Things to Look for in a Legal Contract With a Developer

When you buy any residential property, you will be required to sign a legal contract with the real estate developer. This is the document that forms the basis of the agreement between you and the developer, and outlines the rights and obligations of each of the parties.

Please be aware that as an individual dealing with a real estate developer, you will typically have very little bargaining power. These contracts are standard-form, i.e., that the developer will not be willing to make any amendment to accommodate your special requests, nor will it be willing to change any clause. Given that most of these contracts are one-sided in favour of the developer, the following are things you must look for in a contract and satisfy yourself accordingly. Ask the developer for a sample contract well in advance of making your booking so that you are not going to be surprised later on.

• Ensure the contract you sign is with the same entity in whose name you are writing the booking cheques and follow-on installments. If not, then get a clear documentation trail to establish the relationship between these two entities.

• Understand what is the earnest money? In case of cancellation of the project or if the developer backs out due to financial difficulty, how much of your money will be refunded. Will you be entitled to any interest payment on the money that you have already paid the developer?

• Confirm that the cost of apartment is escalation free. This ensures that any increase in the cost of raw materials should not adversely impact the buyer, because these rising costs will be absorbed by the developer.

• What are the transfer charges if any that will be levied if you transfer the property in someone else's name? Please note that any change in name under which the booking is made, even if the transfer is to a family member, is treated as a transfer

• If there is a delay in construction are you entitled to some compensation as a penalty paid out by the developer to you?

• If any of your installment payments are late, what will be the rate of interest charged on late payments? Generally this can be as high as 18% per annum. Understand whether this penal interest will be on the outstanding amount or full installment.

• What are the amenities that are included in the project (for instance, club house, swimming pool, common rooms, tennis courts etc.? These should be clearly mentioned in the contract.

• What is the total area of the unit that you are buying? This should be clearly mentioned in the contract. Please also understand whether this is super area or carpet area. Usually, the area mentioned in the contract will be super area.

• Understand what is the maximum possible deviation allowed in super area. Sometimes the contractor/architect during construction might make some last minute changes to the floor plan which results in an adjustment to the final area that you get in your apartment. Its common for contracts to specify a 10% deviation. In case it is more than 10%, then the buyer should have an option to back out of the project and take refund of the amount paid so far (if possible with interest). In case of reduction in area, the amount paid in excess to the builder should be refunded with interest

• Ensure you sign on the floor plan layout, specification details and payment schedule. The sections should be a part of the contract as annexures.

• If possible, get the site plan layout signed as part of this legal contract.

At the end of the day, it is your responsibility as the buyer to read in detail the legal agreement you are signing. In case of a dispute later on, you will not be able to use the defense that you never read the contract and you just signed where you were asked to. As the Latin saying goes, caveat emptor – buyer beware!

PropTiger.com is India's largest branded real estate broker with offices in Delhi/NCR, Mumbai, Pune and Bangalore.