Force Majeure in Real Estate

Real estate development in India is a complex and capital-intensive process that involves multiple stages, stakeholders, and strict timelines. Despite meticulous planning, unforeseen circumstances sometimes disrupt project schedules, leading to delays and disputes. One legal principle designed to address such extraordinary disruptions is Force Majeure.

Derived from French meaning “superior force,” Force Majeure refers to events beyond human control which prevent parties from fulfilling contractual obligations. In the Indian real estate context, especially under the Real Estate (Regulation and Development) Act, 2016 (RERA), understanding Force Majeure is vital for builders, promoters, and homebuyers alike.

What is Force Majeure?

Force Majeure is a legal concept that excuses parties from performing their contractual duties when unforeseeable and unavoidable events occur. These events are typically natural or extraordinary incidents that neither party could prevent or control.

The term “Force Majeure” literally means “superior force.” According to Black’s Law Dictionary, it is defined as “an event or effect that can neither be predicted nor managed/avoided.”

Common examples of Force Majeure events include:

• Natural disasters such as earthquakes, floods, cyclones, droughts, and tsunamis.
• Epidemics or pandemics, including outbreaks like COVID-19.
• War, terrorism, or riots.
• Government actions such as lockdowns, curfews, or changes in law.
• Labour strikes or major supply chain disruptions.

The inclusion of a Force Majeure clause in contracts allocates risk clearly between parties and provides relief when contractual performance becomes impossible due to these extraordinary events.

Legal Framework of Force Majeure in India

Indian Contract Act, 1872

Under Section 56 of the Indian Contract Act, the doctrine of frustration of contract provides that a contract becomes void when an unforeseen event makes performance impossible. However, this doctrine is interpreted narrowly by Indian courts and may not provide adequate protection for investors or developers.

Because of this limitation, Force Majeure clauses are included expressly in contracts to provide clarity on when and how contractual obligations may be suspended or extended.

Real Estate (Regulation and Development) Act, 2016 (RERA)

The RERA Act is the primary legislation regulating the real estate sector in India, with the aim of increasing transparency and protecting homebuyers. It imposes strict timelines on promoters for project completion and handover.

Recognising that certain extraordinary events can disrupt construction schedules, Section 6 of RERA explicitly empowers State Real Estate Regulatory Authorities to grant extensions for project registrations on the grounds of Force Majeure. This ensures promoters are not unfairly penalised for delays caused by events beyond their control.

Force Majeure Under RERA: Scope and Application

What Events Qualify?

RERA typically recognises the following as Force Majeure events:

• Natural calamities such as floods, earthquakes, cyclones, droughts, and tsunamis.
• Epidemics and pandemics (COVID-19 being a recent example).
• Government-imposed lockdowns or restrictions.
• Wars, strikes, riots, or acts of terrorism.

Most importantly, RERA also includes a broad phrase like “any other nature-caused calamity” to cover unforeseen situations not explicitly mentioned.

Extension of Project Registration

Promoters can apply to the State RERA Authority for an extension of the project registration validity period if delayed due to Force Majeure. The authority may grant an extension for up to one year and can allow additional short-term extensions based on the circumstances.

The authority must provide reasons in writing and offer the promoter a chance to be heard before granting or refusing the extension.

COVID-19 Pandemic: A Practical Example of Force Majeure

The COVID-19 pandemic has been a watershed moment for Force Majeure in Indian real estate. The Ministry of Housing and Urban Affairs, in May 2020, advised states and union territories to extend the registration validity period for projects affected by the pandemic by six months automatically.

Additional relief measures included:

• A further optional three-month extension at the regulator’s discretion.
• Waiver of fees during the extension period.
• Moratorium treatment of the Force Majeure period, exempting builders from interest penalties on delayed possession.
• Extension of possession dates and compliance deadlines for buyers and developers.

This advisory demonstrated how Force Majeure can operate as a practical tool to manage extraordinary disruptions in the sector.

How is Force Majeure Invoked?

To benefit from the Force Majeure clause under RERA or contract terms, certain procedural steps must be followed:

1. Notification: The promoter must promptly inform buyers and the State RERA Authority about the occurrence of the Force Majeure event.
2. Submission of Evidence: Documentation such as government orders, weather reports, medical advisories, or news of labour strikes should support the claim.
3. Application to Authority: A formal application requesting registration extension should be submitted, explaining the nature of the Force Majeure event and the resulting delays.
4. Demonstration of Mitigation: The promoter must show efforts made to mitigate delays, like rescheduling work, sourcing alternate materials, or redeploying workforce.
5. Regulatory Review: The authority reviews the application, holds hearings if necessary, and issues an order granting or denying extension.

Impact of Force Majeure on Builders and Homebuyers

For Builders and Promoters

• Protection from Penalties: Builders are shielded from penalty provisions for delays attributable to Force Majeure events.
• Fee Waivers: They may get waivers on renewal fees or other charges during the extension period.
• Extended Timelines: Additional time to complete projects reduces the risk of litigation and financial losses.

For Homebuyers

• Extended Waiting Periods: Buyers face longer possession delays, sometimes stretching several months.
• Financial Burdens: EMIs (Equated Monthly Instalments) on home loans continue, causing stress especially during economic downturns.
• Limited Relief: While banks may offer EMI moratoriums, interest often continues to accrue and compound, unlike the interest waiver extended to builders.
• Legal Rights: Buyers can approach RERA for compensation, refund, or cancellation if delays are unjustified or the Force Majeure clause is misused.

Common Concerns and Criticism

Many homebuyers feel the Force Majeure clause disproportionately favours builders. Surveys reveal that while most buyers accept reasonable extensions for developers, many are dissatisfied when they themselves do not receive equivalent financial relief.

For example, during COVID-19, builders received interest waivers on delayed possession, but homebuyers had to bear compounded interest on deferred EMIs.

This imbalance has led to calls for more equitable force majeure provisions that protect buyers’ interests as well.

Drafting a Good Force Majeure Clause: Best Practices

To avoid disputes and ensure clarity, contracts should include well-drafted Force Majeure clauses covering:

• Clear Definition of Events: Listing specific events and a broad catch-all phrase to avoid narrow interpretations.
• Notification Requirements: Specifying timelines and formats for notifying the other party about a Force Majeure event.
• Mitigation Obligations: Requiring parties to take reasonable steps to minimise delay or loss.
• Relief and Extensions: Detailing what relief is available (extensions, fee waivers, moratoriums).
• Dispute Resolution: Mechanisms such as mediation or arbitration to resolve disagreements over Force Majeure claims.
• Balanced Provisions: Considering relief for both promoters and homebuyers, such as non-penal EMI deferment for buyers.

How Buyers and Builders Can Protect Themselves

Conclusion

Force Majeure is a critical legal concept that acknowledges the reality of uncontrollable events disrupting contractual obligations. In India’s real estate sector, RERA’s provisions provide a statutory mechanism for promoters to seek relief during such events while balancing buyers’ interests.

However, Force Majeure is not a free pass for builders to delay projects arbitrarily. It requires genuine proof, timely communication, and mitigation efforts.

Homebuyers must be aware of their rights, insist on transparency, and engage proactively to protect their interests. Builders, on the other hand, should ensure fair and clear contractual clauses, timely compliance, and ethical practices.