ABSTRACT
The real estate sector is currently facing numerous challenges globally, including in India. One of the primary issues is a lack of transparency, with aspects like pricing, construction quality, ownership, and legal issues often hidden from buyers. Delays in project delivery, especially in major cities, have also become a significant concern. The Real Estate (Regulation and Development) Act (RERA) in India aims to address these challenges by promoting fair and transparent transactions between buyers and sellers. RERA serves as the first regulatory authority for the Indian real estate industry, providing a unified legal framework for property transactions and standardising practices nationwide. RERA gives unified legal regime for the purchase in Real Estate.
This research article will delve into the significance and impact of RERA on both builders and buyers in the real estate.
KEYWORDS
RERA (Real Estate (Regulation and Development Act), builder, buyer, delay in possession, real estate sector.
INTRODUCTION
- Home buying is the costliest purchase for any family, be it a poor family, middle class or born-rich family. For buying that dream home, most of us habitually draw on our savings and even borrow from banks. But after raising money from all possible sources, at the end of the day, is the home buyer comfortably getting possession of that dream home? In most cases, it is not so.
- What leads to a builder – buyer dispute?
Some of the major contentions of the aggrieved homebuyers are:
- Delay in possession/delivery of the unit.
- Demand of extra charges by builder during handover.
- Major unauthorised changes in the layout/ building plan.
- Non-execution of sale agreement despite receiving advance.
- Non-issuance of relevant documents like payment receipt.
- Demand of excessive charge than what was agreed.
- Usage of poor-quality materials for construction.
- long delays in getting possession or to get OC for their building.
- The annual report (2016-2017) published by department of Consumer affairs of Government of India mentioned below shows that the majority of disputes in builder- buyer dispute relates to delay in possession.
- In 2023, Department of Consumer Affairs held a round conference on ‘How to effectively Redress the Grievances relating to the Real Estate Sector’. The conference comes against the backdrop of a huge pendency of cases pertaining to the Real Estate sector in the consumer commissions. While the conference mainly focussed on the minimisation of disputes and developing party-friendly dispute resolution mechanisms such as mediation, the question of why so many cases related to real estate are being filled in the consumer commissions when there is a special dispute resolution mechanism under the Real Estate ( Regulation and development ) Act ,2016{‘RERA’), remained unconsidered.
- Statistics for the 2023 & 2024 Real Estate Industry in India market size, created by Mordor Intelligence™ Industry Reports analysed:
- that the Real Estate Industry in India Market size is estimated at USD 0.33 trillion in 2024, and is expected to reach USD 1.04 trillion by 2029, growing at a CAGR of 25.60% during the forecast period (2024-2029).
- In India, the real estate sector is the second-highest employment generator, after the agriculture sector. It is also expected that this sector will incur more non-resident Indian (NRI) investment, both in the short term and the long term. Bengaluru is expected to be the most favoured property investment destination for NRIs, and commercial real estate are also growing significantly, providing the much-needed infrastructure for India’s growing needs.
- Housing affordability in India was 3.2 in the financial year 2022, the same as the year before, according to HDFC Bank’s data. According to the Reserve Bank of India, in the financial year 2022, banks in India advanced around two trillion Indian rupees (USD 24.44 billion) in housing loans almost reaching pre-COVID levels. This reflected renewed homebuyer sentiment, as an increasing number of Indians were investing in buying a residential property. But still the delay in possession and several others disputes and the problems faced by buyers against builders remain pending in the courts and the buyers even after investing all their savings are unable to secure a home for themselves.
SIGNIFICANCE OF BUILDER BUYER AGREEMENT
- What does builder buyer agreement refer to?
- The Builder Buyer Agreement refers to a legal agreement between the buyer and seller, which is known as a contract of sale. The BBA real estate sets out the terms and conditions of buying a property, including payment arrangements, delivery date, inspection period and other responsibilities on both parties.
- The importance of this document increased rapidly, conforming to the Real Estate (Regulation & Development) Act 2016. The RERA Act stipulates that all private real estate developers register their projects with their respective state governments within three months of the notification being issued. Once registered, they will be required to publish an advertisement regarding their registered project before selling it off or offering possession to any consumer (buyer).
