Legal Status of an Allotment Letter issued by a Builder while Booking a Flat

Housing Society Law

Posted by Aditya Pratap Law Offices on 01 Mar 24

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The first step a person takes while booking a flat is to get the issuance of an allotment letter from the builder. The allotment letter is usually issued by the developer after accepting the booking amount for the flat from the customer. Such amounts usually range from Rupees 1 lakh to 5 lakh. It may be higher if more expensive luxurious flats are involved. Once the allotment letter is issued, the customer must pay the balance amount so that the total paid comes to 10% of the total value of the flat. Once the threshold of 10 percent is crossed, the developer must execute a registered agreement to sell with the customer.

Registered Agreement is Compulsory:

Executing a registered agreement to sell is a mandatory requirement under Section 13 of the Real Estate Regulation Act of 2016 (also referred to as the RERA Act, 2016). If the builder does not execute the registered agreement to sell with the flat buyer, he is liable to face penal action under Section 61 of the RERA Act, with fines ranging up to 5 percent of the project cost.

Is the booking amount refundable?
Yes, the booking amount paid for the issuance of the allotment letter is fully refundable. If the customer decides to cancel the booking, the builder must refund the amount in full and cannot forfeit anything.

Is the Allotment Letter a Valid and Binding Contract? Can the Builder unilaterally cancel the booking after issuing an Allotment Letter?
As per the Indian Contract Act, an agreement is enforceable under Section 10 if it is made by competent parties, out of their free consent and for lawful object and consideration. Since all essential constituents of a contract are present in an allotment letter, the same is considered as a binding contract between the owner and the buyer.

The builder cannot cancel the booking after issuing the allotment letter. If he wishes to cancel the booking, he has to send a notice to the buyer and will have to refund the money paid. Further, if the buyer shows that he is ready and willing to fulfill his obligations under the contract, he can go ahead with the deal and the builder will be obliged to execute the registered agreement to sell with him.

Aditya Pratap is a lawyer and founder of Aditya Pratap Law Offices. He practices in the realm of real estate, corporate, and criminal law. His website is adityapratap.in and his media interviews can be accessed at http://www.youtube.com/@AdityaPratap/featured . Views expressed are personal.