Cancellation Clause

Does Your Real Estate Documents Have a Cancellation Clause?

Aarti and Prakash, a couple based out of Bangalore booked an apartment with a builder. Before they got possession of the flat, Arti got a great opportunity to move to the UK permanently on work and Prakash decided to pursue his master’s degree at Scotland.

As this move was going to be for an indefinite duration, they didn’t want to have any assets or liabilities back here in India to avoid all the financial and administrative hassles of loan repayments, EMIs, Income Tax and maintaining the property.

They wanted to cancel the contract with the builder but didn’t know the way around. This is a genuine doubt that anyone entering into any real estate transaction could have.

In this post, we look to shed some light on the cancellation clauses in various forms of real estate contracts /documents.

Rental /Lease Agreement

Rental or Lease Agreement is one of the simplest forms of an agreement in the real estate sector.
Usually, all rent or lease agreements come with a cancellation clause. The cancellation clause here is generally bound to a notice period, i.e., the minimum time that should be given by either party to the opposite party if they wish to cancel this contract. In case, the notice period is not possible, then an appropriate monetary compensation to be paid which is also mentioned in the document.

Since most rental agreements are entered for 11 months and thereby exempt from registration, mutual consent is what is required for cancellation of the rental agreement.

A lease agreement which is generally for a longer duration is also cancelled by serving a notice period. However, if the lease deed has been registered, then you will need to do a Registration of the Cancellation Deed too, or there may be an encumbrance on the property.

Cancellation Clause

Cancellation of a rental agreement looked simple enough. However, transactions involving buying or selling of real estate property is not so easy to cancel.

Before we proceed, we would like to remind you that an agreement to sell and a sale deed are not the same. Agreement to Sale is a document /contract signed between the seller (generally builder) and the buyer of the property which signifies the intent of the buyer to buy the property in question at a certain agreed sum of money and the seller agrees to sell the same and also gives details about the other deliverables and their timelines for completion. This agreement also involves an amount that the buyer pays to seal the deal.

Cancellation of an Agreement to Sale

When it comes to the cancellation of an agreement to sell, there are various scenarios possible.

Cancellation Clause

Cancellation can be from both the ends, i.e., the buyer or the seller. However, having a valid reason for cancellation is a must.

Cancellation Clause

A buyer is well within his rights to cancel an Agreement to Sale for reasons as below.

• The project is inordinately delayed.
• When he/ she is not in a position to honour the contract due to an emergency like death, etc

Notwithstanding, there is always a penalty will be levied on cancellation of the agreement to sale. Generally, it is still a percentage of the booking amount paid.

Cancellation Clause

In case it is a delay from the seller’s end, then the buyer is meant to be compensated according to the terms of the contract, which may include anything from payment of penalty interest to a notional rent, etc.

In case, the terms of the contract are not honoured by either of the parties; the aggrieved party has the right to legal recourse.

Cancellation Clause

A cancellation clause gives direction to the events to be carried in such an eventuality. However, when there is no specific clause, both the parties can still go ahead with the cancellation. A buyer may show it as an impossibility to honour the contract due to valid reasons. However, the cancellation may be allowed only on a penalty.

Similarly, when the seller cancels a contract, the buyer will have to be compensated accordingly.
In all these cases, if the agreement to sale has been registered, then a cancellation deed will have to be registered before making a fresh sale of the property.

As seen from our example above, you can never predict when you may need to cancel a real estate. So it is always good to ensure that your contract has a cancellation clause.

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