Does the RERA allow buyers to cancel an allotment at any time?

[ecis2016.org] For personal reasons or owing to defaults by the developer, a home buyer is empowered to cancel his booking. However, the agreement of sale will be the determining factor

The Real Estate (Regulation & Development) Act, 2016, (RERA) has ushered in a wave of transparency and structure to an otherwise unregulated real estate market. However, many home buyers may still not have clarity on some of the rules laid down by the RERA. One of the most crucial questions is whether a home buyer can cancel his booking and exit at any time and whether the RERA allows this? The answer is, yes, but this is not as easy as it may seem.

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When an allottee wants to exit because of developer’s default

Defaults by developers have been very common. Harsh Parikh, partner, Khaitan & Co, says that allottees can cancel the booking and exit a project, in case there is a default by the developer, for which case, the RERA also provides for the exit mechanism. If there is a default by the developer in adhering to the timelines to complete a project or any other provision of the RERA, the allottee should follow the process laid down in the agreement, which may entail addressing a letter to the developer bringing to his/her attention the default or breach of any terms of the agreement or RERA and allowing reasonable time to the developer to cure the breach.

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If the developer does not rectify the breach, the agreement would provide for the consequences and way forward. Generally, in case of termination of an agreement due to any delay in handing over possession or breach of terms of the agreement or the RERA, the allottee is entitled to a refund of the consideration paid with interest, at SBI’s highest marginal cost of lending rate + 2%. This protection is provided to the allottee under Section 19 (4) of the RERA. However, the most important aspect in this is that the developer should be in breach of the terms or there should be a genuine delay in handing over possession of the apartment.

If, even after serving a notice of termination, the developer fails to refund the consideration with interest, the remedy available to an allottee is to approach the respective Real Estate Regulatory Authority and file a complaint in this regard.

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When an allottee wants to exit because of personal reasons

To cancel a big-ticket purchase, home buyers will surely have a reason. A sudden emergency, a death of someone in the family, loss of income, or investment in alternate avenues, could be some of the reasons. In all this, the agreement of sale becomes important. For example, the clause in the sample format of the agreement of sale on the Madhya Pradesh RERA reads:

“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 60 days of such cancellation.”

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Parikh says, “If an allottee wishes to exit the project without there being any default of the developer, such exit would be subject to the terms of the agreement executed with the developer. The allottee must be aware of whether the agreement contemplates any liquidated damages or forfeiture of a certain amount from and out of the total consideration, if the allottee is desirous of cancelling the booking or exiting the project without any default of the developer.”

Can buyers cancel the booking before agreement of sale?

The promoter or developer cannot ask for any deposit prior to registration of the agreement of sale. As per Chapter III, Section 13 (1) of the law, “A promoter shall not accept a sum more than 10% of the cost of the apartment, plot, or building as the case may be, as an advance payment or an application fee, from a person, without first entering into a written agreement for sale with such person and register the said agreement for sale, under any law for the time being in force.”

In short, it is not legal to transact any amount for the property purchase before the agreement of sale is registered. Once registered, you can cancel the booking as per the terms and conditions mentioned in the agreement. You may also have to forgo the booking amount.

If the agreement is not registered and you as a buyer had deposited some amount, upon cancellation of booking, ideally, the developer should return the entire amount. If he/she does not, you can approach the Authority.

Can the developer cancel a property allotment?

A developer can cancel an allotment, only in accordance with the terms mentioned in the agreement of sale. The allottee or home buyer can approach the Real Estate Regulatory Authority for relief, if the cancellation is not in accordance with the terms of the agreement for sale or if it is unilateral (i.e., favouring only the developer) or if the cancellation is on grounds that are not sufficient.

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