Force Majeure Clause to Uphold Real Estate Sector

Govt to Mull Force Majeure Clause to Uphold Real Estate Sector

To address the challenges emerging from the COVID-19 pandemic lockdown, the central government would provide an advisory to all States to take special measures to protect the interests of homebuyers and the real estate sector.

Force Majeure Clause

As the pandemic lockdown has already disrupted real estate construction activities due to large scale reverse migration of labor and disruption of the supply chain of various construction materials. In order to cope with the adverse impact of the current crisis, the Center will soon issue a notice to all state and property governments under Real Estate Regulation Act (RERA) to invoke the force majeure provision. This will bring considerable relief to the builders as they would receive an extension of the project completion deadlines, exemption from paying penalties to state agencies for the affected period. 

What is Force Majeure?

It is a standard provision in contracts that effectively relieves all parties of responsibility or obligation when an unusual occurrence or situation beyond the control of the parties, such as war, strike, rebellion, crime, plague, or an incident defined by God's legal term act (hurricane, storm, earthquake, volcanic eruption, etc.), prohibits one or both parties from meeting their obligations under the terms of the contract.

Special Measures to Comfort Builders & Buyers

The government will also announce measures to save the home buyer's interest and defend the industry from adverse impacts. Some of the RERA officials said home buyers would gain compensation because they would not have to pay any fines for late payments to builders during the affected time. The entire time is viewed as zero-period. So the authorities will not enforce any penalties for failing to reach deadlines for pandemic-affected projects. The provision to invoke force majeure is already there in the legislation. COVID 19 is an imminent situation, and the Center has used the Legislation on Disaster Management to tackle that. The real estate regulation law has this provision to give the builder more time for completing a project. The developers can request timeline completion information when they apply for registration with the regulators.

The Central Government special measures are expected to provide relief to the real estate sector, boost much-needed liquidity, and demand creation. 

By: Shailaja K