Compare builder agreement with your state's model deal: Analysts

Beware of broad definitions of force majeure clause

The Supreme Court recently asked the Centre to draft a model builder-buyer agreement that states can adopt. The agreements that developers currently get buyers to sign are lopsided at times. Before a model agreement is put in place and, more importantly, can be enforced rigorously, it is up to buyers themselves to avoid signing on the dotted line of a lopsided agreement.

The builder-buyer agreement is a document where the terms and conditions of the transaction, and the rights and obligations of both the developer and the buyer, are spelt out.

Developers have to put up their builder-buyer agreements on the Real Estate Regulatory Authority’s (RERA) website. Once you have zeroed in on the developer, go through the agreement. But before you do so, you need to know the best practice on various parameters. 

A model builder-buyer agreement exists under the Real Estate (Regulation and Development) Act. “Some states like Maharashtra also have model builder-buyer agreements. Looking this up will provide you with a benchmark against which you can compare the developer’s builder-buyer agreement,” says Avikshit Moral, partner, IndusLaw.

Penalty levied from buyer

Get clarity from the agreement on the penalty you will have to pay if there is a delay in paying a tranche of money to the developer. “When there is a delay from the buyer’s side, developers sometimes charge a huge penalty, which could be much higher than what they themselves are obliged to pay in case they delay possession,” says Prashant Thakur, senior director and head–research, Anarock Group.

Ideally, there should be parity between the two rates. The Real Estate (Regulation and Development) Act prescribes an interest rate equal to the State bank of India’s prime lending rate plus two percentage points.

Delivery date

There should be no ambiguity on delivery date. Sometimes, the agreement says the project will be delivered 36 months from start of construction. But what constitutes the start of construction? For instance, is it the date when excavation starts or ends?

The period of construction, as stated in the builder-buyer agreement, should not be excessively long. “Even if the project is going to be completed in three years, in its filing on the RERA website the builder could state the timeline as five years,” says Anand Moorthy, business head, data intelligence and asset management, Square Yards. This is done so that the builder escapes paying a penalty to the buyer in case of delayed possession. Developers, according to Moorthy, are able to take this leeway because there are no prescribed timelines for completing projects.

Force majeure clause

Force majeure basically refers to circumstances that are beyond human control. Developers are entitled to use this clause to delay possession. But sometimes they misuse it. “The force majeure clause, as defined by RERA and also by the Maharashtra model agreement, is quite narrow. But in recent times, especially after Covid, you can find builder-buyer agreements with very broad definitions of force majeure,” says Moral.

Transfer clause

Watch out for clauses that curtail your freedom to sell the property any time after purchase. Builders sometimes charge a fee from buyers if they sell while the project is under construction or within a stipulated period. “If you have bought the asset, you should have the freedom to sell it whenever you want,” says Moorthy.

In addition to these, Thakur suggests ensuring that the size of the apartment is stated in terms of carpet area. He also suggests getting clarity on pricing: Whether the developer will charge separately for things like clubhouse, electricity connection (one time), and what those charges will be.

Finally, if you find it difficult to carry out all this due diligence yourself, pay a fee and engage a lawyer or a service provider to do this for you.

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