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Transfer of Property Act, 1882

Transfer of Property Act
We look at the applicability and the key features of the Transfer of Property Act, 1882

Under the Indian legal system, properties are divided into two categories – movable and immovable. The Transfer of Property Act (ToPA), 1882, which came into force on July 1, 1882, deals with the aspects of transfer of properties between living beings.

One of the oldest laws in the Indian legal system, the ToPA is an extension of the law of contracts and runs parallel to the succession laws. For those planning to transfer their immovable property, knowing the key aspects of this Act is important.

What does ‘transfer’ of property signify?

The term transfer includes transfer through sale, mortgage, lease, actionable claim, gift or exchange. The Act does not cover transfers by the operation of law, in the form of inheritance, forfeiture, insolvency, or sale through the execution of a decree.

The Act is also not applicable on the disposal of properties through wills and does not deal with cases of succession of property.

Types of property transfer under the Transfer of Property Act

The Transfer of Property Act talks about six types of property transfers:

  • Sale
  • Lease
  • Mortgage
  • Exchange
  • Gift
  • Actionable claim

Who can transfer property?

Section 7 of the Act lays down the rules, vis-à-vis people who are legally eligible to transfer their property.

The section reads that every person competent to contract and entitled to transferable property, or authorized to dispose of transferable property not his own. It is competent to transfer such property, either wholly or in part and either absolutely or conditionally. It’s in the circumstances, to the extent and in the manner, allowed and prescribed by any law for the time being in force.

Under the Indian Contract Act, 1872, a person must be at least 18 years of age and have a sound mind, to be eligible to enter into a contract.

Scope of the Transfer of Property Act

The Act is applicable primarily on transfer of immovable property from one living being (inter vivos) to another. Also, the Act is applicable on property transfer by individuals, as well as by companies. However, the Transfer of Property Act is applicable to acts of parties and not on transfers applicable by the law.

Transfer of property through verbal agreement

Section 9 of the Act says that property transfers could be affected though an oral agreement, unless the law explicitly states that a written agreement must be prepared to conclude the transaction. In the case of immovable property of value less than Rs 100, such transfers may be made either through a registered instrument or by delivery of the property.

However, oral arrangements do not typically work, except for partition of properties, where the family members can enter into a verbal agreement and divide the property for practical purposes. Exchange of property often requires written agreements for the transaction to be legally valid. This is true for sale, gifts, leases, etc.

Properties that cannot be transferred under the Transfer of Property Act

In terms of immovable property, one cannot transfer a property that one expects to inherit in future. 

Example: Ram expects that his maternal uncle, who had no children of his own, would bequeath his property to him and he transfers his right in the property to his son, the transaction would be held invalid.

A lessor can also not transfer his right to re-entry into a leased property, under the Transfer of Property Act. 

Example: Ram leases his plot to Mohan and puts in a clause in the lease agreement that he would have the right to re-enter, if the rent is not paid for over three months, then, he alone will have the right to do so. He cannot pass on his right to re-enter to, say, Ganesh, his associate.

The Act also prohibits the transfer of easement rights – a right to use someone else’s land or property in some way. These include the rights of way (passage), the rights of light, the right of water, etc.

Example: Ram has a right of passage over the land belonging to Mohan. Ram decides to transfer this right of way to Ganesh. As this is a transfer of an easement right, it is invalid.

One can also not transfer one’s interest in a property, restricted in its enjoyment. 

Example: If a house is lent to Ram for his personal use, he cannot transfer his right of enjoyment to Mohan.

A right to future maintenance is only for the personal benefit of the person to whom it is granted. Hence, this right cannot be transferred. A tenant having a non-transferable right of occupancy, cannot alienate or assign his interests in the occupancy. Similarly, a farmer of an estate that has defaulted in paying revenue, cannot assign his interest in the holding. The same is true of a lessee of an estate under the management of a court of wards.

