Things to check in sale agreement before paying booking amount

Homebuying is a special milestone in most people’s lives, and it comes with many financial considerations, as a buyer invests a significant amount of money. The process begins with the buyer’s house-hunting journey and concludes with the possession of the dream house. Between these stages is a crucial step: signing the builder-buyer agreement and paying token money to the seller. With strict regulations implemented by a state-level Real Estate Regulatory Authority (RERA), the risk of fraud is kept in check. Earlier, instances of sellers absconding with token money or possession delays were rampant, putting buyers at risk. While RERA rules provide a framework for real estate transactions, due diligence on the part of a buyer is always essential to safeguard one’s interests. In this guide, we share key points a buyer should check in a sale agreement (builder-buyer agreement) before paying the booking amount.

#1. Details of parties involved

The details of the parties to the transaction must be clearly stated in the sale agreement. This includes the names and addresses of the builder, seller, and buyer. In the case of a builder, the agreement must include the builder’s RERA registration number. The developer’s responsibilities towards the buyer are also clearly specified in the contract.

#2. Project details

Complete information regarding the project should be given the contract, including the RERA approval status, completion date, timelines and possession date. Buyers must check whether the land on which the project is developed has a clear title and is legally owned by the developer or landowner. The contract should state whether all required legal approvals and permissions have been obtained from local authorities. Buyers must conduct due diligence on their end to ensure the construction is in accordance with the sanctioned building plan, with all relevant approvals and NOCs in place.

Buyers must look for clauses regarding delays in possession, penalties, and compensation they may be eligible for if the builder fails to deliver the project on time. Further, buyers need to be careful with potentially vague phrases. For example, ‘The seller shall hand over the possession of the said property within 24 months from approvals.’ Such clauses that do not specify a specific date for possession of the property increase the risk for the buyer.

#3. Property details

Details of the apartment or residential unit the buyer has purchased should be specified, which include:

• Unit number
• Tower name
• Floor number
• Floor plan
• Carpet area
• Super built-up area

As per RERA rules, the sale of the property should be based on carpet area only. Thus, it is essential for buyers to understand the definitions of terms such as carpet area and built-up area. Buyers should also verify whether the fixtures, finishes, and amenities (parking space, clubhouse, swimming pool, etc.) mentioned in the contract match the details initially shared with the buyer through marketing collaterals. 

Moreover, builders may have the right to incorporate changes to the property’s design or layout. Hence, buyers must check for any clause that allows changes to the layout or size of the property handed over, and whether buyer approval is required for major changes.

#4. Price, payment plans and hidden charges

The sale agreement must mention the price of the property along with date of sale. Buyers must verify the total cost of the property, including the base price, additional charges such as preferential location charges (PLC), maintenance charges, parking, etc., and applicable taxes. Buyers must look for the escalation clause, which basically is a provision that enables the buyer to raise their offer to secure the property over other competitive bidders.  

In addition, the complete details of the payment schedule should be mentioned in the contract. Most developers link payments to construction timelines, also known as construction-linked payment plans (CLP). Hence, buyers should have a thorough understanding of the payment milestones linked to each construction stage. They should have clarity on the payment schedule, including the downpayment amount, the instalment schedule, and the final payment schedule.

#5. Booking terms

When reviewing the sale agreement, buyers gain clarity on the booking terms. That is, the amount to be paid to the seller and whether this amount is refundable or non-refundable. Typically, the agreement should contain the terms and conditions under which the booking amount, known as the earnest money, can be forfeited by the developer or refunded. Buyers should check the payment modes available to them – cheques, demand drafts, RTGS/NEFT, etc. These details must be given in the agreement to sell and clearly understood by the developer.

#6. Cancellation and refund policy 

Developers and sellers usually include terms governing the buyer’s right to cancel the deal. Typically, the agreement must outline the rights of both parties in the event the contract is cancelled or there is a breach, including refund policies and applicable penalties. 

So, buyers need to understand the following scenarios:

• What happens if the buyer cancels? Which payment will be forfeited?
• What happens if the developer or seller defaults? What will the timeline for refund processing be?

Under RERA regulations, developers are liable to refund the amount within 45 days if the project is not delivered as per schedule.

#7. Exit clause and transferability

Owing to project delays or some personal reasons, a homebuyer may decide to exit from the deal after the execution of the sale agreement. Buyers must check if this provision is given in the sale agreement. Before paying the booking amount, prospective buyers should check for an exit clause and determine whether they have the right to transfer or sell the booking. Typically, a developer may want the buyer to submit the request in a prescribed format. Buyers must review the terms of such transfers, including any transfer or cancellation fees charged by the developer.

#8. Force Majeure Clause

This refers to scenarios in which project delays may occur due to unforeseen circumstances, such as natural disasters or legal disputes. Prospective buyers must go through the agreement and these terms and conditions.

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After finalising a property, buyers must have a checklist of the key things to verify before paying any advance money. Reviewing all the terms and conditions of the sale agreement will help buyers avoid costly mistakes. They can verify the complete details of the property before making any payment. If the buyer is unfamiliar with any of the terms mentioned in the agreement or considers them unfair, they can seek modifications before signing. Moreover, first-time buyers or those who need assistance can approach a property lawyer. This can help them identify potential issues.

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