The Real Estate (Regulation and Development) Act, 2016 (RERA) was enacted to address chronic issues of delay, opacity, and buyer exploitation in India’s real estate sector. By imposing compliance obligations and governance duties on developers and promoters, RERA seeks to balance the interests of stakeholders and restore buyer confidence. Judicial interpretations have further clarified the scope of these obligations, shaping the contours of real estate law in India.
Compliance obligations under RERA
Mandatory Project Registration
Developers must register projects with the respective State RERA before advertising or selling. They must register any real estate project exceeding 500 square meters or 8 units with the respective State RERA Authority before advertising, marketing, or selling any units. Registration is mandatory even for ongoing or incomplete projects, ensuring that only compliant projects enter the market.
In Emaar MGF Land Ltd. v. Aftab Singh, the Supreme Court upheld the jurisdiction of RERA over registered projects, reinforcing the mandatory nature of registration and buyer remedies under the Act. (See on IndianKanoon, National Law School Repository, Supremecourtcases.com)
Financial Discipline
Promoters are required to deposit 70% of buyer funds in an escrow account. This provision was judicially endorsed in Newtech Promoters and Developers Pvt. Ltd. v. State of UP, where the Supreme Court emphasized that financial safeguards are central to preventing fund diversion and ensuring timely project completion. (See on IndianKanoon, Casemine, RERA Punjab Gov)
Transparency and Disclosure
Promoters are required to disclose essential project details on the RERA portal, including land title, sanctioned plans, project layout, approvals, financial statements, and completion timelines. Any changes in project plans, delays, or modifications must be promptly updated to maintain transparency. Quarterly updates on project progress must be uploaded to the RERA portal. Courts have consistently held that failure to disclose accurate project details amounts to misrepresentation, attracting penalties under Section 60 of the Act.
Timely Delivery
Promoters must adhere to declared timelines. In Kolkata West International City Pvt. Ltd. v. Union of India, the Supreme Court directed refund with interest to buyers for inordinate delays, affirming RERA’s consumer-centric mandate. (See on SCI, IndianKanoon, Casemine)
Title Assurance
Promoters must ensure clear legal title of the land. Courts have interpreted this duty strictly, holding promoters liable for compensation in cases of defective title.
Adherence to Approved Plans
Promoters must strictly follow sanctioned plans and specifications. Any major changes require the consent of allottees, and defect liability must be addressed promptly.
Agreements and Advance Payments
No promoter can accept advance payments exceeding 10% of the property value without a written agreement for sale. The agreement must clearly outline project details, timelines, and buyer rights.
Advertisement and Marketing
Promoters must avoid misleading advertisements or false promises. All promotional materials must accurately reflect the project details submitted during registration. Section 12 of RERA prohibits false statements regarding approvals, amenities, or completion timelines.
Governance Duties of Developers and Promoters
Fiduciary Responsibility
Promoters act in a fiduciary capacity, holding buyer funds in trust. Judicial activism has reinforced this principle, ensuring strict compliance with escrow requirements and penalizing diversion of funds. Misrepresentation or non-disclosure of material facts is considered an unfair trade practice and is legally unenforceable.
More on RERA escrow accounts: 1, 2, 3)
Accountability to Buyers
Developers must rectify structural defects within five years of possession. Courts have treated this as a statutory warranty, enforceable through RERA authorities. (Learn more: 1, 2)
Ethical Marketing Practices
Advertisements must match actual project specifications. Misleading claims have been judicially recognized as unfair trade practices, inviting penalties and cancellation of registration.
Compliance with Regulatory Authority
Promoters must co-operate with RERA authorities. Non-compliance can result in fines, imprisonment, or blacklisting. Recent Supreme Court observations, however, have criticized RERA’s functioning, noting that in practice it sometimes benefits builders more than buyers, raising questions about its efficacy.
Project Monitoring and Reporting
Promoters must maintain a project webpage, provide regular updates, and submit certificates and progress reports on the RERA portal. This enables buyers to track project development and ensures governance transparency.
Formation of Allottees’ Association
Upon completion, promoters are responsible for facilitating the formation of an allottees’ association and transferring necessary documents, including title deeds and insurance benefits.
Timely Possession and Compensation
Promoters must deliver possession as per declared timelines. Delays attract interest payments to buyers and may lead to legal action. They are also responsible for rectifying defects and ensuring compliance with quality standards.
Transfer of Projects
If a project is transferred to a third party, the new promoter inherits all obligations, including adherence to approved plans, timelines, and disclosure requirements.
Enforcement and Penalties – Legal and Practical Implications
Non-compliance with RERA obligations can result in penalties, legal disputes, and reputational damage. Courts have upheld the mandatory nature of RERA registration and the authority of RERA bodies to adjudicate disputes. By adhering to these obligations, promoters not only comply with the law but also build trust with homebuyers, fostering a transparent and accountable real estate sector.
RERA prescribes strict penalties:
- Financial Penalties: Up to 10% of project cost for non-registration.
- Imprisonment: Up to three years for continued non-compliance.
- Compensation: Mandatory refund with interest for failure to deliver possession.
Judicial interpretations have consistently upheld these provisions, ensuring that promoters remain accountable.
Developers and promoters are custodians of buyer trust: RERA
RERA has redefined the role of developers and promoters, transforming them into custodians of buyer trust. While judicial activism has strengthened RERA’s efficacy and RERA establishes a robust framework for developers and promoters, emphasizing registration, disclosure, financial prudence, adherence to plans, timely delivery, and fiduciary governance to protect consumer rights and ensure sustainable growth in the real estate sector.
