When purchasing a property such as a flat, home, or apartment, buyers are often required to pay a booking amount to secure the deal. This booking amount serves as a commitment from the buyer to the seller and compensates the builder in case the buyer cancels the deal. If the buyer decides to back out, the builder may forfeit part or all of this booking amount. But how much can be legally withheld? The answer varies based on the state in which the property is located, due to the state-specific implementation of the Real Estate (Regulation and Development) Act, 2016 (RERA).

Why Is There a Booking Amount?

The booking amount acts as a safeguard for both the builder and the buyer. It ensures that the buyer is serious about purchasing the property and that the builder can cover the costs associated with marketing the property if the buyer backs out. For the builder, cancelling a deal means having to restart the process of finding a new buyer, potentially losing valuable time and resources. For the buyer, a cancellation may result in the loss of the booking amount, making it essential to understand the rules regarding refunds.

What Happens If You Cancel a Booking?

A common concern among buyers is whether they can recover the booking amount after cancelling a property deal. Unfortunately, many states, including Kerala, have not uniformly regulated the terms under which builders may forfeit the booking amount. While RERA legislation is meant to protect homebuyers by defining their rights and the obligations of builders, the extent of these protections can differ greatly depending on the state.

For instance, some states have a clear forfeiture policy, while others do not explicitly define the rules, leaving the matter open to interpretation by builders and courts. As a result, if a buyer cancels a booking due to unavoidable circumstances, the builder may choose to retain the entire amount, as happened in a recent case where a buyer forfeited a substantial sum of INR 5 lakh after backing out of a deal.

The Role of RERA in Protecting Homebuyers

The RERA Act plays a significant role in safeguarding the interests of homebuyers across India. According to Section 13 of the RERA Act, a builder cannot demand more than 10% of the property’s price as a booking amount before entering into a formal agreement for sale. This agreement should clearly outline the conditions under which the booking amount may be forfeited if the buyer cancels the deal.

However, RERA is a state-specific law, meaning each state must implement its own version of the Act, including specific regulations on booking cancellations and forfeitures. A decision by one state's RERA will only be enforceable within that state’s jurisdiction, and other states may have different rules or no clear rules at all regarding the amount a builder can forfeit.

Kerala RERA: What You Need to Know

Kerala has enacted its own version of RERA, which includes guidelines for the forfeiture of the booking amount in case of cancellations. According to Kerala’s RERA regulations, builders are allowed to forfeit the booking amount in addition to claiming any interest liabilities associated with the cancellation. This means that buyers in Kerala may lose both the booking amount and any additional charges if they choose to cancel a booking.

Unlike other states where the rules may be unclear, Kerala has taken a more defined approach to this issue, ensuring that builders are compensated for their losses while buyers are aware of the potential financial consequences of cancelling a deal.

Key Takeaways for Buyers in Kerala

1. Booking Amount Cap: Builders cannot demand more than 10% of the property’s value as a booking amount before signing a sale agreement.

2. Forfeiture on Cancellation: In Kerala, builders are permitted to forfeit the booking amount and claim interest liabilities if a buyer cancels the deal.

3. State-Specific Rules: The decision to refund the booking amount depends on the state’s RERA regulations, and Kerala has a clear stance on this issue compared to other states.

For buyers, understanding your state's RERA rules is crucial when cancelling a flat booking. In Kerala, builders are entitled to retain the booking amount along with any interest liabilities, providing clear guidelines on what buyers can expect in the event of a cancellation. Whether you're buying a home in Kerala or another state, it’s important to review the local RERA Act before making any financial commitments to avoid surprises down the road.