned include:

  • Development of the project
  • Construction of buildings and apartments
  • Specifications and internal and external development works
  • Date of completion and possession 
  • Mode of payment
  • Date of payment 
  • Rate of interest in case of default
  • RERA registration
  • Buyer's right to cancel/assign the property
  • Refund policy
  • Any grace period is taken by the builder
  • Force majeure clause
  • Consideration for the property and what is excluded (such as maintenance, parking, electrification charges, etc.)
  • Property particulars like fixtures, clear title, jurisdiction/arbitration clause

Things To Check In The Agreement

A builder-buyer agreement is a crucial legal document when purchasing a property from a real estate developer. Here's a checklist of things you should carefully review in the agreement to protect your interests:

1. Parties Involved: Ensure that the names and details of both the buyer(s) and the builder/developer are accurately mentioned.

2. Property Details: Verify the accurate description of the property, including its size, location, floor plan, and any amenities or facilities mentioned.

3. Possession Date: Check for the promised possession date. Ensure that it's reasonable and has provisions for possible delays.

4. Price and Payment Terms: Verify the total cost of the property, including base price, additional charges (like maintenance, parking), and applicable taxes. Secondly, understand the payment schedule, including the down payment, installment structure, and final payment.

5. Construction Quality and Specifications: Ensure the agreement details the quality of construction materials, fittings, fixtures, and specifications promised.

6. Amenities and Facilities: Confirm the amenities and facilities offered, such as parking space, clubhouse, gym, swimming pool, etc.

7. Carpet Area, Built-up Area, Super Built-up Area: Understand the definitions of these terms, as they affect the actual usable area of the property.

8. Possession Delay Clause: Look for clauses related to possession delay, penalty, and compensation in case the builder fails to deliver on time.

9. Change in Design or Layout: Understand the builder's rights to make changes in the design or layout and check whether your approval is required for major changes.

10. Legal Approvals and Permissions: Verify that the project has obtained all necessary legal approvals and permissions from local authorities.

11. Escalation Clause: Check for provisions related to any escalation of prices after a certain point in time.

12. Default and Termination Clause: Understand the consequences if either party defaults on their obligations or breaches the agreement.

13. Maintenance Charges and Society Formation: Understand the ongoing maintenance charges and the timeline for the formation of a residents' association.

14. Possession Handover Condition: Inspect the conditions under which possession will be handed over and what needs to be done by both parties before that.

15. Dispute Resolution Mechanism: Check for clauses related to dispute resolution, arbitration, and jurisdiction in case of legal conflicts.

16. Compensation for Defects: Verify if the agreement outlines compensation or rectification procedures in case of construction defects.

17. Exit Clause: Understand the provisions for cancellation or withdrawal from the agreement, and the associated penalties or refunds.

18. Force Majeure Clause: Check for clauses covering unforeseen events like natural disasters, political instability, etc.

19. Resale and Transfer Rights: Understand your rights to sell or transfer the property before possession.

20. Annexures and Addendums: Carefully review all annexures, schedules, and addendums attached to the main agreement.

Remember, a builder-buyer agreement is a legally binding document. Make sure you thoroughly understand all the terms and conditions before signing and consider consulting a legal professional to ensure your rights and interests are protected.


Author Bio: Adv. Manan Mehra has a distinguished practice based in Delhi in commercial and civil law, and he is the go-to choice for persons involved in consumer disputes. Although he takes on a wide spectrum of cases in all legal for across the country, keeping clients first and ensuring speedy resolution has earned him a distinct reputation in complex matrimonial and property-related cases as he has routinely secured favorable outcomes for his clients.