MahaREAT Rules Demanding Extra Payment After 20% Down Payment Illegal

MahaREAT Rules Demanding Extra Payment After 20% Down Payment Illegal

The Maharashtra Real Estate Appellate Tribunal (MahaREAT) has issued a significant ruling protecting homebuyers' rights. A bench comprising Justice Shriram R. Jagtap (Judicial Member) and Dr. K. Shivaji (Technical Member) declared it illegal for builders to demand additional payment from homebuyers after receiving more than 20 per cent of the flat price for executing the agreement for sale.

The case involved a project named "Kakad Paradise" under the Affordable Housing Scheme. In June 2015, a homebuyer expressed interest in purchasing a flat priced at ₹52,01,000. The builder issued a Letter of Intent in January 2016, and the homebuyer subsequently paid ₹16,20,869, exceeding 20 per cent of the total cost.

Despite exceeding the 20 per cent threshold, the builder failed to enter into a formal agreement for sale. Instead, they demanded further payment for executing the agreement. The homebuyer refused, and the builder terminated the transaction, cancelled the Letter of Intent, and forfeited the paid amount in September 2018.

Aggrieved by this action, the homebuyer filed a complaint with the Maharashtra Real Estate Regulatory Authority (MahaRERA) seeking withdrawal from the project and a full refund with interest. In March 2020, MahaRERA ruled in favour of the homebuyer, directing the builder to execute the agreement for sale within a month. The builder appealed this decision to MahaREAT.

On March 4, 2020, MahaRERA issued an order directing the builder to promptly execute an agreement for sale within a one-month timeframe. Discontented with this decision, the builder subsequently lodged an appeal before MahaREAT

The builder argued that as per the provisions outlined in the Letter of Intent, any default in payment of instalments would grant the builder the authority to cancel the flat allotment. If the homebuyer fails to rectify the payment issue within 15 days after receiving notice, the builder could exercise this right. In such a scenario, the builder had two options: either refund the money paid by the homebuyer (without interest), after deducting any incurred expenses, or forfeit the entire amount. Following termination, the builder would regain full discretion to handle the flat as they deemed appropriate

The Tribunal not only upheld MahaRERA's decision but also took a crucial step forward in protecting homebuyers' rights. They declared it illegal for builders to engage in two specific practices:

Firstly, demanding additional payment from homebuyers for executing the agreement for sale after they have already received more than 20 per cent of the flat price. This practice is seen as a manipulative tactic and a violation of the established regulations.

Secondly, terminating the Letter of Intent solely based on the homebuyer's refusal to make such an unlawful demanded payment. The builder's right to terminate the agreement cannot be used to exploit the homebuyer or force them into making an unfair payment.

The Tribunal cited violations of both Section 4 of the Maharashtra Ownership of Flats Act (MOFA) and Section 13 of the Real Estate (Regulation and Development) Act (RERA), 2016. Both acts mandate that builders execute the agreement for sale before receiving more than 10 per cent and 20 per cent of the total cost, respectively.

Furthermore, the Tribunal recognised the homebuyer's rightful claim to the paid amount. Therefore, they ruled that the homebuyer is entitled to a full refund of ₹16,20,869 from the builder, along with interest.