Balancing Buyer Obligations and Developer Rights Under Section 19 of RERA

Written by Rohit Misra,
National Law Institute University, Bhopal
December 2024

Introduction

The Real Estate (Regulation and Development) Act, 2016 (RERA)[i] was enacted to enhance transparency and accountability in the Indian real estate sector. This landmark legislation aims to protect homebuyers from malpractices by developers while ensuring that developers can operate without undue hindrance. One of the critical components of this framework is Section 19, which delineates the obligations of buyers, particularly concerning timely payments.

Understanding these obligations is essential for both parties, as defaults can lead to significant legal and financial repercussions. This blog explores the legal implications of defaults in payment under RERA, the remedies available to both buyers and developers, and the overall impact of these provisions on real estate transactions. By examining these aspects, we aim to provide a comprehensive overview of how RERA seeks to balance buyer obligations with developer rights.

Understanding RERA and Section 19

RERA was introduced with several objectives [ii]: to promote transparency in real estate transactions, to establish a regulatory authority for overseeing these transactions, and to provide a framework for addressing grievances. The Act mandates that developers register their projects with RERA and adhere to specified guidelines, thereby safeguarding buyer interests.

Section 19 specifically addresses the obligations imposed on buyers[iii] regarding timely payments. It emphasizes that buyers must adhere to the payment schedule outlined in the sale agreement. This obligation is crucial for maintaining cash flow for developers, enabling them to complete projects on time. If buyers fail to comply with these obligations, they may face penalties that could jeopardize their investment.

The importance of compliance cannot be overstated; it not only affects the buyer’s rights regarding possession but also influences the overall health of the real estate market. By setting clear expectations for both parties, RERA aims to foster a balanced relationship between buyers and developers, ensuring that both fulfill their commitments.

Obligations of Buyers Under Section 19

Under Section 19 of RERA, buyers are obligated to make timely payments as per the agreed-upon schedule.[iv] Key aspects of buyer obligations include:

Timely Payment of Dues: Buyers must adhere strictly to the payment schedules outlined in their agreements. Delays can lead to penalties or even cancellation of the agreement.
Adherence to Contractual Terms: Buyers are expected to comply with all terms laid out in the sale agreement, including any additional costs that may arise during construction.
Providing Necessary Documentation: Buyers are also required to furnish any documents necessary for processing their payments or completing legal formalities.

The consequences of failing to meet these obligations [v] can be severe. Developers have the right to impose penalties for late payments, which may include interest charges or additional fees. Furthermore, persistent defaults can lead to cancellation of the sale agreement, jeopardizing the buyer’s investment and rights regarding possession.

In Suresh V. Swamy v. L&T Ltd[vi]., buyers argued that despite paying a significant portion of their total cost, they had not received possession on time. The court ruled that since the cause of action related directly to failure in delivering flats, it fell under RERA’s jurisdiction. This case emphasizes that timely payment is not only a buyer obligation but also integral for securing possession rights.

Rights of Developers in Case of Defaults

When buyers default on payments, developers are not left without recourse. RERA empowers developers with specific rights [vii] designed to protect their interests:

Right to Cancel Agreements: Developers can cancel agreements if buyers fail to make payments within the stipulated time frame. This right is crucial for maintaining project viability and ensuring that cash flow remains uninterrupted.
Claim for Damages or Interest: Developers are entitled to seek damages or interest on delayed payments from buyers. This provision ensures that developers are compensated for any financial losses incurred due to defaults.
Legal Recourse: Developers have the option to pursue legal action against defaulting buyers if necessary. This could involve filing civil suits or seeking recovery through arbitration mechanisms.

These rights serve as a deterrent against defaults while ensuring that developers maintain financial stability throughout the construction process. The balance between buyer obligations and developer rights is essential for fostering a healthy real estate market.

In the case of Avinash Saraf v. Runwal Homes Pvt. Ltd.[viii] before the MahaRERA, buyers who had paid nearly 97% of their flat’s cost by November 2014 approached RERA after not receiving possession by August 2016 as promised. The developer contended that since the agreement predated RERA’s enactment, they were not liable under its provisions. However, it was ruled that since the cause of action related directly to failure in delivering possession, RERA’s provisions applied retrospectively, mandating compensation along with interest for delays.

