RERA effect: Homebuyers can now exit the real estate project at any stage
The builder is also bound by law to return the money collected from buyers within 45 days, after deducting the booking amount
The new Real Estate Regulation Act (RERA) will enable homebuyers to exit real estate deals smoothly. The Act, which came into force on May 1, stipulates that homebuyers can cancel allotment of the apartment booked with a builder at any stage even if there is no default on the part of the developer. The builder is also bound by law to return the money collected from buyers within 45 days, after deducting the booking amount.
“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 rule.
What are the reasons under which homebuyers generally cancel a booking?
Some cancel it due to prevailing market conditions when the price of the housing unit does not appreciate or they are desperate to exit due to a family emergency. For some who decide to pull out because they do not like the unit, builders often offer an alternative site to choose from.
“Now it is clearly stated that the booking amount will be forfeited and specified that the builder will have to return the amount within 45 days. Earlier this amount was either never returned or delayed for years until the unit was sold to a new buyer,” says SK Pal, a Supreme Court lawyer.
“This provision will now ensure that the builder is bound by law to return the money within a fixed timeline. Earlier, getting back refund was a Herculean task,” says Abhay Upadhyay, national convenor, Fight for RERA.
A harsh clause for builders?
Builders term this provision under RERA as “impractical”. “What happens if there are multiple bookings by a buyer and he decides to pay installments for only one unit. Also, the provision to return the amount paid for by the buyer within 45 days after forfeiting the booking amount is not practical because much of the amount collected from buyers has already gone into the purchase of land or construction of a building,” says Navin Raheja, chairman and managing director of Raheja Developers.
Under the rules, an allottee can withdraw or cancel a unit at will irrespective of the builder’s default. “This is a harsh clause as the builder will now have to return the amount within 45 days but there is no provision for the builder to withdraw this amount from the escrow account. It allows buyers to cancel the booking at will,” says Sudip Mullick, partner, Khaitan and Co.
Also, if the real estate developer fails to give possession of the apartment or complete the project as per the stipulated time, the homebuyer can terminate the agreement and is entitled to refund of the amount paid with interest in 45 days of such termination.
Watch: How RERA is going to change your homebuying experience
As per RERA, if a homebuyer defaults by not paying to the developer on time and such a default persists for an agreed upon the number of months, the developer can terminate the agreement and cancel the allotment made to the buyer.
The provision on cancellation is fair, says Pal. “No buyer will want to give away 10 percent of the booking amount unless he is under pressure to exit. At present, there is no exit clause in the builder-buyer agreement, only a one-way entry for the buyer. A builder is allowed to return the amount in case he decides to discontinue the project,” says Pal.
Under the Uttar Pradesh Apartment (Promotion of construction, ownership and maintenance) Act, 2010, every promoter shall declare the conditions for cancellation or withdrawal of allotment and the extent of compensation either way in the event of violations of any of the conditions.
Also, if a builder delays the project and the buyer decides to exit, he can cancel his unit and withdraw from the project and get a penalty if the project is delayed.