Introduction
For a person, the buying of flats might be one of the biggest financial decisions of their life. Now in the process of purchasing a property with their money, it is expected that the person will get possession of their flats as per the timelines fixed by the builder. The problems start when a person is unable to take possession of the property and non-payment of interest and rent at the same time to repay home loan EMIs, creates an immense financial burden on the buyer. There are, however, certain provisions to help the home buyers in these circumstances, which is covered under RERA Act. Provision of Section 18 of the RERA Act allows allottees to obtain interest in regard to their possession of flats, as well as compensation for the case when possession is delayed beyond the timeline mentioned. If the developer fails in giving possession during the period stated, there are two alternatives for the allottee: either reside in the project while earning the interest or withdraw from the project with the refund of money including interest as per the Act. This blog explains the legal framework governing delayed possession and the practical method for calculating interest.
Understanding the Legal Framework Under RERA
According to Section 3 of RERA, every project must be registered with the state RERA Authority before a promoter can advertise or sell apartments. Before making a reservation, purchasers must verify the project completion deadline on the state RERA website, which is noted in the registration.
Following the booking, the promoter provides an allocation letter. Under Section 13, once more than ten per cent of the price is collected, a registered Agreement for Sale is required. This agreement records the price, payment plan, specifications and the date of possession, which is the date from which delay is later counted. Buyers then pay in installments, often through a home loan. If a buyer doesn’t pay on time as required by Section 19, they will be charged interest at the same rate as the promoter.
After the construction process has been completed, the promoters need to sign the registered conveyance deed and take delivery of the property for which an occupancy/occupancy completion certificate is required. Contractors use the various provisions of permission, labor issues, coronavirus effect, or force majeure, among others, if no transfer takes place after crossing the date limit. Force majeure could be genuine but there are no guarantees.
This is where Section 18 of RERA comes in. A delay entitles the buyer to interest, or to withdraw with a refund, enforceable through a complaint before the RERA Authority. The question then becomes how much interest is owed, and that is what the rest of this blog explains.
Legal Right to Interest for Delayed Possession
According to Section 18(1), the buyer has two choices if a promoter does not finish the project or turn over the apartment by the date specified in the sales agreement:
- Leave the project and request a reimbursement of the money paid, together with interest and compensation; or
- Stay on the project and earn interest for each month that possession is delayed until the flat is finally turned over.
A buyer who stays does not lose the right to interest just because the builder eventually delivers. Interest is a lawful entitlement, not a favour.
Determining the Applicable Rate of Interest
The builder does not get to decide the rate. It is prescribed by the rules each state frames under RERA. The rate is the State Bank of India’s highest Marginal Cost of Lending Rate (MCLR) plus two per cent in numerous states. Section 2(za) of RERA states that if a buyer delays payment, the same rate will apply. This keeps the system in balance and serves as a useful guide while going over the details of your contract.
Step-by-Step Interest Calculation
Step 1: Find the date on which possession is promised. Check the sales agreement and the date given in the RERA registration. When the contract includes a grace period, it must be clearly stated and have to be fair. Interest generally begins on the agreed date, including any legal grace period.
Step 2: Determine the true date of possession. This is the date a valid offer of possession is made, usually backed by an occupancy or completion certificate. A letter offering possession without the required certificate may not stop the interest clock.
Step 3: Total the amount you have paid. Interest is calculated on the sums actually paid towards the flat. It can be discussed whether this amount includes taxes and additional fees, so consult an expert if the total is substantial.
Step 4: Establish the rate. Obtain the SBI maximum MCLR relevant to your state regulations and increase it by two per cent.
Step 5: Utilise the formula. Interest is determined using simple interest:
Interest = Amount paid × Annual rate × Months of delay ÷ 12
Illustration
Let us assume that an allottee has paid Rs. 40,00,000/- for a flat. The possession was promised to be given by 31 December 2023 but the same was given on 30 June 2025. Assuming an applicable annual interest rate of 10.75% and an interest-bearing delay of eighteen months, the calculation would be as follows:
- Principal amount paid: Rs. 40,00,000
- Annual interest rate: 10.75%
- Period of delay: 18 months
- Annual interest: Rs. 40,00,000 × 10.75% = Rs. 4,30,000
- Interest for eighteen months: ₹4,30,000 × 18 ÷ 12 = Rs. 6,45,000
- Accordingly, the illustrative interest amount would be Rs. 6,45,000.
Interest When You Choose to Withdraw
Interest from the date of each payment until the refund is given must be included when departing the project. The Supreme Court held in Newtech Promoters and Developers v. State of U.P. (2021) that if the promoter misses the delivery deadline, the allottee’s claim to a return with interest under Section 18 is unambiguous and unequivocal. If you no longer believe in the project, then opting for withdrawal is a valid option. Further, The Supreme Court has repeatedly protected homebuyers from unfair terms. In Fortune Infrastructure v. Trevor D’Lima (2018), it was determined that a purchaser cannot be forced to wait endlessly for possession. In Pioneer Urban Land and Infrastructure v. Govindan Raghavan (2019), it was determined that unilateral clauses in builder-buyer contracts are unjust and do not have to be agreed upon by the buyer. If your agreement offers you a trivial amount for delay while the builder charges you heavy interest for late payment, such clauses can be challenged.
Newtech Promoters and Developers v. State of U.P. (2021)
Fortune Infrastructure v. Trevor D’Lima (2018)
Pioneer Urban Land and Infrastructure v. Govindan Raghavan (2019)
Conclusion
A builder’s delay is not something buyers should accept without complaint. You have a clear right to receive interest at a predetermined rate each month under RERA, and you may calculate your debt using a simple method. Whether you are negotiating or filing a complaint, knowing the interest rate, the start and finish dates, and the principal amounts on which interest is applied enhances your position.
Author: Sachin Sharma, Associate
C- Author: Nitisha Rai, Intern
FAQs
Do I still get interest if I choose to stay in the project instead of withdrawing?
Yes. Under Section 18(1), a buyer who stays is entitled to interest for every month the possession is delayed, until the flat is handed over.
Is interest calculated on the full price of the flat or only on the amount I have paid?
Only on the amount actually paid towards the flat. Instalments paid after the agreed date earn interest only from the date of payment.
Can the builder's grace period or a COVID-19 or force majeure claim cancel my interest?
Not automatically. The contractor must demonstrate a real connection between the incident and the setback, as a vague assertion of unavoidable situations is insufficient.
Will I incur interest if I postpone my own payments?
Yes. If a buyer pays late, as required under Section 19, the buyer is charged interest at the same rate that applies to the promoter's delay.
