What Happens When a Builder Doesn’t Register Under RERA? A Guide for Homebuyers

The Real Estate (Regulation and Development) Act of commonly known as RERA, was enacted in 2016 to bring in transparency, accountability, and fairness to the real estate sector in India. For homebuyers, RERA registration of real estate projects offers a significant layer of protection. But what happens when a builder doesn’t register under RERA? Let’s explore the implications, risks, and what steps you can take as a homebuyer.

Table of Contents

• Legal Requirement: Is Project Registration with RERA Mandatory?
• When Builders Skip RERA Registration?
• Impact on Homebuyers: Risks and Challenges
• Legal Consequences for Builders
• Which Projects Are Not Required to Be Registered Under RERA?
• RERA Registration Requirements for Builders
• RERA Rules for Payment Schedule
• Whom RERA Is Not Applicable
• RERA Applicable for How Many Flats?
• Tips for Safe Home Buying
• Frequently Asked Questions

Legal Requirement: Is Project Registration with RERA Mandatory?

Yes, project registration with RERA is mandatory for most real estate developments in India. According to the RERA rules for builders, any residential or commercial project must be registered under RERA if:

• The land area exceeds 500 square meters, or
• The number of apartments proposed to be developed exceeds eight units.

This requirement applies to both new developments and ongoing projects that haven’t received a completion certificate before the implementation of the RERA Act.

Once registered, developers must:

• Provide detailed disclosures about project timelines, approvals, layout plans, and financials.
• Update construction progress and financials on the RERA portal regularly.
• Comply with the timelines and commitments made to homebuyers.

Without RERA project registration, the builder cannot advertise, market, sell, or offer for sale any unit in the project. This ensures that homebuyers are only investing in legally compliant and transparent real estate ventures.

When Builders Skip RERA Registration?

Despite clear regulations, some builders continue to launch or promote unregistered real estate projects, a direct case of RERA non-compliance. Builders may attempt to bypass RERA for several reasons:

• To avoid the scrutiny of regulatory disclosures and financial transparency.
• To delay commitment to delivery timelines and penalties.
• To gain quicker access to buyer funds without legal obligations.

However, when a builder is not registered under RERA, it severely compromises buyer protection. These projects often lack verified documentation, clear titles, or approval status, increasing the risk of:

• Construction delays or halts.
• Legal disputes over land ownership or permissions.
• Misuse of funds or diversion to other projects.

Investing in an unregistered real estate project strips the buyer of rights available under RERA, making legal recourse much more difficult.

Impact on Homebuyers: Risks and Challenges

Investing in a real estate project not registered under RERA exposes homebuyers to multiple risks and uncertainties. Without the protections guaranteed by RERA registration, buyers often face challenges that can lead to financial and emotional distress.

Here are the key risks and challenges:

• 1. Lack of Transparency: Unregistered projects are not obligated to disclose vital project details such as land ownership, building approvals, layout plans, or completion timelines. This makes it difficult for buyers to verify the authenticity of the project.
• High Risk of Delays: Since RERA rules for builders include strict deadlines and penalties for late possession, builders often skip registration to avoid accountability. In such cases, buyers may face indefinite delays without any compensation.
• Limited Legal Recourse: Homebuyer rights under RERA only apply to registered projects. If the project is unregistered, buyers may not be able to file complaints with the RERA authority and would have to rely on lengthy and expensive court proceedings instead.
• No Protection for Advance Payments: RERA mandates that 70% of funds collected from buyers must be deposited in a separate escrow account to prevent fund diversion. In unregistered projects, there’s no such obligation, making it easier for builders to misuse buyer money.
• Increased Risk of Fraud: Some builders intentionally avoid registration to hide illegal practices, such as selling the same unit to multiple buyers, or constructing without approvals.

Legal Consequences for Builders

RERA non-compliance is a serious offence with strong penalties to deter unethical practices in the real estate sector. When a builder is not registered under RERA, they can face both financial and criminal penalties.

• Monetary Penalties: If a builder fails to register a project as required, they may be liable to pay a RERA penalty for builders amounting to up to 10% of the estimated project cost.
• Imprisonment: Continued non-compliance or violation of RERA orders can lead to imprisonment of up to 3 years, or both fine and imprisonment, under Section 59 of the RERA Act.
• Prohibition of Project Sale: An unregistered project cannot legally be marketed, booked, or sold. Any transaction made in violation of this rule can be declared null and void, leading to potential legal complications for both the builder and the buyer.
• Revocation of Licenses: Repeated offences may result in the cancellation of the builder’s licenses or disqualification from undertaking future real estate projects.

These legal consequences serve to uphold RERA rules for builders and protect homebuyer rights under RERA, promoting greater transparency and accountability in the real estate sector.

Which Projects Are Not Required to Be Registered Under RERA?

While most real estate developments must comply with RERA registration, certain types of projects are exempt from this requirement. The RERA Act outlines specific cases where builders or promoters are not required to register a project with the regulatory authority.

Here are the key exemptions:

• Small-Scale Projects: Projects where:
  • The land area is less than 500 square meters, and
  • The number of apartments does not exceed eight units
  • Such small developments are not required to be registered under RERA. However, if either threshold is crossed, registration becomes mandatory.
• Projects with Completion Certificate: If a project has received a completion certificate or occupancy certificate before the commencement of RERA (i.e., before May 1, 2017, in most states), it is exempt from RERA registration.
• Renovation or Repair Projects: Projects involving only renovation, repair, or redevelopment that do not involve marketing, selling, or new allotment of units also fall outside the RERA registration mandate.
• Government-Notified Exemptions: In some cases, state governments may notify specific types of projects or locations as exempt, especially under special development schemes or in rural areas.