Transfer of property to an unborn child

A person who is planning to bequeath his property to more generations than one, will have to keep the provisions of the Transfer of Property Act in mind, while doing so. This becomes imperative to avoid legal complications at a later stage.

Under the provisions made in Section 13 and Section 14 of the Transfer of Property Act, the transfer of a property directly in favour of an unborn child is prohibited. For this to happen, the person intending to make the transfer will first have to transfer it in favour of a person who is alive on the date of transfer.

The property will have to vest in the name of this person, till the time that the unborn child comes into existence. Basically, the interest of the unborn child in a property must be preceded by a prior interest.

Example: Suppose Ram transfers his property to his son Mohan and thereafter, to his unborn grandchild. In case he was not born before the death of Ram, the transfer would not be valid. The transfer would be valid, if the child is born before Ram passes away and the interest of the property vests in Mohan, till the child is born.

See also Brownfield Projects

Responsibilities of the seller during transfer of property

Section 54 of the Act talks about the responsibilities of the seller of a property:

  • Disclose to the buyer any material defect in the property.
  • Provide to the buyer on his request for examination, all documents of title relating to the property.
  • Answer to the best of his information, all relevant questions put to him by the buyer with respect to the property or the title.
  • Execute a proper conveyance of the property, when the buyer tenders it to him for execution at a proper time and place, on payment or tender of the amount due in respect of the price.
  • Take as much care of the property and all documents, which are in his possession, as an owner of ordinary prudence would take of such property, between the date of the contract of sale and the delivery of the property.
  • Give the buyer possession of the property.
  • Pay all public charges and rent accrued with respect to the property, up to the date of the sale.
  • Discharge all encumbrances on the property then existing.

Transfer of Property Act: Key facts

  • Before the Transfer of Property Act came into existence, property transfers in India were regulated by the English law.
  • The Transfer of Property Act was introduced on February 17, 1882.
  • It came into effect on July 1, 1882.
  • The Act consists of eight chapters and 137 sections.
  • It deals mainly with transfer of immovable property, while some sections deal with movable properties too.
  • The Transfer of Property Act is an extension of the law of contracts.
  • It is applicable across India on property transfers among people.
  • It runs parallel to the laws of intestate and testamentary succession.

Duties of the buyer during transfer of property

  • For disclosing to the seller any fact about the property, of which the buyer is aware of but has reason to believe that the seller is not aware of and which materially increases the value of such interest.
  • pay the purchase money to the seller at the time and place of completing the sale.
  • For bearing any loss arising from the destruction, injury or decrease in value of the property not caused by the seller, where the ownership of the property has passed on to the buyer.
  • To pay all public charges and rent, which may become payable on the property, the principal monies due on any encumbrances subject to which the property is sold. And the interest thereon afterwards accruing due, where the ownership of the property has passed on to the buyer.

Latest updates

Tenancy agreements governed under Transfer of Property Act arbitrable: SC

The Supreme Court, on December 14, 2020, ruled that landlord-tenant disputes can be resolved through arbitration, except when they are covered by specific forum created by the rent control laws. In a landmark verdict in the Vidya Drolia and others versus Durga Trading Corporation case, the SC has ruled that arbitral tribunals have the power to decide such cases under the Transfer of Property Act.

However, for these disputes to be resolved through arbitration, the rent agreement must have an arbitration clause – this means the decision to include a clause to this effect in a landlord-tenant agreement lies with the parties concerned.

See also Real Estate Regulatory Authority: RERA Act

FAQs

What are the modes of Transfer of the Property?

According to the transfer of property act 1882, a property can transferred through sale, exchange, gift, mortgage, lease and by creating an actionable claim.

How many sections are there in the Transfer of property act?

There are 137 sections in the Transfer of Property Act.

What can be transferred under the Transfer of Property Act?

Any immovable property can be transferred under the Transfer of Property Act.