- Importance/Significance of a Builder Buyer Agreement (BBA)
- A Builder Buyer Agreement (BBA) is a legal document which states both the builder and the buyer’s responsibilities. It protects both parties – you as buyer and the builder’ s interests and maintains transparency between both parties throughout the procedure.
- For a flat purchase agreement with a builder, a BBA can also cover matters such as the deposit money amount you will pay, the delivery timeline, and so on. To ensure that the homebuilding process is completed as per the buyer’s expectations, homebuyers should sign the Builder Buyer Agreement. The contract describes the precise rights, duties, and demands of both the builder and the buyer. It aids in shielding the purchaser from any controversies or misunderstandings that can develop throughout the development process.
- Additionally, it lays forth the specific terms and conditions that must be followed by both parties during the entire construction process. This gives assurance that the builder will be paid for their labour and that the buyer will obtain a quality home that fits their requirements. The Builder Buyer Agreement is a binding contract that needs to be thoroughly reviewed before being signed.
- Checklist for Buyers in Builder-Buyer Agreements
- RERA documentation
- Dates of the start and end of the project
- Right of the buyer to return or assign the property.
- Refund procedures.
- Clause of force majeure
- Taking into account the property and excluding certain things (such as maintenance, parking, electrification charges, etc.)
- Payment schedule
- Fixtures, a clear title, and jurisdiction/arbitration clause are examples of property specifics.
LEGAL REMEDIES AVAILABLE TO A BUYER AGAINST BUILDER
In today’s world, every home buyer has apprehension of being cheated by the unethical builders and cases of cheating, fraud etc. are piling-up day by day. The poor home buyer is not sure whether after paying the amount to the builder, he will get the property and also if it is going to be allotted on time and of good quality. Smart Buyers should know what all remedies are available to help him in their time of difficulty. Sensing the difficulties faced by home buyers, the Government has taken adequate measures to their rescue. However, at times a poor home buyer is not aware of his legal rights. The law is becoming rigorous day by day and few remedies that are available to the buyer under various Statutes are as below:
- Consumer Protection Act,1986 (CPA)
- Real Estate Regulation Act, 2016 (RERA)
- Insolvency and Bankruptcy Code, 2016 (IBC)
- Arbitration & Conciliation Act, 1996
- Competition Commission of India (CCI)
- Civil Remedy
- Criminal Remedy
- Consumer Protection Act, 1986
- Consumer Protection Act established various Redressal Forum at different levels, District Forum, State Commission and the National Consumer Dispute Redressal Commission “NCDRC”. Such Forums/Commissions have been set up with jurisdictions being defined in terms of territory and the monetary value. Under the Consumer Protection Act, a Complaint may be made by the Home Buyer regarding delay in possession of the property or deficiency in service of the builder. The Applicant has to file Complaint along with necessary documents in support of his Complaint. In terms of the relief granted to aggrieved homebuyers, the relevant Consumer Forum may pass an Order directing the builder or developer to return the money along with compensation for any loss or damage caused to the home-buyers due to the deficiency in service of builders or developers.
- Real Estate Regulation Act (RERA)
- The RERA Act is considered as one of the specialised legislations passed by the Indian Parliament for real estate sector. Its objective is to address grievances of buyers and bring transparency and accountability of builders. RERA envisages Real Estate Regulatory Authorities to be created in each State for not only promoting the interest of all the stakeholders under RERA but also to deal with their grievances. Significantly, RERA entitles the aggrieved Home Buyers to claim the refund amount which has been paid for purchase of a property, along with interest as may be prescribed by the States or Union Territories, in case builders or developers default in delivery of possession, in accordance with the agreed terms. RERA provides for penal provision and stipulates that he shall be liable to a penalty which may extend up to 5% of the estimated cost of the real estate project as determined by the concerned Real Estate Regulation Authority. The law ensures that realty project is completed in time. If delayed, then the developer will have to pay interest to the home buyer. Homebuyers have the choice of filing a complaint with the concerned Real Estate Regulation Authority, in case the developer(s) defaults in delivery of possession or for that matter contravenes any provisions of the RERA or the Rules or Regulations made thereunder.
