Should You Stop Paying EMIs If Your Builder Delays Possession?

Though the Real Estate (Regulation & Development) Act, 2016, is “work-in-progress” even after one year of its launch, homebuyers who have invested their hard-earned money know their interest would be protected under the provisions of the law, at the end of the day. The law is applicable to all under-construction projects with over eight units and measuring 500 square metre which had not received completion certificate at the time when it came into force—May 1, 2017.

While the law was still in the making and while it has yet to be fully functional, a large number of buyers, frustrated with the prolonging project delays, stooped paying EMIs (equated monthly installments) to developers. This often happens not only on emotional grounds; there are monetary concerns that force buyers to resort to such measures. Most buyers pay the monthly rent along with an EMI. The burden looks much heavier when they have no surety of when they would be able to get possession of their consistently under-construction properties.

Despite the genuinely of their motive, however, buyers stand to lose on legal ground. Considering the seller has the right to forfeit the earnest money in case a buyer fail to honour his part of the deal under an agreement to sale, such a move could put the former in a precarious situation. If a buyer fails to pay the EMIs, the builder would be well within his legal rights to cancel the booking, too. In light of these facts what should a buyer do? Should he keep on paying the EMI and bear with the delay, its longevity notwithstanding?  The answer is, no. In case the buyer could justify his motive, the developer will not be able to cancel the deal. An order passed by the National Consumer Dispute Redressal Commission (NCDR) in April this year has brought clarity over the matter.

Case study

Spouses Rakesh and Rashmi Anand booked a 3BHK flat with Royale Empires for Rs 45 lakh. For the unit measuring 1,495 square foot (sqft), the couple paid a booking amount of Rs 8.60 lakh on May 25, 2011. Following which, an agreement to sell was also executed which stated that the unit would be handed over within 21 to 24 months from the date of the agreement. In the meantime, the buyers took a home loan to pay the reaming amount.

The builders failed to deliver the unit within that time line. Subsequently, the buyers sent legal notices and lodged a police complaint. While the developer said it would refund the earnest deposit within seven months, he failed to do so.

Later, the matter reached the Punjab State Consumer Disputes Redressal Commission.  Since many buyers had "failed to make payment of installments of the remaining amount, as laid down in the agreement" and because the builder was "facing financial difficulties and could not raise construction on the project in time", the latter exercised his right to right to forfeit the booking amount. On that basis, the state commission in 2014 dismissed the consumer complaint, ordering in favour of the builder. Following this, the buyers approached the apex forum, which subsequently ruled in their favour, and asked the builder to pay Rs 8.60 lakh, along with an 18-per cent annual interest from the date of payment till the time the refund was made.

"From the written version filed on record by the builder, it is clear that he failed to raise construction of the project, as per the time schedule laid down in the agreement and hence, was not able to hand-over the possession of the property to the complainants in time.  It is true that the payment plan has been mentioned in the agreement between the parties and that the complainants did not make payment as per the said plan, but the contention made by the complainants that they had already got the loan sanctioned from the Bank, but refrained from making payment, finding that there was no construction activity on the spot, is not without any reasonable basis,” the order said.

“It was obligatory on the part of the builder to have raised the construction in time and to have delivered the possession of the property in time as per the agreement," it further added.

Two key points that emerge from the ruling is that real estate developers cannot blame the buyer and forfeit booking amount for a fault of their own in case a buyer is forced to stop paying installments. The apex consumer panel also ruled that even if the developer is within his rights to forfeit the booking amount, he cannot take more than 10 per cent of the earnest money.