Remedies Available for Buyers and Developers

RERA provides a structured framework for addressing defaults by either party [ix]:

For Buyers:

Filing Complaints with RERA: Buyers who face issues due to developer defaults can file complaints with RERA. The authority has mechanisms in place for grievance redressal, ensuring that buyers receive timely resolutions.
Seeking Refunds and Compensation: Under Section 18 of RERA, if developers fail to deliver possession on time or do not adhere to contractual terms, buyers can seek refunds along with compensation for delays.
Mediation Services: Many state-level RERA authorities offer mediation services [x] aimed at resolving disputes amicably before they escalate into formal complaints.

For Developers:

Cancellation Procedures: Developers can initiate cancellation procedures as per the terms specified in the sale agreement. This process must comply with RERA guidelines to ensure fairness and transparency.
Recovery Processes: Developers have legal avenues available for recovering dues from defaulting buyers,[xi] including filing civil suits if necessary. They may also report persistent defaulters to credit rating agencies.
Interest Claims: Developers can claim interest on delayed payments from buyers as stipulated in their agreements, thereby protecting their financial interests.

This dual approach ensures that both parties have access to remedies that uphold their rights while promoting accountability within the real estate sector.

In M/s Spenta Builders Pvt. Ltd. v. Ashlesh Gosain[xii], the main crux dealt with the delayed possession from the developer even after significant payments were made by homebuyers. MahaRERA initially ordered interest from July 1, 2017, however, upon appeal by both parties dissatisfied with this decision, MahaREAT determined that interest should be calculated from January 1, 2016—highlighting how builders cannot use force majeure claims as justifications for delays unrelated directly to natural calamities.

Challenges Faced by Buyers and Developers

While RERA has established a robust framework for regulating real estate transactions, challenges still persist [xiii]:

Lack of Awareness: Many homebuyers remain unaware of their rights and obligations under RERA. This lack of knowledge can lead them to inadvertently default on payments or miss out on claiming refunds when entitled.
Delays in Grievance Redressal: Although RERA aims for timely resolutions, some state authorities experience backlogs due to high volumes of complaints. This can frustrate homebuyers seeking quick remedies.
Complexity in Documentation: The documentation required for compliance can be cumbersome for both parties. Misunderstandings regarding paperwork may lead either side into default situations.

Developers also face challenges such as fluctuating market conditions that impact project financing and completion timelines. These external factors can complicate compliance with contractual obligations.

Conclusion

Balancing buyer obligations and developer rights under RERA is essential for fostering a fair real estate market in India. By clearly defining responsibilities and providing remedies for defaults, RERA aims to protect both parties involved in real estate transactions. Effective communication between buyers and developers is crucial for minimizing disputes and ensuring smooth transactions. As we move forward into an increasingly regulated real estate environment, it is vital that both homebuyers and developers remain informed about their rights and responsibilities under RERA. Continuous education initiatives by regulatory authorities can help bridge knowledge gaps among stakeholders. Ultimately, RERA serves as a vital tool in promoting accountability and transparency in the real estate sector while benefiting both homebuyers and developers alike. Through adherence to its provisions, we can hope for a more equitable landscape where both parties thrive without compromising each other’s interests.

[i] Real Estate (Regulation and Development) Act, 2016, No. 16 of 2016.

[ii] https://groww.in/loans/rera-act

[iii] https://abbasilegal.com/right-of-home-buyers-under-rera/

[iv] https://lawtimesjournal.in/why-was-rera-introduced-what-are-the-rights-of-buyers-under-rera/

[v] https://vakilsearch.com/blog/penalties-under-rera/

[vi] https://taxguru.in/wp-content/uploads/2019/05/Suresh-V-Swamy-vs.-Larsen-Turbo-Limited-MahaRERA-Mumbai.pdf

[vii] https://www.rprealtyplus.com/amp/interviews/rera-protection-of-the-builders-91668.html

[viii] https://macj-abuyerschoice.com/wp-content/uploads/2018/12/Avinash-Saraf-Neha-Duggar-Saraf-Vs-Runwal-Homes-Pvt.-Ltd..pdf

[ix] https://law4u.in/answer/7867/what-are-the-legal-remedies-available-to-buyers-under-rera-in-case-of-default-by-developers#:~:text=Conclusion%20RERA%20provides%20a%20comprehensive,in%20civil%20courts%20if%20necessary.

[x] https://ijpiel.com/index.php/2022/08/31/dispute-resolution-an-analysis-pre-and-post-rera/

[xi] https://rerafiling.com/rera-article-detail.php/722/legal-remedies-if-real-estate-project-is-stucked

[xii] https://www.livelaw.in/pdf_upload/23-ms-spenta-builders-pvt-ltd-558186.pdf