- Insolvency and bankruptcy act 2016
- (IBC) is the landmark law promulgated by the Government of India. The Adjudicating Authority under IBC is National Company Law Tribunal (NCLT). This law has become a nightmare for unscrupulous builders and a boon for the Home Buyers. The amended IBC provides recognition to homebuyers as financial creditors. Therefore, as per the amended law, homebuyers are permitted to initiate the Corporate Insolvency Resolution Process (CIRP) against the builder company, under Section 7 of IBC.. IBC is totally time bound process and the scope of resolution of dispute under IBC, is very fast.
- Arbitration & Conciliation Act, 1996
- If there is an ‘Arbitration Clause’ in the Builder-Buyer Agreement or any Agreement executed between home buyer and Builder, then home buyers will invoke Arbitration proceedings governed under the Arbitration and Conciliation Act, 1996. It is less time technical as compared to a Civil Remedy to get the Award. At times, it happens that the Arbitrator is appointed by the builder and the Arbitral proceedings may be conducted in a biased manner. In that case, the home buyers may file appeal against the Arbitral Award.
- Competition commission of India
- According to the Competition Act 2002, if the Builder is in a Dominant Position and has misused his dominant position leading to the disadvantage of the buyer, he/she can file a complaint before CCI against the builder for the abuse of the dominant position. If after the investigation, it is revealed that the builder is found guilty of any anti-competitive practice, he shall be fined huge penalties by the CCI.
- Civil case for recovery of money
- If there is a case of breach of the Agreement i.e., the builder does not fulfill his agreed obligations, the buyer can move to the Civil Court and file the Civil Suit for the recovery of his money and also claim the interest thereon, according to the Code of Civil Procedure, 1908. Also, if the builder does not fulfil any obligation or make any change in the agreed terms, then the buyer can also pray for a refund of the money which is already paid to the builder.
- Criminal Case for cheating
- Under the Indian Penal Code, 1860 a buyer can file a criminal case for cheating, fraud etc. against the builder. The buyer can lodge Police Complaint before Economic Offence Wing (EOW). The buyer can also approach the Criminal Court against the builder and its directors for cheating, fraud, siphoning of funds etc. This trial process works fast in court and if the builder makes no appearance before the Court, then Non Bailable Warrant (NBW) can also be issued against them.
WHAT IS RERA?
The Real Estate (Regulation and Development) Act, 2016
- is an Act of the Parliament of India which seeks to protect homebuyers as well as help boost investments in the real estate industry. The Act establishes a Real Estate Regulatory Authority (RERA) in each state for regulation of the real estate sector and also acts as an adjudicating body for speedy dispute resolution. The bill was passed by the Rajya Sabha on 10 March 2016 and by the Lok Sabha on 15 March 2016. The Act came into force on 1 May 2016 with 61 of 92 sections notified. The remaining provisions came into force on 1 May 2017. The Central and state -governments are liable to notify the Rules under the Act within a statutory period of six months.
- RERA empowers buyers with the right to know every crucial detail of the real estate project they want to invest in. It allows buyers to make sound decisions by helping them get the most accurate, real-time information and cost calculations without any discrepancies or misleading advertisements.
- What is it?
- The main aim of the Act is to protect the interest or buyers and promote timely delivery of properties or projects. Earlier, builders used to include extra spaces in the carpet area and charged buyers 20-30 percent more than what would have been the charge on actual carpet area. The unaware buyer also used to pay the asked amount. The RERA specifically defines the carpet area to avoid unaware buyers to fall prey to the promoters’ tactics. Next, promoters would be required to keep 70 percent of the amount received from buyers in a separate escrow account and would be allowed to use that money only for the development of the project for which the money has been paid. This will not only ensure speedy development of the project but will also dissuade promoters to misallocate the funds.
Why RERA?
- Industries like telecom, banking, stock markets, insurance, pension, film, FDI, food, cricket, etc. all have regulators in the name of TRAI, RBI, SEBI, IRDAI, PFRDA, CBFC, FIPB, FSSAI and BCCI, respectively. However, the sector which has the third largest contribution to GDP, which attracts most of our investments and which is the root cause of black money and corruption, is ironically not regulated. Buyer pays in unaccounted cash to lower the registration amount and hence, stamp duty and seller demands money in cash to evade taxes. The use of black money in realty transactions creates a win-win situation for both the parties.