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Commencement Certificate : Real Estate

Commencement Certificate
A commencement certificate is a document that proves the legitimacy of a real estate project. We explain what exactly a commencement certificate is and its importance for a developer, as well as a home buyer

A commencement certificate is a document from the local municipal authority that permits the developer to begin construction of the project. The commencement certificate (or CC) is usually granted, only after the developer has met the legal requirements and obtained the relevant sanctions for the building’s plan.

Documents that a builder will have to submit

  • Property documents
  • Tax receipts
  • Photographs
  • NOCs from various government departments

Issuance of certificate

The commencement certificate is usually issued in two stages – first up to the plinth area and then, for the superstructure. The developer receives the commencement certificate, based on the findings of the inspection by authorities of the town planning and engineering departments.

After having obtained all the required licences and sanctions for the project, the developer lays the foundation of the superstructure and builds the boundaries of the project. Under the new RERA guidelines, a valid commencement certificate is a mandatory document, for a project to be considered RERA-approved.

How can a developer obtain a commencement certificate?

Before beginning the construction of a new building or project, the developer must obtain a commencement certificate from the local authorities. Once the developer submits his plan for the project, the municipal authority will begin conducting several preliminary checks, before authorizing that the project is fit for commencement.

During this time, the developer must be able to provide all the necessary no-objection certificates (NOCs) that are needed to beginning a new construction. He will also need to show proof of having obtained clearances from all the relevant departments, namely, the water department, fire department, sewage department, electricity department, etc.

What is the importance of a commencement certificate for a home buyer?

Until a developer receives the CC for his project, he is not authorized to begin construction on it. Therefore, a home buyer must not invest in a project, if the developer is unable to furnish a valid commencement certificate for it. One must also check whether the CC obtained by the developer, includes the floor on which he/she wishes to buy a property.

See also Occupancy Certificate (OC) in Real Estate

If you were to purchase a property in a project that does not have a valid CC, you run the risk of being the owner of an illegal property. This not only affects your legal title to the property, but you may also have to pay the necessary fines, for buying a property in an illegal project.

A CC is as important as an occupancy certificate. It ensures that you are purchasing a property in a project that has fulfilled all requirements. It cements your title over the property and saves you from possible legal troubles in the future.

Commencement certificate in local languages

Language Also called
Marathiआरंभ प्रमाणपत्र
Kannadaಪ್ರಾರಂಭ ಪ್ರಮಾಣಪತ್ರ
Teluguప్రారంభ ధృవీకరణ పత్రం
Hindiप्रारंभ प्रमाण पत्र
Banglaপ্রারম্ভিক শংসাপত্র
Tamilதொடக்க சான்றிதழ்

Difference between encumbrance certificate and commencement certificate

A commencement certificate states that the builder can start working on a project.  An encumbrance certificate shows that the project is clear of any liabilities.

Commencement Certificate: News updates

Redevelopment projects to be completed by MHADA within three years of obtaining CC

In August 2020, the Maharashtra cabinet cleared a proposal to speed up the redevelopment of cessed buildings within Mumbai city through the Maharashtra Housing and Area Development Authority (MHADA).

Consequently, if the MHADA takes up the redevelopment, it must be completed within three years of taking the CC. At least 14,500 cessed buildings are set to benefit, following this move.

See also No-Objection Certificate (NOC)

FAQs

Why is a Completion Certificate required?

Builders can’t offer possession of the project without receiving the completion certificate from a competent authority.

What is the difference between OC & CC?

An Occupancy Certificate is given to a project, to state it has been completed following all the rules set under the building bye-laws. A completion certificate is to state that the project is fit for possession.

What does OC mean in property?

An OC or Occupancy Certificate is a certificate from a competent authority, stating that a housing project is not in violation of any building guidelines.

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Occupancy Certificate (OC) in Real Estate

Occupancy Certificate (OC)
An occupancy certificate is an important document you need to obtain, while buying any new property. We explain what it is and why you need it, when investing in real estate

What is the importance of an occupancy certificate?

An occupancy certificate is a document that is issued by a local government agency or planning authority. Which upon the completion of construction of a new project. The certificate is proof that the project has been built, by adhering to the applicable building codes, relevant regulations and laws.

