Builder-buyer agreements serve as a contract between the buyer and the builder and are created and signed at the time of the sale of a property that is still under construction. Based on the terms and conditions outlined in the builder-buyer agreement, which outlines the specifics of the property sale, the buyer and the builder must complete the transaction.

Builder-buyer agreements before RERA

Builder-buyer agreements were consistently skewed in favor of the builders prior to the RERA’s implementation. A standard builder-buyer agreement would include clauses requesting 20% interest in the event that the buyer defaults on payments. If the builder didn’t finish the project on schedule, he would be penalized with 2% interest.

Construction timeline

The builder will typically offer possession of the apartment 36–42 months from the “start of construction,” according to the agreement. The agreement made no mention of the fact that this time began on the day of booking. The builder would have complete control over when building would begin. After the excavation was finished, several developers decided to assume that construction had begun.

Price escalation clause

Because the buyer had no way of avoiding the double trouble of delay and higher costs, this clause allowed builders to raise the price of the property as and when they needed to, even if a project had been delayed, by claiming that the cost of raw materials and other inputs had increased.

Area change

Additionally, the agreements contained a provision that permitted the builder to alter the apartment’s square footage. Builders may request more funds from buyers in the event of an increase. “You had to pay an additional 10% to 15% even if the super area increased, and the benefit of the extra area would be negligible or nonexistent.”

Payment delay

Some developers went further and included clauses that allowed them 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 certain point. Moreover, builder-buyer agreements included a penalty clause that would be invoked if the buyer paid an installment late. The charge could be substantial, amounting to up to 18%-24%, compounded quarterly. If the buyer delayed payment past that point, the remaining amount would be returned without interest.

Payment on ‘actual cost basis’ in builder-buyer agreements

The agreements also talked about the buyer being obligated to pay for specific facilities, on an actual cost basis, at the time of taking possession. The buyer would therefore be in for an unpleasant surprise, if the builder asked an unexpectedly large cost for utilities such as club membership, energy connection charge, etc. Likewise, the PLC (preferential location charges) would not be specifically mentioned at the time of booking. The buyer would be charged this fee at the last minute, based on what the builder thought was appropriate.

Building plan changes in builder-buyer agreements

It was common for developers to construct the builder-buyer agreement so that they could legally alter the building’s plans and avoid paying any penalties.

Transfer charges in builder-buyer agreements

In the past, this provision in contracts required the buyer to pay the developer a “transfer charge” in the event that the apartment was sold before the buyer received it; however, the buyer was not informed of the exact amount that would be required.

Builder-buyer agreement under consumer protection law

Under Section 2(46) of the Consumer Protection Act of 2019, a builder-buyer agreement may be deemed an unfair contract if it violates any of the following requirements, which may be contested in consumer courts:

• Demand for excessive security deposit.
• Imposing penalty for breach of contract.
• Unwillingness to accept early debt repayment along with the applicable penalty.
• Terms allowing the builder to end the contract without any reasonable cause.
• Terms entitling the builder to assign the contract to other parties.
• Terms imposing unreasonable conditions, obligations or charge on the consumer that puts him in a disadvantageous position.

Builder-buyer agreements after RERA

In order to address the issue of agreements that favored builders, the Real Estate (Regulation and Development) Act of 2016 established guidelines for the drafting and execution of builder-buyer agreements, also known as agreements to sale. According to the law, an agreement for sale is an agreement made between the promoter and the allottee. Therefore, it is important to carefully read the builder-buyer agreement rather than signing it mindlessly. If you need legal recourse, this is the one contract that will help you in court.

Key provisions:

Builder has to submit agreement pro-forma

While registering a project, a builder has to submit, together with his application and other papers, the pro-forma of the allocation letter, agreement for sale and the conveyance deed proposed to be executed with the buyers.

Builder-buyer agreement is the guiding document

The legislation stipulates that the builder must fulfill his obligations as specified in the selling agreement.

Clause on earnest money

When the buyer signs the builder-buyer agreement, the developer is not allowed to demand more than 10% of the property’s value. In order to give this agreement legal validity, the parties are required by law to register it.

Details in builder-buyer agreements

The law’s Section 13(2) mandates that the builder-buyer agreement include all relevant information, minimizing any room for misunderstanding regarding the builder’s obligations. “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,” the law states.

Failure to provide promised amenities

A builder is legally required to supply a facility if it was promised in the builder-buyer agreement. If he doesn’t, the buyer has five years from the date of possession to point this out to him, and he has one month to correct the error.

According to the law, “the aggrieved allottees shall be entitled to receive appropriate compensation in the manner provided under this Act in the event that the promoter fails to rectify such defects within such time.”

Even in other cases, the promoter is responsible for paying compensation if he does not fulfill any of the duties imposed on him by the terms and circumstances of the sale agreement.

Additionally, the builder is not permitted to mortgage or place a charge on such property after signing a selling agreement. According to the Act, the buyer would not be impacted in the slightest if that were to occur.

Things buyers need to check in builder-buyer agreements

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