- Since 2012, the Indian real estate sector was on the verge of collapsing due to various reasons such as growing unemployment, recession, low rental yield, inventory build-up, unclear taxation, etc. As a result, the demand in the real estate sector was declining which directly affected the recovery of the builders’ investment. RERA has restored and regained this lost trust in the real estate sector in no time.
- Before RERA, uncertain delays or obstructions were always a concern for the potential homebuyers who invested their entire life savings in a property. Brokers or real estate agents took advantage of the prospective homebuyers by misrepresenting the calibre of the development and timelines of the project completion. The Real estate agents also failed to disclose the litigations faced by a property.
- The introduction of RERA created a level playing field for both consumers and developers, lowering the dangers that people previously faced. RERA made registration of real estate agents and projects mandatory which entitles a buyer to all the relevant information regarding a real estate project and the right to obtain all project-related papers. RERA established a state agency to oversee both residential and commercial real estate deals.
- The main objective of setting up RERA was to protect buyers’ interests and enhance professionalism in the real estate sector of the nation.
COMPARATIVE ANALYSIS: PRE AND POST RERA
The real estate (Regulation and developments) Act, 2016 was introduced to institutionalise the largely, unregulated, and challenge riddled real estate sector. The real estate sector lacked standardisation of business practices and transactions. Delays in project had been a major issue plaguing real estate which has led to huge cost overruns. There existed no specific grievance Redressal mechanism, the absence of which encouraged a huge generation of black money in the real estate sector.
Let’s us dwell into the position of real estate sector prior to RERA and transformative impact of RERA on real estate industry.
- PRE – RERA
- Before the implementation of RERA, the real estate sector in India grappled with numerous issues a primary concern was lack of transparency and accountability among developers, leading to delayed projects, unclear pricing structure and deceptive advertisements.
- the information disparity between buyers and developers was a significant challenge. buyers had limited access to crucial project details such as plans, approvals, and financial statements, leading to a lack of trust and confidence in market.
- In the absence of any specific law to regulate this sector, homebuyers were constrained to seek remedy under the laws such as- Indian Contract Act and Consumer Protection Act, involving lengthy litigation process. There was no recourse to any speedy grievance redressal mechanism in case of any genuine problem faced by either the homebuyers or developers. In other words, for want of a preventive law, recourse was made to curative measures.
- Due to one-sided agreements tilted heavily in favour of developers, homebuyers were forced to pay various extra charges including cost escalation whereas developers were not held responsible even in case of any contravention of promised deliverables. Moreover, there was unequal rate of interest to be paid by the promoters and buyers in case of default or delays thus bringing inequity and injustice in operations.
- Home buyers would fall prey to unscrupulous builders, luring them to invest in non-approved projects, promising high returns. Developers used to mislead the homebuyers by making false promises regarding various features, layout and amenities of the project but later retracted on the same.
- Terms such as- super buildup area, carpet area, covered parking etc. were used arbitrarily by developers to their advantage thereby cheating the homebuyers. The homebuyers paid for super area whereas they got very less actual usable space in their flats/homes.
- On the other hand, developers had to seek umpteen numbers of sanctions and approvals through complex processes before commencement of project construction. For example- even a simple task of getting the project layout map approved would take years, resulting in delays and cost escalation. Terms such as- super buildup area, carpet area, covered parking etc. were used arbitrarily by developers to their advantage thereby cheating the homebuyers. The homebuyers paid for super area whereas they got very less actual usable space in their flats/homes.
- POST RERA:
- In view of various issues plaguing the harmonious development of Real Estate sector and to protect the interest of homebuyers, need for specific legislation was being felt for a long time which culminated in enactment of The Real Estate (Regulation and Development) Act, 2016
RERA has a number of benefits for the buyer, the promoter, and the real estate agent. These include:
- Standardisation of carpet area – Before RERA the manner by which a builder calculated the price of a project wasn’t defined. However, with RERA there is now a standard formula that is used to calculate carpet area. This way, promoters cannot provide inflated carpet areas to increase prices.
- Reduced risk of insolvency of the builder – Most promoters and developers work on multiple projects simultaneously. In the past, developers could transfer funds from one project to another. However, under RERA, 70% of the money raised must be deposited in a single bank account. Funds can only be withdrawn after certification by engineers, chartered accountants, and architects.
