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Can builders charge interest on default of payment when there is no agreement to sell?

Shivendra Pratap Singh

Advocate

19/07/2021

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Question: I have paid 10% of the basic amount to the builder for the under construction property which comes under Rera. The builder has issued me the allotment letter and receipts of 10% paid amount. Also we have submitted the signed BBA from our side to the builder but the builder is not able to register the same due to hold in registration by nagar nigam authorities. Can builders charge interest on default of payment when there is no agreement to sell? The developer has already issued the demand letter and expiry date to pay the rest of 40% payment. Also I have received the bank approval on the loan which i have submitted to the builder in advance. Question Kindly let us know whether a builder is eligible to charge interest or cancellation without registering the builder buyer agreement.

Question from: Haryana

The builder has issued only an allotment letter and agreement to sale is still pending. According to Section 13 of the real estate regulation 2016 the builder shall execute an agreement to sale immediately after receiving advance payment. The builder however, cannot charge more than 10% of the cost of flat as an allotment fee.

Effect when the Builder does not execute an agreement to sell

If the Builder does not execute an agreement to sell then the flat buyer can cancel the allotment letter and demand refund from the builder. The will refund the amount without any deduction because there is a fault on the part of the builder. 

You have submitted a builder buyer agreement to the builder and also have initiated proceedings for taking loan. If the Builder does not sign builder buyer agreement or execute agreement to sell then the bank can refuse to sanction loan. Consequently you will face financial losses and also bear mental agony.

There is no effort from your side hence, Builder cannot compel you to pay the remaining amount. He also cannot charge interest on the remaining amount in the absence of an agreement to sell. You should send a legal notice if he is demanding to pay the remaining 40% amount. In the legal notice you should reflect your intention that if he will not issue a builder buyer agreement then you will cancel the booking.

shivendra pratap singh advocate

Shivendra Pratap Singh

Advocate

Practising lawyer in the High Court Lucknow. You can consult on Criminal, Civil, Matrimonial, Writ, Service matters, Property, Revenue and RERA related issues.

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