Understanding Property Deal Cancellations: Refunds, Penalties & Legal Aspects
If you are planning to buy or invest in real estate, this article is for you. In this article, we will discuss the scenarios that can occur if you, as a buyer, back out of a deal before or after the agreement.
We will also cover legal obligations as well as RERA’s rules for property buyers who back out of deals. This article will help you understand the necessary steps to take if you, for any reason, decide to back out of a deal and need information on how to handle it. Let’s explore all the essential details regarding this matter.
Reasons of deal cancellation
There are several reasons a buyer might want to cancel a property deal, including:
• Possession Delay
• Issues with the property
• Financial issues
• Or any other reason
If the buyer needs to cancel, they should know what their rights are according to the law, including protections under RERA.
What if the buyer cancels the property deal?
If a buyer backs out from property deal, they have some rights which they can use to protect themselve from any dispute.
Refund of the Booking Amount
If the buyer cancels the deal before signing a formal agreement, they can claim full refund of the booking amount and any other amounts they paid. If they have signed agreement, the terms for refund are defined in the contract.
In some cases, the developer can retain the entire booking amount as cancellation charges, but supreme court in their latest ruling has changed it and capped this at a certain percentage.
Protection Under RERA
RERA provides protection for buyers. Under Section 18 of RERA, if the project is delayed or doesn’t meet the promised conditions, the buyer can cancel the agreement. In such cases, the buyer is entitled to a full refund along with interest.
Forfeiture Clauses
Many agreements include a forfeiture clause, which allows the seller to retain part of the amount paid by the buyer. If no specific amount is mentioned in the agreement, the amount retained must be reasonable as per general contract law.
Cancellation Due to Fraud or Force Majeure
If the seller misrepresents the property or engages in fraudulent activities, the buyer has the right to cancel the deal and get a full refund. In a same way, if the cancellation is due to force majeure situations, like natural disasters or changes in government policy, the buyer may cancel the deal without penalties.
What legal action can I take if the buyer fails to pay after the property registration?
While buyers have rights when cancelling a property deal, sellers also have certain protections in case of cancellation.
Retaining the Booking Amount
If a buyer cancels the deal after signing the agreement, the seller has the right to keep the booking amount. This is usually between 10% to 20% of the total sale price, depending on the agreement.
Compensation for Losses
The seller may also take compensation for losses due to the cancellation. These losses could include the inability to find another buyer or a drop in property prices. If the cancellation causes a financial loss, the seller can take legal action for compensation.
What a seller can do if a buyer fails to follow the agreement?
If the buyer fails to adhere with the agreement, the seller can take the matter to the court. The seller has the right to either enforce the contract or recover damages. This ensures that the seller can be compensated for the buyer's failure to complete the sale.
RERA Rules for Sellers
Under RERA, developers can charge cancellation fees if the buyer cancels without a valid reason. These charges should be clearly stated in the contract. Even if the buyer has already occupied the property, the seller does not have to return any money unless required by law.
Latest Supreme Court Ruling on Cancellation Charges
In a landmark ruling, the Supreme Court of India clarified that builders cannot retain more than 10% of the base sale price if a buyer cancels the property deal. This ruling came in a case involving Godrej Properties Ltd., where the builder sought to forfeit 20% of the total sale price after the buyer cancelled.
The court ruled this as unfair and excessive. This decision protects buyers from arbitrary financial penalties and emphasizes the need for clear and fair contracts between buyers and sellers.
Conclusion: Understanding the Cancellation Process
Cancelling a property deal has both legal and financial consequences. While buyers have the right to cancel under certain conditions, sellers also have their rights to protect their interests. RERA has established guidelines to ensure fairness and transparency in property transactions.
Both buyers and sellers should carefully review and negotiate the terms of their agreements before finalizing any property deals to avoid disputes and legal complications. By understanding these rights, both parties can make informed decisions if they find themselves in a situation where a cancellation is necessary.
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