Articles, Real Estate & RERA
The builder-buyer agreement (also called an apartment buyers’ agreement or agreement for sale) is the most important contractual document in a residential real estate transaction. Yet many homebuyers sign it without fully understanding its implications-often under time pressure from the developer. The Real Estate (Regulation and Development) Act, 2016 (RERA 2016) has standardised several terms, but developers still insert clauses that are one-sided or legally problematic. Before signing any builder-buyer agreement in India, these twelve clauses deserve careful scrutiny.
Clause 1: Possession Date
The most consequential clause in the agreement specifies when the developer will hand over possession. Under RERA 2016, the developer must commit to a specific and definite possession date in the agreement for sale.
Red flags:
- Language such as “possession subject to receipt of approvals” or “tentative possession date” is not acceptable under RERA. The Supreme Court in Ireo Grace Realtech Pvt. Ltd. v. Abhishek Khanna (AIR 2021 SC 437) held that developers cannot use approval delays as a blanket defence for possession failures.
- A grace period for possession (typically 6-12 months after the primary date) is acceptable, but must be clearly stated; any period beyond that triggers Section 18 rights.
- Verify that the date is realistic against the current state of construction.
Clause 2: Penalty for Delayed Possession
Most agreements contain a penalty clause that specifies what the developer pays the buyer if possession is delayed, and what the buyer pays the developer if payments are delayed.
What to look for:
- Balanced rates: If the developer pays 5% per annum on the amount paid for its delay, the buyer should not be paying 18-24% per annum for payment default. The Supreme Court in Ireo Grace Realtech specifically held that asymmetric penalty clauses-high interest on buyers, minimal compensation for developers-constitute unfair trade practices.
- RERA 2016 overrides contractual penalty clauses: even if the agreement specifies a lower penalty, Section 18 entitles the buyer to interest at SBI MCLR plus 1-2% (as notified by the state government) for delay.
Clause 3: Force Majeure
Force majeure (FM) clauses suspend a party’s obligations when certain events outside their control-floods, earthquakes, wars, government actions-prevent performance.
Key considerations:
- What events are defined as force majeure? A broadly worded FM clause that includes “change in market conditions,” “labour disputes,” or “financial difficulties” effectively allows the developer to escape liability for delays caused by their own commercial decisions.
- How long does the FM event suspend the obligation? If FM indefinitely extends the possession date, the clause eliminates the Section 18 remedy in practice.
- Post-COVID case law: Courts have generally held that COVID-19 may justify some extension of the delivery timeline, but the developer bears the burden of proving that the specific delay was actually caused by the pandemic, not pre-existing construction delays.
- RERA authorities retain the power to grant extensions of registration under Section 6 of RERA 2016 for force majeure events, but this does not extinguish the buyer’s right to interest for delay.
Clause 4: Carpet Area Definition
Under Section 2(k) of RERA 2016, 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, exclusive balcony or verandah area, and exclusive open terrace area. Internal walls are included in carpet area calculation.
Why this matters:
- RERA requires the agreement to specify the apartment’s size in terms of carpet area. Pricing on the basis of carpet area (rather than super built-up or saleable area) increases transparency.
- If the agreement uses “super built-up area” or “saleable area” as the pricing basis, verify the implied carpet-to-super-area ratio (loading factor). A loading factor above 1.4-1.5 (40-50% loading) is generally above market norms.
Clause 5: Super Area, Loading Factor, and Common Area Charges
Many developers sell on a “super built-up area” basis, which includes the buyer’s proportionate share of common areas (corridors, lobbies, stairwells, amenity spaces). The difference between super built-up area and carpet area is the “loading.”
What buyers should verify:
- The loading factor should be clearly disclosed.
- RERA 2016 requires that the agreement specify carpet area separately, and that any increase in super area (due to design changes) cannot increase the carpet area beyond the agreed amount.
- Under Section 14(2) of RERA 2016, a developer cannot make any material addition, alteration, or structural change to the building or the apartment, or sell any parking space as an independent unit.
Clause 6: Maintenance Charges Post-Possession
After possession, most projects impose maintenance charges. Review:
- How are maintenance charges calculated? Per square foot of carpet area, super area, or flat rate?
- Is there a cap on escalation of maintenance charges?
- When is the Resident Welfare Association (RWA) or Apartment Owners’ Association required to be formed and management transferred? Under RERA 2016 and Model Bye-Laws, this typically must occur within three months of the majority of units being sold.
- What happens if the RWA is not formed? Many buyers get locked into perpetual high maintenance charges from the developer until the RWA is constituted.
Clause 7: Car Parking
Car parking in group housing projects is a frequently disputed subject. The Supreme Court has held that open parking spaces cannot be sold separately as independent units-they form part of the common areas appurtenant to the building. Covered or stilt parking in multi-level parking structures may be charged separately.
