Can Developers Forfeit Booking Amounts Without a Signed Sale Agreement?

In many real estate transactions, homebuyers often pay a booking amount to reserve their chosen flat even before signing a sale agreement. However, disputes frequently arise when buyers decide to cancel the booking and developers attempt to forfeit a large portion or even the entire amount paid. A recent ruling by the Maharashtra Real Estate Regulatory Authority (MahaRERA) has now provided much-needed clarity on this issue, stating that a developer can deduct only 2% of the total property cost if the sale agreement has not been executed and the booking is cancelled after 61 days.

The Case Background

The case involved a Mumbai-based homebuyer who had booked an apartment in Panvel by paying an advance amount that included the booking fee, taxes, and stamp duty. However, the buyer later decided to cancel the booking due to personal reasons. At the time of cancellation, the sale agreement between the buyer and the developer had not been executed.

Despite this, the developer forfeited the entire amount paid, arguing that the buyer had voluntarily withdrawn from the transaction. Aggrieved by this, the homebuyer filed a formal complaint with MahaRERA, seeking a refund of the amount that had been wrongfully withheld.

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Developer’s Argument

In response to the complaint, the developer argued that since no sale agreement had been signed, the buyer was not protected under the Real Estate (Regulation and Development) Act, 2016 (RERA). The developer maintained that the booking was purely provisional and that, in the absence of a registered sale agreement, the buyer’s claim for refund was invalid.

They further contended that the transaction was incomplete and, therefore, non-refundable. Essentially, the developer attempted to justify forfeiting the full booking amount on the grounds that the property was never formally purchased.

MahaRERA’s Observation and Ruling

After reviewing the submissions from both sides, MahaRERA concluded that the developer’s stand was untenable. The Authority noted that the booking form signed by the homebuyer was only a provisional arrangement and did not hold the same legal weight as a registered sale agreement.

Referring to its 2022 circular, MahaRERA reiterated that developers are permitted to deduct only 2% of the total property cost if a homebuyer cancels the booking after 61 days. The ruling made it clear that forfeiting the entire booking amount without a signed sale agreement is not permissible under RERA.

Accordingly, MahaRERA directed the developer to refund the balance amount to the complainant within 60 days, after deducting the 2% cancellation fee allowed under the regulation.

Legal Provisions Under RERA

MahaRERA’s order draws strength from Section 13(1) of the Real Estate (Regulation and Development) Act, 2016. This section explicitly prohibits developers from accepting more than 10% of the total cost of a flat, plot, or building as an advance or application fee before signing a written and registered sale agreement with the buyer.

This safeguard ensures that homebuyers are not financially overexposed before a formal commitment is made. By collecting or forfeiting higher amounts without executing a valid sale agreement, developers violate the spirit of RERA, which was enacted to promote transparency and fairness in real estate dealings.

The law is designed to prevent arbitrary financial loss for homebuyers, especially in the early stages of a project when no binding legal document is in place.

Key Takeaways for Homebuyers and Developers

This ruling serves as an important reminder for both developers and homebuyers. Until a sale agreement is executed, the booking form remains a preliminary step and does not create enforceable rights equivalent to a contract of sale.

Developers can deduct a maximum of 2% of the property value as cancellation charges if a buyer withdraws after 61 days, but they cannot forfeit the entire booking amount. On the other hand, buyers should ensure that they do not pay more than 10% of the property’s cost unless a formal sale agreement is registered.

Both parties must maintain transparency, follow due process, and ensure that all payments are linked to legally valid documents.

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About MahaRERA’s Role and Impact

Since its inception, MahaRERA has been instrumental in resolving disputes and ensuring fair play between developers and homebuyers. Thousands of projects and agents are registered under its jurisdiction, and the Authority continues to play a crucial role in upholding accountability in the sector.

By enforcing provisions like those related to the sale agreement, MahaRERA strengthens buyer confidence and compels developers to operate within the legal framework. Its proactive approach in adjudicating such disputes has reinforced the importance of documentation and compliance under RERA.

Conclusion

The MahaRERA ruling makes it unequivocally clear that a developer cannot forfeit the entire booking amount when the sale agreement has not been executed. Only a nominal 2% deduction of the property cost is allowed in the event of cancellation after the stipulated period.

For homebuyers, this verdict reaffirms their right to fair treatment and financial protection under RERA. For developers, it underscores the need to adhere strictly to legal provisions before accepting or retaining buyer funds. Ultimately, transparent dealings, timely execution of the sale agreement, and adherence to RERA guidelines are essential to maintaining trust and balance in India’s real estate market.