It is the responsibility of the developer to obtain an occupancy certificate, once the project has been completed. The certificate is an indication that the building is suitable for occupancy. An OC is required, when applying for water, sanitation and electricity connections.

For home owners, an OC is necessary to cement the legal status of the property they own. In the absence of a valid Occupancy Certificate (OC) for a property, the local municipal body has the right to initiate legal action. Because without an OC, a project is deemed an unauthorized structure.

You will require an OC, when you apply for a home loan, or if you are purchasing a resale property. You would also need a valid OC, when you wish to sell your property.

See also Commencement Certificate : Real Estate

Difference between occupancy certificate and completion certificate

The authorities issue a completion certificate (CC) to a housing project, after ensuring that it has all requirements in place to be habitable. It is only after a CC is issued to a project that it becomes ready for possession for home buyers.

An OC on the other hand is a certificate stating that the project has been built in accordance with all construction norms, building bye-laws, etc. It is only after a project receives an OC, can the builder apply for various utilities for the project.

Occupancy certificateCompletion certificate
Issued by the authorities, stating that the project follows all construction norms and building bye-laws.Issued to a housing project, after ensuring that it has all requirements in place to be habitable.
Builder applies for utilities (electricity, power, water supply, etc.) after receiving the OC.Possession is offered once the CC is issued

How can you obtain an occupancy certificate?

Ideally, a developer must apply for an OC, within 30 days of the completion of the project. As a property owner, you can also apply for an OC from the local corporation or municipality.

If the project has fulfilled all the criteria necessary for approval, you will usually receive a copy of the OC within 30 days of the application.

Here are the documents that you will need to submit, as part of your application:

  • Project commencement certificate.
  • Project completion certificate.
  • NOCs for fire and pollution.
  • Latest property tax receipt.
  • Copy of the building’s sanctioned plan.

Your rights as a property owner

If the developer refuses to provide an Occupancy Certificate (OC), or he hasn’t acquired one even after the project has been completed. You can take legal action against the developer. A legal notice can be issued, asking him to provide the OC and you can even take the case to a consumer court.

Legislation like the Act (RERA), are expected to significantly decrease instances of negligence or fraud by developers.

However, as property owners. You must be vigilant and ensure that important documents like OC are in place, to secure your rights over your property.

See also No-Objection Certificate (NOC)

FAQs

When does the project get an OC?

An Occupancy Certificate certifies that a building has been constructed as per the approved plan & in compliance with the local laws.

Do builders have to show OC to get water connection?

An OC is required, to apply for electricity, water & sanitation connections.

When does a project get an CC?

An Completion Certificate is issued by the local authorities for a housing project after, ensuring that the project has all the necessary requirements in place, to be habitable.

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No-Objection Certificate (NOC)

no objection certificate
A no-objection certificate or NOC is a very important document that establishes the legality of a particular transaction

You would have often heard of the term no-objection certificate (NOC). An NOC is a legal document that is issued by an organization, an authority or an institute and could even be from an individual.

It is a necessary requirement in certain transactions and situations, such as litigation, immigration, succession, trade, employment and many other such avenues. An NOC is a clarification that there is no legal hassle that will spring up, if the deal/transaction/business takes place.

See also About Builder-Buyer Agreement

When is an NOC issued?

For example,

An employer issues an NOC to tell your new employer that they don’t have objection to you joining another firm. An employee may issue an NOC to clarify that he/she has no objection to their salary being reduced for a valid reason.

See also Commencement Certificate : Real Estate

Similarly, a landlord or tenant may also require an no objection certificate. A property buyer requires an NOC from the authority or a previous owner, to ensure that there are no legal tangles/encroachments attached to the property in question. In short, an NOC is sought or issued while you make an offer, or a business deal, or are involved in a transaction.

What does an NOC contain?

An NOC consists of the basic details of the parties involved and is addressed to whomsoever it concerns.