Review:
- Is the parking space sold as an independent unit (impermissible under Supreme Court rulings) or as an appurtenance to the apartment?
- Is the parking space clearly identified (slot number, level)?
- What type of parking is provided-open, covered, or mechanical/stacked?
- Mechanical stacking systems require maintenance; verify who bears this cost.
Clause 8: Payment Schedule Linked to Construction Milestones
Payment schedules should be construction-linked (milestone-based) rather than time-based wherever possible. A milestone-based schedule aligns the buyer’s payment obligations with actual construction progress, reducing financial risk if construction stalls.
Check:
- That each payment instalment corresponds to a defined, verifiable construction milestone (completion of foundation, slab of specific floor, etc.)
- The deemed completion clause: some agreements deem a milestone “completed” upon the developer’s unilateral certification, without independent verification. Insist on a link to documentation (certificate from the project architect or RERA escrow account statement).
Clause 9: Changes to Specifications and Layout
Developers sometimes invoke broad rights to change apartment specifications, layout, or the project’s overall plan after the agreement is executed.
RERA 2016 restriction, Section 14(2): The developer cannot make any addition or alteration in the sanctioned plans, layout plans, and specifications of the apartments or the project without prior consent of at least two-thirds of the allottees. Material structural changes require consent.
Check the agreement for:
- Broad reservation of rights to change specifications, materials, or floor plans
- Unilateral right to relocate common amenities or reduce their scale
- Any “final plans subject to approval” language that allows significant deviation from the brochure
Clause 10: Exit and Cancellation Policy
What happens if the buyer needs to exit the project-due to financial hardship, job loss, or personal reasons?
Review:
- The cancellation fee: a standard cancellation charge of 1-2% of the agreement value is reasonable; charges above 5-10% are typically unfair
- Refund timeline: when must the developer refund? RERA requires refund within a reasonable period. In practice, many agreements specify refund only upon re-sale of the unit by the developer, leaving the buyer in a long wait
- Under Section 18 of RERA 2016, if the developer has failed to give possession, the buyer has the right to cancel and receive a full refund with interest regardless of any contractual cancellation charges-the statute overrides the contract in this regard
Clause 11: Dispute Resolution
The dispute resolution clause determines how and where disputes will be resolved:
- Arbitration clause: If disputes are to be referred to arbitration, note the seat of arbitration, the number of arbitrators, and any provision allowing the developer to appoint the sole arbitrator unilaterally. Courts have increasingly scrutinised unilateral appointment clauses as being in breach of the principle of equal treatment under the Arbitration and Conciliation Act, 1996.
- Forum selection clause: Some agreements restrict the jurisdiction to a city or court of the developer’s choice (e.g., courts at the developer’s registered office location, which may be in a different state from the project). RERA complaints must be filed with the state RERA where the project is located, regardless of contractual jurisdiction clauses.
- RERA 2016 creates a statutory dispute resolution mechanism that cannot be ousted by contractual jurisdiction clauses.
Clause 12: Subvention Schemes and Construction-Linked Plans
Subvention schemes are financing arrangements where a developer or bank offers a scheme under which the buyer pays only 5-20% upfront and the remaining amount is paid from a bank loan, with the developer paying the EMI until possession. These schemes have significant legal risks:
- The buyer is the primary borrower; if the developer fails to pay the EMIs, the buyer’s credit score suffers and the bank can recover from the buyer.
- RERA-registered projects operated under subvention schemes may create complex escrow obligations.
- Many RERA authorities have penalised developers for collecting buyer funds outside the RERA escrow under the guise of subvention schemes.
- The Reserve Bank of India has issued guidelines discouraging subvention schemes in housing finance.
Construction-linked plans tie disbursement of the home loan to construction milestones, which is safer for the buyer. Prefer construction-linked plans over subvention schemes.
Key Takeaways
- Verify that the possession date is specific and firm; possession clauses conditioned on “approvals” or “government clearances” shift risk to the buyer in violation of RERA’s intent.
- Ensure the penalty for developer delay and the penalty for buyer default are symmetric; RERA Section 18 interest cannot be contractually waived downward.
- Prefer construction-linked payment plans over subvention schemes, and always identify the RERA-registered project number before executing the agreement.
This article is for informational purposes only and does not constitute legal advice. Readers should seek appropriate professional counsel for their specific circumstances.
META TITLE: Builder Buyer Agreement India: 12 Key Clauses to Review
META DESCRIPTION: 12 critical clauses in every builder-buyer agreement-possession date, force majeure, carpet area, RERA protections, and what to negotiate before signing in India.