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What are the provisions for the handling of advance payments and deposits under RERA?

What are the provisions for the handling of advance payments and deposits under RERA?

20-Nov-2024

RERA

Answer By law4u team

Under the Real Estate (Regulation and Development) Act, 2016 (RERA), provisions related to the handling of advance payments and deposits for real estate projects are aimed at ensuring transparency, accountability, and protection of homebuyers. These provisions are designed to safeguard buyers' interests and prevent misuse of funds by developers. Here are the key provisions regarding advance payments and deposits under RERA: Advance Payment Restrictions: Under Section 13 of RERA, developers are prohibited from asking for more than 10% of the property's cost as an advance before signing a formal agreement for sale. This provision prevents developers from demanding large sums upfront before the buyer has secured a legal commitment. Separate Bank Account for Project Funds: Developers are required to maintain a separate bank account for each project under Section 4(2)(l)(D) of RERA. The funds collected from buyers (including advances, deposits, and installment payments) must be deposited into this designated account. This ensures that the money is used exclusively for the construction of the specific project and not for other purposes. Withdrawal of Funds: Developers can only withdraw funds from the project’s separate bank account in proportion to the percentage of work completed on the project. This provision ensures that developers cannot misuse the advance payments and deposits and must use them to progress the construction as promised to buyers. Refunds in Case of Project Delay: Under Section 18 of RERA, if the developer fails to complete the project within the agreed timeline, the buyer is entitled to a refund of the advance payment or deposit made, along with an interest for the delayed period. If the buyer wishes, they may also demand possession of the unit as per the original agreement. Transparency in Sale Agreements: Developers are required to enter into a sale agreement with the buyer, which must clearly specify the total cost of the project, the amount paid as an advance or deposit, and the terms for further payments. This agreement ensures transparency and protects both the buyer and the developer. No Unilateral Increase in Price: Developers cannot unilaterally increase the price of the property once the agreement has been executed. Any change in price must be mutually agreed upon, and the terms must be revised accordingly. Builder's Liability: If the developer fails to complete the project on time or deliver the promised amenities, they are liable to compensate the buyer, including refunding any advance payments or deposits made. Under Section 19, the developer must also ensure that the property is free from any defects for a period of 5 years after possession is handed over. Payment Schedule Compliance: The payment schedule, including deposits and advance payments, must be aligned with the construction timeline. Payments cannot be demanded from the buyer for construction work that has not been completed or is only partially completed. Interest on Late Payments: If a buyer delays the payment of the agreed amount, the developer has the right to charge interest on such delayed payments. Similarly, if the developer delays possession or handover of the property, they must pay interest to the buyer. These provisions under RERA are designed to ensure that developers are held accountable and that the funds provided by the buyer are used correctly, in accordance with the project’s progress. Homebuyers are protected against unjustified delays and are entitled to refunds if the developer fails to meet the agreed-upon terms.