See also Occupancy Certificate (OC) in Real Estate

Why is an NOC important?

Besides establishing that there is no objection, an NOC can also be produced in a court of law. And can be used to prove your innocence, if you happen to be caught up in a legal tangle.

See also Crowdfunding in Real Estate

Sample and format of an NOC

TO WHOM IT MAY CONCERN:

This is to certify that [NAME HERE], resident of [ADDRESS HERE], is the owner of [PROPERTY NAME HERE], situated at [ADDRESS HERE], with Property Identification Number [NUMBER HERE] and containing an area of 25,746 square meters.

Certified further is that [NAME OF ORGANIZATION] interposes no objection to the NAME OF ORGANIZATION HERE of the said property.

ISSUED this 18th day of September, 2020, as requested by [NAME HERE] in support of his/her application for [APPROVAL NAME PROCESS HERE].

Signature: ____________________________

Date: _________________________________

Now let us look at a sample format of an NOC from an owner for leasing out his/her premises

TO WHOMSOEVER IT MAY CONCERN

I/We, _________, son/daughter of ________ do hereby state that,

  • We/I am/are the legal owner/s of the premises situated at _____________ (hereinafter referred to as “the said premises”).
  • I/We have no objection in _______________ {Enter name} using the said premises as the registered office of the partnership firm/proprietorship/LLP/private limited company/ public company.

Date: _________         Signature _____________

Place: ________       (Owner)

Likewise, even a person selling a vehicle to another party in a different state, must also get an no objection certificate from the Regional Transportation Officer (RTO) first, before it can be registered or used elsewhere.

In short, remember that an NOC is a vital procedure for house registration or immigration, building construction or just about anything that has to do with any transaction.

See also Pradhan Mantri UDAY Yojana

FAQs

Is an NOC valid for life?

No. Once you obtain an NOC, it is valid for 6 months only.

Is it necessary to get an NOC from society for a gift deed for property?

If you have all the relevant documents to prove the ownership of a property, you do not need to get an NOC from the society to get a property.

How do I write an NOC for Land?

You can simply state your willingness to let out/sell your land and then go on to mention all the details of the property.

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Carpet Area in RERA Act

carpet area
The Real Estate Act has made it mandatory for developers to disclose the carpet area of the units that they sell. We look at the definition of carpet area and how it will affect home buyers and property prices

The area of a property is often calculated in three different ways – carpet area, built-up area and super built-up area. Hence, when it comes to buying a property, this can leads to a lot of disconnect, between what you pay and what you actually get.  Not surprisingly, the maximum number of cases registered in the consumer courts, are against developers on the issue of cheating, vis-à-vis the size of the flat.

According to the provisions of the Real Estate (Regulation and Development) Act, 2016 (RERA), it is now the duty of the developer, to make buyers aware of the carpet area and quote prices based on this and not the super built-up area.

What is the carpet area?

Carpet area, or the net usable area, is the space where one can spread a carpet. Built-up area includes the carpet area, plus the extra areas certified by the authorities, such as the area of the outer and inner walls, dry balcony area, etc. Super built-up area includes the area, the built-up area & a share of the balance area, such as the stairs, lobbies and galleries, which can be used by the entire building.

For example,  if the built-up area is 1,000 sq ft, 30% (that is, 300 sq ft) is generally not usable. And it is usually the dry balcony, staircase, etc. While 700 sq ft is the remaining area that will be used and is hence the carpet area.

Mandatory disclosure of carpet area and its impact

Sandeep Singh, CEO of Sheltrex, a Brick Eagle Company says that Buyers will now understand the exact measurement of the flat they can reasonably expect to receive from the developer. Furthermore, they will know exactly what part of the flat is included in carpet area. What part is included in verandas and terraces. Additionally, developers will have to be more stringent in planning their projects. To ensure exact rendition of plans to actual area.

