MahaREAT: It’s Illegal to Demand Additional Payment After Receiving Over 20% of the Flat Price to Execute A Sale Agreement

The bench of the Maharashtra Real Estate Appellate Tribunal (MahaREAT/Tribunal), with Justice Shri Shriram R. Jagtap (Judicial Member) and Dr. K. Shivaji (Technical Member), ruled that requesting additional payment from homebuyers after receiving more than 20% of the flat price for execute the sale agreement is against the law. As a result, the MahaREAT ordered the builder’s decision to cancel the letter of intent due to the homebuyers’ non-compliance with the requested payment as unlawful.

Background Context:

The builder started constructing a project called Kakad Paradise under the Affordable Housing Scheme. In June 2015, prospective homebuyers expressed their interest in purchasing flats within the project. Shortly thereafter, these homebuyers proceeded to book a flat valued at Rs. 52,01,000. Subsequently, the builder issued a Letter of Intent dated 7.01.2016 to the homebuyers. Over time, the homebuyers made payments totaling Rs. 16,20,869/- to the builder, exceeding 20% of the sale price.

Even though the homebuyers had already paid 20% of the total sale amount, the builder did not proceed to execute a sale agreement. Instead, the builder insisted on demanding additional payment for finalizing the sale agreement from the homebuyers.

However, the homebuyers did not comply with the builder’s demand for additional payment. Subsequently, through letters dated 10.09.2018 and 28.09.2018, the builder terminated the transaction, revoked the Letter of Intent, and confiscated the amount previously paid by the homebuyers.

The homebuyer, feeling aggrieved by the actions of the builder, lodged a complaint with MahaRERA, seeking withdrawal from the project along with a refund and interest.

In its order dated 04.03.2020, MahaRERA instructed the builder to finalize an agreement for sale within one month. However, dissatisfied with this directive, the builder filed an appeal before MahaREAT.

Contention of the Builder:

The builder argued that as per the terms outlined in the Letter of Intent, in the event of default in payment of installments and failure to rectify it within 15 days following notice, the builder had the right to cancel the allotment of the flat. In such circumstances, the builder could choose to either refund the money paid by the homebuyer without interest, after deducting any incurred expenses, or forfeit the entire amount, depending on the prevailing circumstances. Following termination, the builder would have the liberty to deal with the flat as they deemed fit.

In its ruling, the Tribunal declared that demanding additional payment from homebuyers after already receiving more than 20% of the flat price for executing the agreement for sale is unlawful. Consequently, terminating the letter of intent based on the non-payment of demanded dues by homebuyers is also deemed illegal.

Furthermore, the Tribunal found that the builder had violated both Section 4 of the Maharashtra Ownership of Flats Act (MOFA) and Section 13 of the Real Estate (Regulation and Development) Act, 2016 (RERA). These sections impose obligations on the promoter to execute an agreement for sale before receiving 20% and 10% of the total consideration, respectively.

The Tribunal’s decision was grounded on Section 13 of The Real Estate (Regulation and Development) Act, 2016, which reads as follows: [Text of Section 13 of The Real Estate (Regulation and Development) Act, 2016 is expected to follow.]

Section 13 – No deposit or advance to be taken by the promoter without first entering into agreement for sale.

      • (1)A promoter shall not accept a sum more than ten percent 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.

    Therefore, the Tribunal held that the Homebuyer is entitled to a refund of the amount of Rs. 16,20,869/- from the builder, along with interest.

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