When you invest in a home, the builder-buyer agreement becomes the foundation of trust between you and the developer. After the introduction of the Real Estate (Regulation and Development) Act, 2016 (RERA), this document gained even more legal significance.
RERA has brought transparency, accountability, and protection for homebuyers in India. But to truly benefit from it, you must understand how a builder-buyer agreement under RERA is drafted, what clauses it must include, and what rights and obligations it defines.
What Is a Builder-Buyer Agreement Under RERA?
A builder-buyer agreement is a legally binding contract between a real estate developer and a homebuyer. It specifies the property details, payment schedule, possession date, and remedies available in case of default by either party.
Under Section 13(2) of RERA, the promoter is required to enter into a written agreement for sale with the buyer before accepting more than 10% of the sale price as an advance.
Purpose of RERA-Compliant Builder-Buyer Agreements
A RERA-compliant agreement ensures:
- Transparency in project details and timelines
- Protection of buyer’s investment
- Accountability of the developer for delays or deviations
- Clear dispute-resolution mechanisms
Why Is It Important to Draft the Agreement Carefully?
A poorly drafted builder-buyer agreement can lead to financial loss, legal disputes, and endless litigation. By contrast, a well-drafted RERA-compliant agreement protects your rights as a homebuyer and minimizes the risk of ambiguity.
RERA authorities across India have mandated that developers use standardized formats to ensure clarity and fairness. Therefore, understanding the step-by-step drafting process is essential, whether you are a lawyer, builder, or buyer.
How to Draft a Builder-Buyer Agreement Under RERA: Step-by-Step Process
Let’s break down the process to help you understand each stage clearly.
Step 1: Gather Essential Project and Buyer Information
Before drafting begins, collect all relevant details such as:
- Project name, registration number, and RERA approval details
- Flat or unit number, carpet area, and floor plan
- Total consideration and payment schedule
- Buyer’s and developer’s full names and addresses
This information forms the factual base of the agreement and prevents inconsistencies later.
Step 2: Include Statutory Clauses as Per RERA
RERA prescribes specific clauses that every builder-buyer agreement must include. The following points should be incorporated to ensure legal validity:
- Project Registration and Compliance: Mention the project’s RERA registration number, the date of approval, and confirmation that all permissions and licenses are valid.
- Carpet Area Definition: The Act defines carpet area as the net usable floor area excluding external walls and balconies. Always ensure that the price is based on carpet area and not super built-up area.
- Possession Date and Penalty Clause: The possession date must be realistic and clearly stated. If the builder delays possession, the buyer is entitled to compensation as per Section 18 of RERA.
- Payment Schedule: Outline the total cost and link payment installments to the construction milestones to prevent exploitation.
- Interest on Delay: Specify interest rates applicable for delay in payment by either party, usually pegged to the State Bank of India’s Marginal Cost of Funds Lending Rate (MCLR) plus 2%.
Step 3: Add Detailed Clauses to Safeguard Buyer’s Interests
Beyond RERA’s statutory clauses, a lawyer should include protective clauses that strengthen the buyer’s position.
- Defect Liability Period: Under RERA, developers are liable for structural defects for five years from possession.
- Right to Inspect: The buyer should have the right to inspect the property before possession.
- Cancellation Clause: Ensure that refund timelines and deductions on cancellation are explicitly mentioned.
- Use of Funds: The builder must state that 70% of the project funds are deposited in a separate bank account as per Section 4(2)(l)(D) of RERA.
Step 4: Define Builder’s Obligations
A transparent agreement outlines the developer’s duties clearly. The builder should:
- Adhere to approved plans and specifications
- Obtain completion and occupancy certificates
- Transfer the property title and common areas to the housing society or association
- Maintain proper records and provide warranties
This ensures accountability and reduces the possibility of deceptive practices.
Step 5: Include Buyer’s Responsibilities
While RERA protects homebuyers, the buyer also has certain duties, such as:
- Making timely payments
- Cooperating with documentation formalities
- Following society rules after possession
Defining these obligations keeps the relationship balanced and legally sound.
Step 6: Add Clauses on Force Majeure and Default
Unexpected situations such as natural calamities, government orders, or pandemics can delay construction. Hence, a force majeure clause should specify:
- Events covered
- Time extensions allowed
- Obligations after such events
Similarly, default clauses must define what happens if either the buyer or builder fails to fulfil contractual duties.
Step 7: Include Termination and Refund Clauses
If either party breaches the agreement, the document must provide for termination and refund mechanisms:
- Refund of advance within 45 days of cancellation
- Deductions for administrative or registration charges
- Rights of the builder in case of buyer default
These terms prevent disputes and make the contract enforceable under RERA.
Step 8: Mention Title, Indemnity, and Dispute Resolution
The agreement should declare that the builder has a clear and marketable title to the property and indemnifies the buyer against any future claims.
For dispute resolution, RERA mandates that complaints be filed with the RERA Authority or Adjudicating Officer. However, including an arbitration clause for minor issues can speed up settlements.
Step 9: Get the Agreement Stamped and Registered
Once the document is ready, it must be:
- Executed on a non-judicial stamp paper of appropriate value
- Signed by both parties and witnesses
- Registered with the Sub-Registrar of Assurances under the Registration Act, 1908
Unregistered agreements are not legally enforceable, so this step is crucial for legal validity.
What Are the Common Mistakes to Avoid While Drafting?
Even seasoned professionals can make errors that weaken the agreement. Be careful to avoid:
- Omitting the possession date or penalty clause
- Basing price on super built-up area instead of carpet area
- Ignoring refund procedures for cancellation
- Not attaching annexures like layout plan or payment schedule
- Failing to mention dispute-resolution mechanisms
Such omissions can make the agreement non-compliant and expose parties to legal disputes.
How Does RERA Strengthen the Builder-Buyer Relationship?
RERA has transformed the dynamics of Indian real estate by:
- Ensuring builders register every project before advertising
- Mandating use of escrow accounts for project funds
- Imposing penalties for misinformation or delay
- Protecting homebuyers through compensation rights
The builder-buyer agreement acts as the legal tool through which these safeguards operate in practice. Understanding it helps both sides maintain transparency and trust.
What Should You Check Before Signing the Agreement?
Before signing, always review the following points carefully:
- Verify that the project is registered under RERA
- Ensure that all annexures (like floor plan and specifications) are attached
- Check possession timelines and refund policies
- Confirm penalty clauses for delay
- Make sure the agreement reflects the actual understanding between both parties
It’s always advisable to get the document vetted by a real estate lawyer before execution.
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