- Advance payment – As per the rules, a builder cannot take more than 10% of the cost of the project from the buyer as advance or application fees. This saves the buyer from having to source funds fast and having to pay a large amount.
- Rights to the buyer in case of any defects – Within 5 years of possession, if there is any structural defects or problems in quality, the builder has to rectify these damages within 30 days at no cost to the buyer.
- Interest to be paid in case of default – Prior to RERA, if the promoter delayed possession of the property, the interest paid to the buyer was much lower than if the buyer delayed payments to the promoter. This has changed with RERA and both parties have to pay the same amount of interest.
- Buyer’s rights in case of false promises – If there’s a difference between what the builder promises and what’s actually delivered, you’re entitled to a full repayment of the amount you paid as an advance. In some cases, the builder may be required to pay interest on that amount.
- Grievance Redressal – If the buyer, the promoter, or the agent has any complaints with respect to the project, they can file a complaint with RERA. If they aren’t pleased with RERA’s decision, a complaint can also be filed with the Appellate Tribunal.
How can homebuyers seek compensation and gain possession under RERA?
- The Supreme Court in a recent verdict held that the flat buyers are entitled to compensation for “delayed handing over of possession”.
- The Real Estate (Regulation and Development) Act, 2016 (RERA) provides various avenues for homebuyers to seek compensation in case of delayed possession by builders. Several Supreme Court judgments have further clarified and interpreted these provisions, offering important guidance to aggrieved buyers.
Here’s a summary:
Compensation Options under RERA:
- Section 18(1)(a): If the builder fails to deliver possession on time, the buyer can withdraw from the project and demand a full refund of the invested amount along with reasonable interest. This right is unconditional, meaning the buyer doesn’t need to prove any specific losses.
- Proviso to Section 18(1): If the buyer chooses to continue with the project despite the delay, they can claim monthly interest at twice the bank rate on the invested amount until possession is handed over. This is in addition to any liquidated damages (fixed compensation) mentioned in the agreement.
Supreme Court Judgments:
- Experion Developers Pvt. Ltd. vs. Himanshu Giri (2019): This landmark judgment upheld the buyer’s right to claim interest and compensation even if the agreement specifies a different rate for liquidated damages. It clarified that the RERA provisions prevail over any contractual terms, providing stronger protection to buyers.
- Ace Developers Pvt. Ltd. vs. Manju Gupt (2022): This judgment emphasised the builder’s obligation to deliver possession on time. It also awarded additional compensation for mental agony and inconvenience suffered by the buyer due to the delay.
- Unitech Group Ltd. vs. Hemant Kantilal Shah (2023): This case reiterated the buyer’s right to choose between withdrawal and seeking interest and compensation. It also upheld the authority of RERA authorities to determine the appropriate rate of interest in such cases.
WHY RERA ACT IS NOT A BALANCED SOLUTION TO THE PROBLEMS OF REAL ESTATE?
India’s legislature took a long-awaited call in 2016 of bringing such a law to force that can safeguard the interest of real estate buyers in the country. Buyers, who were denied timely handover of promised properties for a long time, welcomed the Real Estate Regulatory Authority Act, or the RERA Act to their cause. While the act proved out to be of genuine help to those for whom it was formed, the loose ends of the legal framework it works with have put the builders at a great disadvantage.
After the act came into force, a regulatory authority was established in each state to ensure timely delivery of properties to the buyers. A total of 22 out of 28 states adopted RERA within one year of its notification, and the figure reached to 27 states in 2023. The act clearly stated the duty of the builder to deliver the complete project to the buyer at the time of possession. However, there is still a long way to go in terms of creating a more investor – friendly, and transparent-regulatory framework for the land sector in India.The implementation of RERA and other regulatory reforms needs to be strengthened, and corrupt and bureaucratic delays must be further addressed.
Let’s discuss certain shortcomings of RERA:
High compliance costs:
- One of the major drawbacks of RERA is that it has increased compliance costs for developers, which in turn increases the cost of projects. Developers are required to register their projects with the authority, maintain a separate escrow account, and provide regular updates on the progress of the project.