Despite being exempt, buyers are still advised to practice due diligence before investing, even in these projects.

RERA Registration Requirements for Builders

For all applicable projects, RERA rules for builders make registration mandatory. Here are the key RERA registration requirements a builder must fulfill:

• Application for Registration: Builders must submit an application to the state RERA authority before advertising, marketing, or selling any unit in the project.
• Disclosure of Key Details: The builder is required to disclose the following:
  • Details of the project, including layout, approved plans, and land title.
  • Timeline for project completion.
  • Financial details, including cost and fund utilization plans.
  • Information about previous projects and delivery records.
• Escrow Account: 70% of the funds collected from buyers must be deposited into a separate escrow account, to be used only for the construction and land cost of the project.
• Updates and Compliance: Builders must provide quarterly updates on construction progress, sales status, approvals, and any changes to project timelines.
• Adherence to Promised Timelines: Once registered, the builder is legally obligated to deliver the project as per the committed timelines. Delays or deviations may lead to penalties or legal action under RERA.

Failure to comply with these requirements is considered RERA non-compliance and can result in strict RERA penalties for builders.

RERA Rules for Payment Schedule

Under the RERA Act, there are clear guidelines to protect homebuyers from arbitrary and front-loaded payment demands by builders. The RERA rules for payment schedule aim to link payments to actual project progress.

Key RERA Guidelines for Payment Schedules:

• Stage-Linked Payment
  • Builders can only demand payments in proportion to the stage of construction.
  • For example, payment milestones may include excavation, plinth, slab completion, brickwork, plastering, etc.
  • This prevents builders from collecting large amounts upfront before substantial work is done.
• Advance Booking Amount: Builders cannot demand more than 10% of the cost of the apartment, plot, or building as an advance or booking amount before signing a registered agreement for sale.
• Registered Agreement for Sale
  • The builder must execute a registered agreement for sale after the initial 10% payment.
  • The agreement should clearly mention the total cost, construction milestones, payment timeline, possession date, and penalties for delay.
• No Arbitrary Charges
  • Builders cannot introduce surprise charges or change the payment terms without buyer consent.
  • Any demand outside the agreed payment schedule or cost structure violates RERA rules for builders.

By regulating the payment schedule, RERA ensures financial discipline and protects homebuyer rights under RERA.

Whom RERA Is Not Applicable

While RERA registration is mandatory for most real estate projects and professionals, there are specific individuals and scenarios where RERA is not applicable.

RERA Does Not Apply To:

• Small Real Estate Projects
  • Projects where:
    • Land area is less than 500 sq. meters, and
    • Number of units is eight or fewer
  • These projects are exempt from RERA registration unless voluntarily registered.
• Projects Completed Before RERA
  • Projects that received a completion certificate or occupancy certificate before May 1, 2017 (the date RERA came into effect in most states) are not covered under RERA.
• Renovation and Repair Work
  • Projects involving only repair, renovation, or redevelopment that do not involve marketing, selling, or new allotment of units are not required to register under RERA.
• Government-Owned or Notified Projects
  • Certain government or state-notified projects (e.g., defense or infrastructure housing) may be exempt based on state-specific RERA rules.
• Individual Sellers
  • If a private individual is selling a property (not as a promoter or developer), they are not required to register under RERA. The Act is intended for builders, developers, and agents engaged in real estate as a business.

Understanding these exemptions is crucial for buyers to ensure they’re dealing with a RERA-compliant project and are not unknowingly investing in an unregistered real estate project with fewer legal protections.

RERA Applicable for How Many Flats?

RERA registration becomes mandatory when a real estate project involves the construction and sale of more than 8 flats (units).

As per the RERA Act:

• If a project consists of more than 8 apartments, or
• Is developed on a land parcel exceeding 500 square meters. Then it must be registered under RERA.

Even if a builder tries to develop a project in phases to bypass this limit, each phase is considered a separate project and must be individually registered if it meets the threshold.

Tips for Safe Home Buying

To avoid falling into legal or financial trouble, homebuyers should take proactive steps when investing in real estate:

• Verify RERA Registration: Always check the project’s RERA registration number on the official state RERA website. If the project is not listed, consider it a red flag.
• Check Builder’s Track Record: Research the builder’s past projects, delivery timelines, and any RERA complaints or penalties for non-compliance.
• Read the Agreement Carefully: Ensure that the Agreement for Sale includes construction-linked payment terms, possession date, penalty clauses, and cancellation terms.
• Avoid Cash Payments: Insist on transparent banking transactions. Avoid builders who request payments in cash or off the record.
• Inspect Approvals: Check for valid building approvals, commencement certificate, environmental clearance, and land title documents.
• Consult Legal Experts: Hire a property lawyer to verify documents, especially for high-value investments or unregistered real estate projects.

More Information

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Conclusion

RERA registration is not just a legal formality, it’s a critical safeguard for homebuyers. Purchasing property from a builder not registered under RERA exposes you to delays, legal issues, and financial losses. Understanding RERA rules for builders and staying informed about your rights under RERA. So avoiding unregistered real estate projects can help you make a safe, transparent, and legally sound investment.

Frequently Asked Questions