Buying your dream home is exciting, but one overlooked document—the builder-buyer agreement—can make or break your investment. This legally binding contract defines everything from payment schedules to possession timelines. A single vague clause can cost you lakhs or delay your property handover indefinitely. In this guide, we’ll uncover 5 critical clauses in the builder-buyer agreement you must review before signing, so you can protect your rights and avoid costly mistakes.
5 Clauses in a Builder-Buyer Agreement That Could Make or Break Your Investment
Here are 5 key clauses in a Builder-Buyer Agreement that could either save or ruin your investment:
| Clause | Importance | Impact on Investment |
|---|---|---|
| 1. Indemnity Clause | Protects both buyer and builder from potential losses or damages arising from legal disputes or unforeseen issues. It defines liability limits and categories of losses. | Prevents unexpected financial burdens and legal risks, safeguarding your investment from costly claims or damages. |
| 2. Penalty Clause | Specifies penalties for delays, breaches, or non-compliance by either party, such as late payments by the buyer or delayed possession by the builder. | Ensures accountability and timely completion, protecting you from losses due to project delays or payment defaults. |
| 3. Possession and Handover Timeline | Clearly states the expected possession date and any grace period allowed to the builder, including compensation for delays. | Helps avoid indefinite delays in possession and provides legal recourse if the builder fails to deliver on time. |
| 4. Payment Schedule and Refund Policy | Details the total cost, payment milestones, consequences of default, and refund terms if the agreement is terminated. | Prevents financial confusion and protects your funds by ensuring transparent payment terms and refund rights. |
| 5. Construction Specifications and Quality Assurance | Defines the materials, layout, approved plans, and quality standards the builder must adhere to. Includes warranty and inspection terms. | Guarantees you receive the property as promised, avoiding compromises in quality or unauthorized changes that reduce property value |
What is a Builder-Buyer Agreement?
A builder-buyer agreement is a legally enforceable contract signed between a real estate developer and a homebuyer. This document lays out all the key terms of the property sale, including the total price, payment schedule, construction milestones, carpet area, possession date, penalties for delays, cancellation policies, and defect liability period. Under the RERA Act, it is mandatory for builders to register the project and issue this agreement to ensure transparency and protect the buyer’s rights.
Builder-Buyer Agreement before RERA
Before RERA 2016, builder buyer agreements were heavily biased towards builders, with unclear possession timelines, unchecked price hikes, heavy buyer penalties, and hidden charges. There was no standard format, leading to unfair terms and little buyer protection. RERA introduced strict regulations, standardized agreements, capped advance payments, and ensured transparency, safeguarding homebuyers and promoting accountability in real estate.
Builder-Buyer Agreement after RERA
Post-RERA, the Builder Buyer Agreement is transparent and buyer-friendly. It mandates project registration, limits advance payments to 10%, sets clear possession timelines, and enforces penalties for delays. The agreement includes refund policies, defect liability, and fast dispute resolution, ensuring greater accountability and protection for homebuyers.
Also Read: Factors to Increase Your Property Value
What Are the Charges Involved in Registering a Builder-Buyer Agreement?
Registering a builder-buyer agreement involves:
Stamp Duty
- Varies by state and property value.
- Typically ranges from 2% to 6% of the property’s market value.
- Example: In Bangalore, stamp duty ranges between 3% and 5%; in UP, it can be around 6% on the agreement value.
- Some states add a cess (e.g., 10% on stamp duty).
Advance Payment Limit
- Builders can collect only up to 10% of the property cost before registering the agreement as per RERA.
Legal and Documentation Fees
- Buyers may incur additional costs for lawyer fees and paperwork during registration.
Additional Fees
- Some states impose extra fees for amenities or development surcharges (e.g., Chennai charges additional 2% for registration of construction agreements).
Mandatory Registration Timeline
- Construction agreements must be registered within 120 days of signing in many states, failing which ownership rights may be affected.
State-Specific Variations
- Uttar Pradesh requires 6% stamp duty + 1% registration fee on builder-buyer agreement value, plus a non-refundable 1% registration charge.
- Bangalore charges stamp duty (3%-5%) plus 1% registration fee on property market value.
