RERA Allows Homebuyers To Exit A Project Anytime But There Is A Catch

A homebuyer may want to exit a project for a variety of reasons. An emergency may have forced them to do so, or they could simply be tired of waiting for the project to finish. However, you cannot exit the project without certain monetary implications, in most cases. The real estate law has armed homebuyers with the power through which they could exit a project at any stage of construction. However, it is easier said than done.

“The allottee shall have the right to cancel/withdraw his allotment in the project as provided in the Act, provided that where the allottee proposes to cancel/withdraw from the project without any fault of the promoter, the promoter herein is entitled to forfeit the booking amount paid for the allotment. The balance amount of money paid by the allottee shall be returned by the promoter to the allottee within 45 days of such cancellation,” says the Real Estate (Regulation & Development) Act, 2016 (RERA).

Karthik BM, Partner, IndusLaw, says that the RERA governs the rights and obligations of buyers and developers / promoters. A buyer may cancel or terminate the agreements they have signed with the developer. The grounds of termination and the remedies available to the various parties on such termination or cancellation, will depend on several factors including the RERA, the various rules and regulations issued by the state where the project is located and the agreement signed between the parties.

In general terms, if a promoter does not complete the building in accordance with the agreement, the buyer may either terminate the agreement or continue with the project. As per Section 18 sub-section (a), (a) if buyer wishes to terminate / cancel, the promoter is required to return the monies paid by the buyer along with interest (as provided in the RERA) including compensation as prescribed and (b) if the buyer wishes to continue with the project, he will be entitled to interest at the said rate till the project is completed.

What can homebuyers do if builder refuses to accept the cancellation of booking?

Karthik also goes on to say that while assessing such disputes, one needs to take a comprehensive view of all the facts including whether the buyer has complied with his obligations (payment of instalments, etc.), whether there were any delays due to factors outside of the promoter’s control, the terms of the agreement, etc. The promoter always has the option of challenging the termination / cancellation, if he believes that the termination was unlawful. Very often, promoters consider if there have been delays in payments and settle the matter by paying a negotiated compensation to the buyers, or by offering amenities such as modular kitchens as compensation.

If the buyer refuses to accept the cancellation, the buyer’s recourse would be to make an application before the ‘adjudicating officer’ as contemplated under the RERA, to enforce his rights and seek refund of monies paid to the promoter, along with interest and compensation.

One may wonder why the real estate law has made it so difficult for a homebuyer to exit a project. It is at this juncture that you should consider that the law promotes a healthy market balance. There are a lot of costs involved in construction and a buyer exiting a contract midway could cause much harm to the developer. So, checks and balances are in place, to avoid a situation that upsets the economy as a whole.

If the registered agreement of sale mentions that under specific cases the allottee can exit the project, it should be honoured. In case the allottee wants to exit the project due to personal reasons, such as an emergency or to invest their money elsewhere, they may have to forgo some part of their upfront payment or booking amount, as mentioned in the registered sale agreement. Do note that no transactions should take place before the sale agreement is registered, as per the RERA rules. 

Allotment cancellation and refunds

The developer will need to refund the amount (minus the booking amount within 45  or 60 days, whichever is mentioned in the agreement). Earlier, there was no set and mandated time period within which the developer was expected to return the money.

Real estate developers have opined that this clause may be too harsh on them, considering the money that homebuyers pay is always exhausted on land procurement. It is then difficult to arrange the money to repay. The situation could be worse if there are multiple cancellations. A slow market is another challenge. At the same time, there is no provision that says that the developer will be allowed to take out the money from the escrow account. Do note that besides the RERA, the sale agreement also lays down terms and conditions for exits and cancellation of allotments. Therefore, both parties may mutually agree to abide by the rules, before signing the dotted lines.

NCDRC and decision on project delays

However, in a recent hearing, the National Consumer Disputes Redressal Commission (NCDRC) has directed Shubhkaamna Buildwell to refund money and pay 12 per cent simple interest per annum as compensation to all homebuyers who had invested in its Greater Noida West project as no substantial construction took place at the site in the last four years since its launch. 

Similarly, the consumer commission has also directed Supertech to refund the entire amount to a buyer for delay of two years in delivering the house. The apex consumer commission has held that a homebuyer cannot be forced to forfeit any amount deposited with a builder in case he seeks cancellation of allotment of flat for delay in construction.

Can a developer cancel an allotment?

“The promoter may cancel the allotment only in terms of the agreement for sale. However the allottee may approach the authority for relief, if he is aggrieved by such cancellation and such cancellation is not in accordance with the terms of the agreement for sale, unilateral and without any sufficient cause,” says the law.

Also note that a developer may cancel your contract if the agreement empowers him in any way. He could do so in case of non-payment or delayed payments by the homebuyer. The cancellation, however, does not mean that the developer gets to forfeit the amount paid by the homebuyer. Only the booking amount may be forfeited and the remaining has to be refunded. The cancellation has to be communicated 30 days in advance.