Status as on- 28/08/2020

The MahaRERA struck down a forfeiture clause in the sale agreements involving sale of Godrej Properties housing project in Vikhroli. Granting relief to an NRI, it also observed that the forfeiture clause is “most unjust and exploits flat purchasers”, and directed Godrej Properties to refund Rs 39 lakh.

Introduction

In October 2016, Mr. Amit Agarwal and Godrej Properties Ltd had executed sale agreements for two 480 sq. ft carpet area flats for more than Rs 1.4 crore each in “The Trees” project. The agreement included a ‘forfeiture clause’. A forfeiture clause in real estate agreement empowers the seller to terminate the contract with buyer in case of default in payment and retain the property as well as the money paid in accordance with the agreement. Mr. Agarwal paid Rs 97 lakh before the agreement was terminated by Godrej Properties on March 23, 2018, on account of delayed balance payment.

The Godrej Properties Ltd. invoked the forfeiture clause to seize a sum amounting to Rs 56 Lakhs. However, it did not return the balance against demand of reinstatement fees of over Rs 3 lakh and Rs 9 lakh interest. Subsequently, Mr. Agarwal then moved MahaRERA for refund.

The legality of forfeiture clause

Godrej Properties argued that Agarwal was not paying as per schedule and 20% of the total consideration is ‘earnest money’ which has been forfeited as per the forfeiture clause. MahaRERA now had to decide the issue of legality of forfeiture clause, as to whether it amounts to violation of homebuyer’s interest or not.  

Accordingly, MahaRERA observed that the forfeiture clause is “most unjust and exploits flat purchasers”. The forfeiture clause in agreements included under the Maharashtra Ownership of Flats Act (MOFA) invites cancellation of the bond and empowers the promoter to recover interest for delay in payment till the balance is paid. It is the most unjust condition and exploits the allottees. The MOFA empowers the promoter to terminate the agreement on non-payment by due date, but with 15 days prior notice to enable the allottee to remedy the breaches.

Thus, it held that Mr. Agarwal did not have equal bargaining power as he had to simply sign the pre-drafted and printed agreements. The MahaRERA authority then struck down the forfeiture clause in agreements as it amounted to unfair practice within section 7 of the RERA.

Conclusion

The above-mentioned decision could be a milestone judgement towards ascertaining the legality of forfeiture clause in real estate sale agreements. This will put an end to this practice of promoters which creates extra burden on the homebuyer’s side in case of default in payment. Therefore, ensuring the development of the real estate industry  by protecting the homebuyer’s interest by balancing the rights of homebuyers as well as project developers.

Disclaimer- The above article is based on the interpretation of the related laws and judicial pronouncements. The readers are expected to take legal advice before relying on this article. The author can be reached at support@centrik.in or call the IP expert at 8383011629