When you are buying a home from a well-known builder and finance this purchase with a home loan, you expect the terms and conditions of the deal to be non-biased. However, a home buyer from Hyderabad faced challenges as the builder drafted the terms and conditions favourable to its favour. When the buyer found out about this and cancelled the deal, the builder arbitrarily forfeited a substantial amount of advance money. Naturally the buyer protested about this arbitrary behaviour of the builder and eventually filed a case with Telangana RERA.
The builder in his defence cited terms and conditions laid down in the biased one-sided confirmation letter which was sent to homebuyer as an email attachment but not signed by the homebuyer. Moreover, when Telangana RERA started to investigate the case, it was found that the builder did not execute a sale agreement though he received about 20% of the flat’s price. On top of it the builder on his own wrote a clause in the confirmation letter that they will sign the sale agreement only when 30% of the price is paid. The RERA tribunal noted that this act itself is a gross violation of the RERA law as builders have to sign an agreement to sell once they get 10% of the price.
The RERA tribunal also found out that the builder sold off some residential units of the property to commercial customers without informing them that commercial activities were prohibited in the respective residential project. The RERA tribunal also found that the builder who felt entitled to forfeit the homebuyer’s money as he had incurred losses, did not provide a single evidence of such loss.
Ultimately in the lengthy legal battle it was proved that the builder was unfair to the concerned homebuyer, Telangana state and commercial property buyers of the project.
All it took was one complaint (initiative) from the homebuyer and it opened up a whole suite of RERA violations by the builder. Read on to find out how this homebuyer won his case and understand what aspects you need to check before signing a property deal.
Brief facts of the RERA case
According to the order of Telengana RERA here are the brief facts of the case:
● The project was a residential project registered with Telangana RERA.
● The homebuyer paid Rs 12 lakh as advance payment and was given a confirmation letter by email.
● When the homebuyer cancelled the booking and asked for a refund, he was told to wait for the builder to resell the flat.
● When the said flat was resold, the builder refunded Rs 5 lakh and promised to refund Rs 3 lakh later. It is at this time the builder communicated that they would deduct the remaining Rs 4 lakh as cancellation charges.
Homebuyer waited for five months for the refund and then lost his faith in the builder (M/s Pagadala Constructions) as no refund was initiated. It is at this time he went on to lodge a complaint in Telengaga RERA.
Telangana RERA confronts the builder with several RERA questions
The Telangana RERA confronted the builder with several questions. Some of the questions were:
● Why did the Respondent fail to execute the Agreement of Sale, despite multiple requests? How were the Complainants expected to pay the remaining amount without knowing the contents of the Agreement of Sale?
● In point 7 of the confirmation letter referenced in the Respondent’s (builder) counter, it is stated that the “Sale Agreement would be executed only after payment of 30% of the total flat cost or the bank loan margin money, whichever is higher.” On what basis was this 30% condition introduced? The RERA rules clearly stipulate that the Agreement of Sale should be executed after payment of 10% of the total property cost
● Why did the Respondent (builder) not obtain the Complainants’ signatures on the Confirmation Letter if the rules required their agreement?
● How can the Respondent (builder) rely on a Confirmation Letter that lacks the Complainants’ signatures? Furthermore, is this Confirmation Letter aligned with RERA documents, or was it arbitrarily framed by the Respondent?
● In point 22 of the confirmation letter, the Respondent mentions that the property is residential. How can a customer be compelled to agree to the commercial use of another customer’s residential property?
There were more such questions raised by the Telangana RERA, none of which was answered to the satisfaction of the RERA tribunal.
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Telangana RERA finds builder drafted one sided terms and conditions and did not take signature of the homebuyer on it
The confirmation letter on which the lawyers representing the builder so heavily relied was found to be one sided and favouring the builder. On top of it lacked a signature by the homebuyer.
“The confirmation letter, provided after receiving a substantial sum from the Complainant, contains terms that are heavily skewed in favour of the Respondent, constituting an unfair trade practice,” said Telangana RERA in its order.
Money forfeiture clause can only be applied if sale agreement mentions it and is signed by both parties
Telangana RERA said in its order that forfeiture implies the imposition of a penalty, which is only applicable in cases where a formal agreement, containing a forfeiture clause, has been executed between the parties. The TG RERA authority noted that since no such agreement was executed in this case, the builder’s attempt to forfeit the booking amount is baseless and unjustifiable under the law.
