Builder skipped mandatory RERA insurance: Homebuyers left exposed, legal experts warn

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• Karnataka tribunal ruled builders must transfer RERA insurance.
• Homeowners not liable if builder fails to provide RERA insurance.
• Buyers can seek compensation if builder skips RERA insurance.

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Home buyers who believed their real estate purchase was adequately safeguarded under the Real Estate (Regulation and Development) Act (RERA) have been shocked by a recent tribunal order in Karnataka. The case highlighted an important but frequently neglected provision of the Act, which states that the builder must purchase RERA-approved insurance for the project and transfer it to the apartment owners’ association after handing over possession of the property. If this is not done, the legal safeguards that home buyers have come to expect can easily fall apart.

What is RERA Section 16 insurance?

According to Section 16 of the RERA Act, the promoter has to purchase insurance that covers both the title of the land and the construction of the housing project up to the day of handing over possession. This insurance is a safeguard that protects the home buyer from unforeseen risks such as a dispute over land ownership or damage to the structure before the builder’s liability ceases.

According to legal experts, this is not a discretionary requirement. It is a legal obligation imposed on the promoter, and any failure to purchase or transfer the insurance is a violation of the Act itself.

How home buyers realised the gap

The problem came to light when a set of flat owners in Karnataka were asked to pay for repairs to their building after a fire broke out in one of its parts. The builder had completed the project and handed over possession, but the RERA-approved insurance had never been transferred to the owners’ association. When the matter was brought before the Karnataka RERA tribunal, it was made clear that the promoter had to either produce the insurance documents or pay for the repairs himself.

The order issued by the tribunal clarified that homeowners cannot be held liable for the failure of the builder to comply with the insurance requirement, nor can losses be transferred to them simply because the insurance was not done.

Why it matters to homebuyers

Homeowners are at risk if the RERA Section 16 insurance is not in place in case of a dispute over title, damage to common property, or other construction-related risks prior to the transfer of ownership. Even after homeownership, it is important to obtain the insurance documents if the association intends to continue the insurance on their own.

Attorneys recommend that homebuyers demand a copy of the insurance policy and payment receipts at the time of possession if the association intends to continue the insurance on their own.

What to do if your builder skipped it

Homebuyers can approach the state RERA authority with proof of purchase and project information if they suspect that a promoter did not obtain or transfer the RERA insurance. They can also bring this up with the owners’ association, which can then ask the regulator to issue a direction to force compliance.

FAQs

1. Can homebuyers claim compensation if a builder didn’t secure RERA insurance?

Yes. As explained in the Karnataka RERA case, the promoter can be asked to pay compensation for the losses not covered by the insurance.

2. Is RERA insurance transferable after possession?

The law states that the builder not only has to secure the insurance but also transfer the benefit to the owners’ association after the handover.

3. What are the risks that are still present without this insurance?

Without this insurance, the buyers may have to resort to expensive litigation against the builder for any title problems or damages that would otherwise be covered.