  • The earlier practice of including balcony, terrace, verandas, flower beds and void spaces within the meaning of area, by unscrupulous developers. It’ll now come to an end.
  • In certain cases, corner apartments, or other apartments placed at certain advantageous or disadvantageous positions, usually used to get a little more or less carpet area.
  • While the apartments at advantageous positions that had greater carpet area were always priced at a premium, the ones which lost some carpet area were never sold at a discount, as the ‘missing’ carpet area was usually obfuscated in the super built-up area.
  • Good design and efficiency will now become crucial. Previously, an inefficient design, which used too much of common area space, would fare the same as a good design, as both could have the same super built-up area, but different carpet areas.

Home buyer Nidhi Sharma, points out that property rates per sq ft, will certainly go up, as the total price will be divided by a lower denominator (Area, as against super built-up area). “Nevertheless, now, at least we will know what we are getting into. We will no longer get a 500 sq ft apartment while thinking we have purchased a 700 sq ft apartment,” she says.

Carpet area under RERA

According to the RERA, carpet area is defined as ‘the net usable floor area of an apartment, excluding the area covered by the external walls, areas under services shafts. And also exclusive balcony or verandah area and exclusive open terrace area. But but includes the area covered by the internal partition walls of the apartment’.

An easier description would be: Anything inside the outer walls of an apartment, but excluding the balconies, verandah or open terrace and shafts, says Digbijoy Bhowmik, head of policy, RICS, South Asia. He said that now the balcony’s area will not be included. Even if it is an exclusive balcony for the flat. The area of the lift lobby, staircase lobby or any space that you can be in, before you enter the house through the main door, cannot be included. Also the common/exclusive shaft that is used to vent the air from kitchen/lavatory, is excluded. However, a walk-in wardrobe will be included.

See Also Real Estate Regulatory Authority: RERA Act

Dhaval Ajmera, director of Ajmera Realty, points out that “Many promoters provide information on the built-up area, rather than the carpet area, which is less than the built-up area.” Now, a clear definition will align customers’ expectations, with the actual measurements of the flat.

How it will help home buyers?

In many projects, loading accounts for approximately 30%-35% of the total area.Nibhrant Shah, founder and CEO of Isprava explained that accurate information about a project’s site, layout and plot, will empower the buyer to take an informed decision. It would also become easy for owners to understand the components of their tax liability on property. And the rights and easements associated with a property, if it is part of a larger common structure or building.

According to Rahul Shah, CEO of Sumer Group, that as per the RERA guidelines, a builder must disclose the exact carpet area. So that a customer knows what he is paying for. However, the act does not make it mandatory for the builders, to sell a flat on the basis of carpet area. Amit Wadhwani, director, Sai Estate Consultants Maintains that a lot of effort needs to be put to create awareness. He concluded that bankers, investors, developers and brokers, need to start practicing RERA and disseminate the information. All the changed definitions are supposed to be practiced. And executed on the ground by the real estate fraternity, so that there is clarity and benefit for the end-users..

Carpet area, super built-up area and real estate scams

With RERA, the additional comfort that a home buyer gets, is the assurance that if the developer has stated that a property is 900 sq ft, it would indeed be 900 sq ft of carpet area. However, for years together before RERA, prospective home buyers did not enjoy this benefit. Not just unregistered developers in the past, even the most renowned builders have been accused of real estate scams, wherein they advertised the property with its super built-up area or completely covered the fact that very small units were being advertised in the garb of affordable homes.

Some developers cite the amenities that they provide to home buyers. Which adds up to almost 35% of the entire project area. This, they say, was the reason why super built-up area or loading was the unique selling point before RERA. Not anymore.

See Also Impact of GST on Home Buyers & Real Estate

Penal action against developers for false information

Section 61 of the RERA says that for providing false information and other such contraventions, the promoter may have to pay a penalty of 5% of the estimated cost of the real estate project.