Slow dispute resolution:
- RERA provides for the establishment of a Real Estate Regulatory Authority. It also establishes an Appellate Tribunal to resolve disputes between buyers and developers. However, the dispute resolution process can be slow, which can be frustrating for buyers who are seeking a quick resolution to their complaints.
Limited power of authority:
- RERA has an authority in each state to oversee the implementation of the act. The authority has limited powers to take action against developers who violate its provisions. This has led to situations where developers continue to flout regulations and avoid penalties.
Limited jurisdiction:
- RERA only covers the residential real estate sector and does not cover commercial real estate. This means that commercial real estate projects are not subject to the same regulations as residential projects.
Raise in property costs:
- Due to the absence of liquidity, manufacturers need to search for different hotspots for cash subsequently, prompting an ascent in the cost of the property.
Demand supply contrast:
- Compliance to all the angles will postpone the venture and as there won’t be pre-selling of the property.
Severe punishment:
- If a manufacturer neglects to satisfy any arrangements, he will be at risk for detainment as long as 3 years or 10% of the absolute expense of the undertaking.
No insure on rental:
- RERA does exclude any tenant contracts and courses of action of any sort.
The merits are heavier than the demerits and this is a decent advancement to enable the everyday people to get the conveyance of his dream home on schedule and have the option to get them at sensible costs.
Unfair play :
- Apart from the poor clearance structure, an ambiguity also revolves around the definition of an ongoing project among the RERA officials which further stretches the issue for the builders. “First, there is a lack of clarity among the officials on what is an ongoing project. And, you have clearances for the purpose of environment, mining, and pollution which take too much time. By the time the builder gets through with these, the deadline is already expired,” a legal representative of one of the penalised companies told Outlook Business.
- The issue becomes even greater in case of small builders who themselves do not have the knowledge of online process that is required for the RERA registration. The challenge to go to multiple windows for the approvals pushes back their progress even further compared to large builders. While sometimes they are required to obtain the clearances simultaneously, often are the cases when they need to get the approvals sequentially.
SUGGESTIONS
- Streamline approval processes:
- To avoid delays in project approvals, the government should consider streamlining the approval process by creating a single-window clearance mechanism. It will help developers to obtain all the necessary approvals from various authorities in a time-bound manner.
- Increase awareness:
- The government should launch awareness campaigns to educate buyers, developers, and other stakeholders about RERA and its provisions. This can help prevent fraudulent practices and promote transparency in the real estate sector.
- Extend jurisdiction:
- The government should consider extending the jurisdiction of RERA to cover the commercial real estate sector as well. This can help bring greater transparency and accountability to the sector.
- Uniform implementation:
- To ensure uniform implementation of RERA across all states, the government should encourage states to adopt a common set of rules and regulations.
- Improve dispute resolution:
- The government should work towards improving the dispute resolution mechanism under RERA. Setting up fast-track courts or tribunals to handle disputes related to real estate projects can be done to address this issue.
- Simplify compliance:
- To reduce compliance costs for developers, the government should consider simplifying the compliance process. Reducing the number of compliance requirements or introducing online compliance mechanisms can be done to address this issue.
The government should work towards improving the dispute resolution mechanism under RERA. Setting up fast-track courts or tribunals to handle disputes related to real estate projects can be done to address this issue. To reduce compliance costs for developers, the government should consider simplifying the compliance process.
CONCLUSION
- The RERA is greatly needed and is a positive step towards protecting the buyers, who up until now had to rely on unfair agreements and protracted, onerous legal proceedings to secure their rights. The RERA grants statutory recognition to the rights of buyers that were previously not included in builder-buyer agreements since buyers were not in a position to freely negotiate such agreements. The existence of arbitration clauses in builder-buyer agreements, however, appears to be at odds with the redressal mechanism provided under the RERA and the Arbitration Act because the RERA also applies to projects that have not yet received an occupancy certificate and because this is standard practise in the real estate industry. Which legal action would take precedence in the event of a dispute between the builder and the buyer is unclear.
REFERENCES
Author:- Aman Singh, a Student of Law Centre – 2 Faculty of Law, University of Delhi
Co-author – Prapti Jain, a Student of Law Centre – 2 Faculty of Law, University of Delhi
