Ramanathan RV from Chennai booked an apartment in August 2018. While he was busy planning the finances for his new home, his long-pending permanent resident status in Canada got approved. While his joy knew no bounds, he was confused about the apartment booking. Finally, he decided to cancel the booking but was unclear about the process of doing so.
We decided to address this issue as it is also one of the most commonly asked questions that our home buying advisors often get.
So, what does the law say?
Well, as per the Real Estate (Regulation and Development) Act 2016 (RERA), “The allottee shall have the right to cancel/withdraw his allotment in the project as provided in the Act: Provided that where the allottee proposes to cancel/withdraw from the project without any fault of the promoter, the promoter herein is entitled to forfeit the booking amount paid for the allotment.”
In our post titled Here’s How to Exit a Real Estate Project in the RERA Era, we explained that a buyer can exit a project at any stage due to various circumstances. These include:
• No or low appreciation potential in the investment
• Family or personal emergencies (like in the case of Ramanathan), or
• If the developer fails to hand possession of the units within the stipulated time, the homebuyer can terminate the agreement. He will still be entitled to get the refund along with interest within 45 days of terminating the contract.
The first step
The first step is to check the property documents for the cancellation clause. Keep documents like builder-buyer agreements ready along with all the payment receipts. These agreements including sale agreement or property allotment documents usually contain cancellation clauses. You must check the documents in detail as cancellation will be subject to the terms and conditions mentioned.
Once you have all your papers in place, inform your builder. To keep things clear, send a written communication to the builder. If you are not sure about the process, seek legal help before sending any communication for cancellation of the booking.
No builder-buyer agreement
In case there is not builder-buyer agreement, you still have the right to cancel the booking and can always approach the RERA authority or the consumer court. Also, as mentioned above, the builder is also bound by the real estate law to return the money collected from buyers within 45 days, after deducting the booking amount.
Cancellation charges
It is quite common for developers to deduct cancellation charges, which is about 10% of the property cost.
For registering the Sale Agreement, the Stamp Duty has to be paid by the buyer. For instance, Uttar Pradesh charges 2% Stamp Duty, which means if a person buys a flat for Rs 50 Lakh, he ends up paying Rs 1 Lakh as Stamp Duty (2%) at the time of the agreement.
So, if a buyer wants to exit a project, he will not only have to give up the booking amount paid to the developer but also the registration amount. Furthermore, GST will not be refunded. Thus, a buyer will lose about 10-12% of the property cost in cancelling a project booking.
Points to remember
• Always save any acknowledgement document you receive from the developer, especially in lieu of a payment.
• Instead of cash, it is advisable to pay through cheques or other modes of payment that can be recorded.
• As mentioned above, have everything in writing.
Seek legal help
All said and done; it is always best to seek legal advice if you are planning to cancel the booking to avoid any problems in the future. A legal expert will not only guide you with the paperwork but will also ensure that you get your money back on time.
If you need any assistance in your home buying journey, feel free to reach out to our Home Buying Advisors here.