Answer By Anik

Dear Client, The Real Estate (Regulation and Development) Act, 2016 (RERA) includes specific provisions regarding the handling of advance payments and deposits to protect homebuyers and ensure transparency in real estate transactions. Key Provisions for Handling Advance Payments 1. Limit on Advance Payments: - Under Section 13(1) of RERA, a promoter (builder or developer) cannot accept an advance payment or application fee exceeding 10% of the cost of the apartment, plot, or building without first entering into a written agreement for sale. This provision is designed to prevent developers from demanding large sums upfront without a formal commitment, thereby protecting buyers from potential fraud or mismanagement. 2. Written Agreement for Sale: - Before accepting any advance payment above the stipulated limit, developers must execute a written agreement for sale that outlines key project details, including: - Project specifications. - Payment schedules. - Possession dates. - Interest rates applicable in case of defaults by either party. 3. Escrow Account Requirement: - RERA mandates that at least 70% of the funds collected from homebuyers must be deposited into an escrow account. This account can only be used for the construction and land costs of the specific project. This provision ensures that the money is utilized appropriately and reduces the risk of fund diversion by developers to other projects. 4. Refund and Forfeiture Conditions: - In cases where a buyer defaults on payments, developers may have the right to forfeit advance payments only if explicitly stated in the contract. However, RERA emphasizes that any forfeiture must be clearly defined in the agreement, and developers cannot arbitrarily retain advance payments without proper justification. 5. Timely Payment Schedule: - The agreement for sale must include a detailed payment schedule that specifies when payments are due. This enhances accountability as both parties are aware of their financial obligations throughout the project timeline. 6. Protection Against Unregistered Projects: - RERA prohibits developers from accepting any advance payments for projects that are not registered with the regulatory authority. This ensures that buyers are only dealing with legitimate projects and helps prevent fraudulent activities in real estate transactions. 7. Dispute Resolution Mechanism: - RERA establishes a framework for addressing disputes related to advance payments and other contractual obligations efficiently. Homebuyers can seek recourse through RERA if they encounter issues such as non-compliance with payment terms or failure to deliver possession as agreed. In conclusion, RERA provides robust provisions for handling advance payments and deposits in real estate transactions to protect homebuyers from unscrupulous practices. By regulating advance payment limits, mandating written agreements, requiring escrow accounts, and establishing clear guidelines for refunds and forfeitures, RERA aims to create a transparent and accountable environment in the real estate sector. These measures significantly enhance consumer confidence and promote fair dealings between developers and buyers. Hope this answer helps you.

Answer By Ayantika Mondal

Dear Client, The Real Estate (Regulation and Development) Act, 2016 (RERA) has introduced rules to protect homebuyers and ensure transparency in real estate transactions. One key area of focus is how developers handle advance payments and deposits. Here’s what you need to know: Key Rules for Advance Payments 1. Limit on Advance Payments Developers cannot ask for more than 10% of the property cost as an advance or application fee without signing a written agreement for sale. This rule, outlined in Section 13(1) of RERA, ensures buyers don’t have to pay large amounts upfront without any legal assurance. 2. Written Agreement Requirement Before accepting an advance payment above 10%, developers must enter into a written agreement for sale with the buyer. This agreement includes important details like: o The project’s features. o Payment schedules. o Possession dates. This ensures buyers know exactly what they’re paying for. 3. Escrow Account for Funds To safeguard buyer investments, RERA requires developers to deposit 70% of collected funds into a dedicated escrow account. This money can only be used for the construction of that specific project. Withdrawals from the account are monitored and need certification from project engineers, architects, and accountants, preventing misuse of funds. 4. Clear Terms in Agreements The written agreement must clearly state: o Details of the development project. o How and when payments are due. o The possession date. o Penalties or interest rates if either party fails to meet their obligations. 5. Regulatory Oversight Each state has a Real Estate Regulatory Authority that ensures developers follow RERA’s rules. These authorities monitor compliance with regulations, especially those about advance payments and deposits, to protect homebuyers’ rights. 6. Penalties for Developers If a developer demands more than 10% of the property cost without signing a written agreement, they can face penalties. Buyers can also claim compensation for violations of these rules. 7. Grievance Redressal If developers don’t follow RERA’s provisions, buyers can file complaints with the Real Estate Regulatory Authority. The authority must resolve disputes within a set timeframe, ensuring buyers get quick justice. Why These Rules Matter RERA’s guidelines on advance payments are designed to: • Prevent developers from exploiting buyers by demanding large sums without commitments. • Protect buyers’ money by ensuring it is used for the intended project. • Promote trust and accountability in real estate transactions. Conclusion The rules under RERA about advance payments and deposits create a safer and more transparent process for homebuyers. By limiting the amount developers can demand upfront, requiring written agreements, and mandating escrow accounts, RERA ensures that buyers’ investments are secure. These measures have significantly improved trust and reliability in the real estate sector, making property purchases more buyer-friendly. Hope this answer helps you.