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Sealing cancellation when a deal goes sour

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Dipta Joshi Mumbai
Last Updated : Jan 21 2013 | 5:24 AM IST

A good reason to do your homework before you sign a contract with a property developer is that getting refunds on cancelled property deals is not an easy task. A lot will depend on the conditions mentioned in the agreement between you and the builder.

When you zero in on a property, you pay a booking amount to block it in your favour, and also sign an ‘agreement for sale’ with the builder. Customers are liable for refunds on the cancellation of allotment, but many builders include a specific clause pertaining to refunds in the agreement, which may or may not favour a full refund.

“At what stage does a customer ask for a refund, and what are the reasons for seeking one, are assessed by the builder. If the customer asks for it after the property market falls, the builder has a right to deduct some amount from the earnest money paid by him,” says Pravin Doshi, ex-president, Maharashtra Chamber of Housing Industry.

Housing is a state subject and different norms are applicable in each state. In Maharashtra, the Maharashtra Ownership Flats Act does not include any specific regulation regarding refunds on cancellation.

Customers may opt out of their property deals when real-estate markets fall, in order to get a better deal at a lower price. The project may also get delayed due to land acquisition, title default, lack of approvals and other similar issues. Builders will seldom mind a customer pulling out of the deal when the real estate markets are on a rise, as it is easier to find buyers.

If a customer cancels the deal soon after paying the booking amount and before he has signed a contract with the builder, he gets the entire refund after he shows the proof of the payment. But it could also take some time before the customer gets his refund. According to Doshi, “The bigger the builder, the sooner the payment, as he has a reputation to safeguard.”

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If you opt out of the deal once the agreement with the developer has been signed, payments would be on a case-to-case basis, depending on the refund-specific clauses in the agreement. Customers may have to forfeit up to 10 per cent or more of the booking amount.

“More than when the deal is cancelled, who cancels it will matter,” says Ashutosh Limaye, local director, Jones Lang LaSalle (India). If the buyer cancels the deal, he abides by the clauses in the agreement.

“The developer may offer the entire refund along with interest for the period of delay, or the buyers could take legal action against the developer,” says Lakshmi Murli, advocate, Lakshmi Murli Associates.

The court needs to be convinced that the builder has reneged on his commitment to the buyer. In 2009, DLF India’s Gurgaon project — New Town Heights — was delayed. Buyers took legal action against the developer and asked for an exit option. When refund is the only option, talking it out with the builder might help. Even builders want to avoid getting into legal hassles, as it might lead to a defective title for the property.

In case of delayed projects, one could look at other options like opting for another ready-for-possession project of the same builder. Another way out could be building pressure on the developer by getting together other customers facing the same problem.

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First Published: Oct 08 2010 | 12:49 AM IST

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