“The forfeiture of any amount based on these confirmation letter terms and not agreement of sale is unjust and without merit. The inclusion of such one-sided and arbitrary clauses in the confirmation letter, which contradict the model agreement of sale as prescribed under the TG RERA Rules, is unacceptable,” said Telangana RERA in its order dated October 15, 2024.
On top of it the builder claimed to have incurred loss due to cancellation, however evidence about the said loss was never given to the RERA Authority. “The Respondent has failed to provide any evidence of actual loss,” said Telangana RERA in its order.
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Section 13 of RERA act was also violated
Telangana RERA said in its order: “The Authority observes that Section 13 of the Real Estate (Regulation and Development) Act, 2016 (RE(R&D) Act) explicitly prohibits the promoter from accepting any deposit or advance without first entering into an agreement for sale. In the present case, the Respondent collected 20% of the total sale consideration and issued only a confirmation letter, without entering into any formal agreement, thereby violating Section 13 of the Act.”
Builder ordered to refund full amount of advance money given by the homebuyer
Telangana RERA ordered the builder to refund the entire Rs 12.1 lakh which was taken as advance money for the flat’s booking and was also directed to not include arbitrary forfeiture and other clauses in the future.
Further, Telangana RERA re-iterated that no commercial activity can happen in the said residential project as it is registered as such under RERA.
Telangana RERA also imposed a separate penalty of Rs 2.69 lakh (2,69,874) on the builder for violating section 13 of RERA Act. “This penalty is imposed for collecting a sum of more than 10% of the cost of the concerned apartment without entering into a written agreement for sale. The amount is payable in favour of TGRERA FUND through a Demand Draft or online payment,” said Telangana RERA in its order.
Abhilash Pillai, Partner, Cyril Amarchand Mangaldas says: “This order from the Telangana RERA Authority sets a precedent for cases where there is no agreement between the developer and the allottee. Under the model agreement prescribed by the Telangana RERA Rules (Clause 7.5), developers are permitted to forfeit the booking amount if the allottee cancels. If such an agreement had been executed, the developer might have had some grounds to defend their actions.”
Alay Razvi, Managing Partner, Accord Juris says: “This judgment sets a precedents regarding forfeiture clauses wherein in the absence of a forfeiture clause, the builder cannot legally deduct or forfeit any amount. This judgment reinforces that the builder must align with the RERA’s pro consumer framework and shall ensure that the agreements are not unilateral or shall not impose penalties or forfeiture without mutual consent. One sided terms cannot be used. In my opinion consumers should insist on a sale agreement which shall be in line with RERA before making any payment. This will avoid any legal dispute. consumer should not pay more than 10 % without a signed agreement under Section 13 of the RE(R&D). Do a thorough due diligence before investing and make sure that the builder is in compliance with RERA norms.”
What might be reason for the builder to lose this case?
ET Wealth Online has asked experts about the possible reason for the builder losing this case. Here’s what they said:
Abhilash Pillai, Partner, Cyril Amarchand Mangaldas: It is crucial for a developer and an allottee to enter into an agreement to sell when an apartment, plot, or unit is being allotted. This agreement outlines the rights and obligations of both parties, serving as a key document to enforce their respective rights. As per Section 13 of RERA and Rule 38 of the Telangana RERA Rules, such an agreement must be executed before collecting more than 10% of the apartment’s value. Additionally, Rule 14(1)(d)(ii)(A) of the Telangana RERA Rules requires the agreement for a specific project to be uploaded and displayed on the Telangana RERA website.
In this case, there appears to have been a deviation from the regulations. There was no agreement between the parties, and no contract allowing the developer to forfeit the allottee’s amount. Consequently, the developer could not justify or enforce the forfeiture.
Alay Razvi, Managing Partner, Accord Juris: The builder lost this case primarily due to the following reasons:
1.Violation of Section 13 of the RE(R&D) Act, 2016,the builder collected over 10 % of the total consideration without executing any Agreement of Sale. Section 13 prohibits such activity.
2.The letter of confirmation had one sided clauses which had unfair terms which were not legally enforceable.
3.The builder failed to substantiate the deductions for resale expenses or cancellation charges with any credible evidence and most importantly unfair trade practice.
