Why Property Buyers Must Check Payment Clauses Before Signing Builder Agreements

Experts have raised concerns that builder-buyer agreements in India often include clauses that tie payments to either construction progress or a set calendar date—whichever comes first—placing financial pressure on buyers even when projects face delays.

The Fine Print That Can Cost You

A 2022 case involving Pune-based homebuyer Ramesh Mehta highlighted this issue. Mehta’s agreement stated that his second payment would be due upon completion of the first-floor slab or within 60 days of booking—whichever occurred earlier. Despite no slab work, the builder demanded payment after 60 days, and Mehta was forced to comply. Construction later stalled, leaving him financially burdened without possession.

This instance underscores the need for buyers to scrutinize the payment schedule thoroughly before signing any agreement.

What the Clause Really Means

The ‘whichever is earlier’ clause effectively obligates buyers to pay based on time, even if construction lags. Jayesh Rathod, Co-founder and Director at The Guardians Real Estate Advisory, noted that this condition could financially stress buyers, especially if the builder delays progress.

Santhosh Kumar, Vice Chairman of ANAROCK Group, added that this clause often links a payment to a fixed date or a milestone like loan disbursement or statutory approvals. If the fixed date arrives before these events, buyers must pay immediately—failure to do so can result in agreement cancellation or forfeiture of prior payments.

Demand Notices Must Be Verified

While builders usually send demand notices backed by photos or engineer certifications, legal experts advise that agreements must mandate verifiable proof for milestone achievements. This ensures that developers cannot make arbitrary claims for payment without actual progress.

Buyers Must Safeguard Their Interests

Shubhi Jain, Principal Partner and Head of CRM at Square Yards, recommended that buyers align payment milestones with genuine construction stages. Doing so helps avoid early EMIs on under-construction loans and gives financial breathing space.

“Failure to respond to a payment notice can lead to penalties, interest, or even booking cancellation,” warned Kumar. He also pointed out that vague or misleading clauses can be challenged at RERA or consumer forums.

Legal Leverage Under RERA

Under the Real Estate (Regulation and Development) Act, buyers are legally entitled to negotiate payment schedules. The Act encourages construction-linked payment plans over arbitrary deadlines.

“Payments should only be tied to verifiable construction milestones such as slab completion or receipt of Completion or Occupancy Certificates,” said Rathod. He also advised seeking legal counsel when drafting agreements to ensure payment terms are buyer-friendly.

Kumar echoed this view, noting that clearly defined milestones safeguard buyers from premature financial commitments.

The Bottom Line

Flexible, milestone-linked payment clauses are far safer for homebuyers. They reduce the risk of early payments and safeguard buyers from delays, financial distress, and potential legal complications.

Disclaimer: This article is for informational purposes only and does not constitute legal or financial advice. Homebuyers are encouraged to consult legal professionals before signing any property-related agreement.