Change in price if the carpet area is altered

In the case of apartment, the promoter has to confirm the final area that has been provided to buyer. After the construction is completed and the occupancy certificate is granted. The real estate law specifies that in case of alterations, the total payable price will be recalculated. If there is a reduction in this area, the excess amount would be refunded within 45 days, with an annual interest rate as prescribed in the rules. Note that the increase in the area cannot be more than 3%. In case there is an increase in the carpet area, the developer can demand a higher amount in the next payment. The cost will be calculated at the same rate per sq ft, as agreed.

FAQ

What is RERA Carpet Area?

According to the RERA, carpet area is defined as the net usable floor area of an apartment, excluding the area covered by the external walls, areas under the services shafts, exclusive balcony or verandah area and exclusive open terrace area but includes the area covered by the internal partition walls of the apartment.

How to calculate RERA carpet area?

Usually the carpet area is 70% of built up area. You can calculate the carpet area only if you know the exact built up area.

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About Builder-Buyer Agreement

Read the builder-buyer agreement carefully instead of signing it blindly. In case you need legal recourse, it’s the one contract that will help you in court

A recurring complaint among home buyers was that builder-buyer agreements were invariably drafted in a manner that benefited only the builder. It had arbitrary and unclear clauses that either blatantly favoured the developer or gave him the benefit of doubt, because of the total absence of clarity over the matter.

Critics have varying opinions about India’s real estate act (RERA), which was enforced in 2017 with much fanfare. May said that this Act had the potential to cure all the ills afflicting India’s residential real estate. In spite of a weak start, the law has certainly laid the ground for safeguarding buyers’ interests.

The law has, for example, made a huge change in the manner in which builder-buyer agreements in India are drafted.

Petition in the SC over model builder-buyer agreements

Although builder-buyer agreements have to comply with several provisions under the state RERA, this document is still far from being impartial, as far as home buyers’ safety is concerned. In fact, a petition has been filed in the Supreme Court to direct the government to come up with a model builder-buyer agreement and a model agent-buyer agreement.

In his petition, BJP leader and lawyer Ashwini Kumar Upadhyay has said that the model documents should be drafted in such a way that they comply with the spirit of the Real Estate (Regulation and Development) Act, 2016 (RERA) and Articles 14, 15 and 21 of the Constitution.

Upadhyay said in his petition that directions must be given to compensate the buyers for losses incurred due to inordinate delays on the part of promoters. And to recover the money, misappropriated by promoters and agents under the garb of taxes, interests, penalties and other charges. He adding that all states must enforce the model documents to ensure buyer safety.

Let us first examine the terms and conditions in builder-buyer agreements prior to RERA and the problems it posed.

Builder-buyer agreements before RERA

Construction timeline

The agreement would usually state that the builder will offer possession of the apartment within 36-42 months from the ‘start of construction’. Nowhere would the agreement mention that this time started from the date of booking. The start of construction would be entirely up to the builder’s discretion. Some developers took the liberty to consider that construction had started only after the excavation work was completed.

Price escalation clause

This clause helped builders to raise the price of the property, as and when they needed. Even if a project had been delayed, they could raise the cost, claiming that raw material and other input costs had increased. The buyer had no way of resisting the double trouble of delay and higher costs.

Area change

The agreements also included a clause allowing the builder to change the sq ft area of the apartment. In case of an increase, builders could ask for extra money from the buyers. “Even if the super area increased, you had to pay 10%-15% extra, while the benefit to you, in terms of the additional area, would be marginal or nil,” explains Anuj Sood, head of Noida-based Sood Properties.

Payment delay

Builder-buyer agreements also included a penalty clause, to be invoked if the buyer delayed in paying an installment. The charge could be hefty – as much as 18%-24%, compounded quarterly. Some developers went further and included clauses that allowed them the right to cancel the allotment and forfeit the earnest money, which could be as high as 20%-25% of the total cost, if the buyer delayed payment beyond a point. The balance would be returned, without any interest.

Payment on ‘actual cost basis’

The agreements also talked about the buyer being liable to pay for certain facilities, on an actual cost basis, at the time of taking possession. The buyer would then be in for an unpleasant surprise, if the builder demanded an unexpectedly high amount for facilities such as club membership, electricity connection charge, etc. Similarly, at the time of booking, there would be no specific mention of the PLC (preferential location charges). This charge, depending on what the builder deemed fit, would be imposed on the buyer at the last minute.