Note: Charges vary widely across states and cities; always check local government or RERA portals for exact rates before registration.
Builder-Buyer Agreement Format
The Builder Buyer Agreement is a legal contract outlining key terms between buyer and builder, including:
- Parties’ details and property description
- Total cost with payment schedule (max 10% advance before registration)
- Possession date with delay penalties
- Construction quality and approved plans
- Cancellation and refund terms
- Defect liability (usually 5 years)
- Force majeure clause
- Maintenance and society formation
- Legal compliances and RERA registration
- Dispute resolution mechanism
This format ensures transparency, protects buyers, and holds builders accountable under RERA.
Tips to Protect Yourself Before You Sign Builder-Buyer Agreement
Here’s concise list of tips to protect yourself before signing a Builder-Buyer Agreement:
- Read the entire agreement carefully, focusing on payment, possession, and penalty clauses.
- Verify builder credentials and RERA registration for legal and project approvals.
- Check for hidden charges like maintenance, parking, and stamp duty.
- Ensure a clear possession date with delay penalties to avoid indefinite waits.
- Confirm balanced penalty clauses protecting both buyer and builder.
- Review construction quality and warranty terms for promised standards.
- Verify all legal documents and clear property title before signing.
- Consult a property lawyer to spot unfair or ambiguous clauses.
- Negotiate or remove biased terms that favour the builder.
- Look for an opt-out clause to exit if approvals or clearances are missing.
These steps help secure your real estate investment and ensure a fair Builder-Buyer Agreement.
Also Read: A Guide to Indemnity Bond
Common Mistakes Buyers Make while Signing Builder-Buyer Agreement
Here’s a concise list of common mistakes buyers make while signing a Builder-Buyer Agreement:
- Overlooking hidden charges and unclear fees.
- Accepting builder-favouring, non-standard clauses.
- Ignoring possession timelines and delay penalties.
- Agreeing to imbalanced penalty terms.
- Missing payment deadlines and triggering penalties.
- Accepting revised possession dates without legal advice.
- Failing to verify builder’s approvals and clear title.
- Neglecting construction quality and warranty clauses.
- Skipping professional legal review.
- Overlooking cancellation and refund policies.
Avoid these to safeguard your property investment and ensure a fair agreement.
Conclusion
A clear and detailed Builder-Buyer Agreement is key to protecting your property investment. Paying attention to important clauses like possession dates, payment terms, penalties, construction quality, and liability can help you avoid delays, extra costs, and legal problems.
Understanding these clauses ensures a smooth home buying experience and keeps your investment safe. Always review your agreement carefully to make the best real estate decision.
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Frequently Asked Questions
A Builder-Buyer Agreement (BBA) is a legal contract between a property buyer and builder that outlines the terms and conditions of the property sale, including payment schedules, possession timelines, construction quality, and penalties for delays.
Registration rules vary by state, but under RERA, the agreement should be registered to make it legally enforceable and protect the buyer’s rights.
You typically sign it after booking the property but before the first major payment or construction milestone. Never pay large sums until you have a signed copy in hand.
Always confirm the project’s RERA registration number (on RERA’s state-level website) and check all statutory approvals (land, environment clearance, fire NOC) before signing.
Under RERA, builders must rectify structural defects and major plumbing or electrical issues for at least five years after possession. Check for clear timelines (e.g., remediation within 30 days of notice).
Yes, it specifies material quality, design, and warranty terms to ensure the builder delivers the promised standards.
The agreement usually includes penalty clauses that require the builder to compensate the buyer for delays beyond the agreed possession date.
Post-RERA, agreements have become more buyer-friendly with: mandatory RERA registration numbers, clearer timelines, better refund clauses, detailed specifications, reduced arbitrary builder powers, and stronger penalty provisions for delays. However, buyers should still review carefully.
This constitutes breach of contract. Buyers can demand rectification, compensation for value difference, or in extreme cases, cancellation with refund. Under RERA, this is a defect that must be rectified within the defect liability period.
Post-RERA, carpet area must be defined as the net usable floor area of an apartment, excluding the area covered by external walls, areas under services shafts, exclusive balcony or verandah area, and exclusive open terrace area. The definition should strictly follow RERA guidelines to avoid disputes.
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