Building plan changes

Developers often drafted the builder-buyer agreement in such a way that they enjoyed the legal freedom to change the building’s plans and get away with it without having to pay any penalty.

Transfer charges

This clause in agreements used to state that the buyer had to pay the developer a ‘transfer charge’, if the apartment was resold before the buyer took its possession. No disclosure was, however, made about what kind of amount the buyer would have to pay.

Builder-buyer agreements after RERA

Considering that agreements that favoured builders were a key pain-point for the buyer community, the real estate law tried to address this, by laying the ground rules for drafting and executing builder-buyer agreements, referred to as agreement to sale in the Real Estate (Regulation and Development) Act, 2016.

An agreement for sale, according to the law, refers to an agreement entered into between the promoter and the allottee.

Key provisions:

Builder has to submit agreement pro-forma

While registering a project, a builder has to submit, along with his application and other documents, the pro-forma of the allotment letter, agreement for sale and the conveyance deed proposed to be signed with the buyers.

Builder-buyer agreement is the guiding document

The law states that the builder will have to carry out his responsibilities as mentioned in the agreement to sale.

Clause on earnest money

A developer cannot ask for more than 10% of the property’s value from the buyer, at the time of signing the builder-buyer agreement. The parties are legally bound to register this agreement, to provide it legal validity.

Details in builder-buyer agreements

Section 13 (2) of the law prescribes that the builder-buyer agreement contain each and every detail. And leaving little scope for confusion in terms of the builder’s responsibilities.

“The agreement for sale shall specify the particulars of development of the project, including the construction of building and apartments, along with specifications and internal development works and external development works, the dates and the manner by which payments towards the cost are to be made and the date on which it is to be handed over, the rates of interest in case of default, and such other particulars,” says the law.

Failure to provide promised amenities

If a builder has promised a certain facility in the builder-buyer agreement, he is legally obliged to provide it. If he fails to do so, the buyer can, within five years of getting the possession, point this out to him and he will have to rectify the mistake in a month’s time.

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According to the law that in the event of the promoter’s failure to rectify such defects within such time, the aggrieved allottees shall be entitled to receive appropriate compensation in the manner as provided under this Act.

Even otherwise, if the promoter fails to discharge any obligations imposed on him under the terms and conditions of the agreement for sale, he is liable to pay a compensation.

Also, after the builder executes an agreement for sale, he cannot mortgage or create a charge on such property. If that were to happen, it would have no impact on the buyer whatsoever, says the Act.

Things buyers need to check in builder-buyer agreements

  1. RERA registration
  2. Time of project start and completion
  3. Buyers’ right to cancel/assign the property
  4. Refund policy
  5. Any grace period taken by the builder
  6. Force majeure clause
  7. Consideration for the property and what is excluded (such as maintenance, parking, electrification charges, etc.)
  8. Payment timeline
  9. Property particulars like fixtures, clear title, jurisdiction/arbitration clause

How to draft a builder-buyer agreement

While the law makes it mandatory for the builder to follow specific rules while drafting and executing a builder-buyer agreement. The buyer still has to still show utmost caution, while reading the terms and conditions.

Second, always take a legal expert’s help, to make sure there is no lack of clarity with regard to any term or condition in the builder-buyer agreement. This is of utmost value since it is only the builder-buyer agreement. And the terms and conditions in it which would safeguard one’s interest, in case of a dispute in future.

FAQ‘s

Is builder buyer agreement mandatory?

To safeguard one’s interest, the builder buyer agreement should be executed & registered after payment of the booking amount.

What is builder buyer agreement?

It is a legal contract that contains the terms and conditions that the buyer and the builder have to comply with.

Is unregistered sell agreement valid?

An agreement to sell that is not registered is not admissible as evidence in the court of law.