When a housing society undertakes redevelopment, the development agreement (DA) forms the backbone of the project. One critical aspect that is often debated is the termination clause. Builders are usually reluctant to include this clause, citing investment risks, uncertainty, and the possibility of project delays. However, societies must understand that redevelopment without a termination clause is risky, as many projects in Maharashtra have stalled midway, leaving members without homes or rental support.
Why a Termination Clause Is Essential
A termination clause protects the society in cases where the builder fails to perform contractual obligations, such as:
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Failing to obtain required approvals (IoD, CC, or OC) within the agreed timelines
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Defaulting on transit rent payments to members
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Delaying construction beyond permissible extensions
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Financial incapacity or abandonment of the project
Without a clear termination clause, the society has limited legal recourse and may face prolonged litigation or be forced to continue with an underperforming developer.
Best Practices for Drafting the Development Agreement
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Define Time Is of the Essence
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Clearly state that timely completion of each stage—like IoD/IoA, first CC, and OC—is crucial.
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Specify Time Lines for Every Stage
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Include a phased timeline for approvals, commencement, and possession.
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Allow for reasonable extensions in case of genuine delays but set a hard deadline after which penalties apply.
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Include Penalty and Bank Guarantee
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Provide for per-day penalty for delays in approvals, construction, or rent payment.
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Insist on a bank guarantee or security deposit to ensure financial commitment.
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Clearly Define Grounds for Termination
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Non-payment of transit rent for consecutive months
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Failure to obtain mandatory approvals within the stipulated period
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Abandonment of work or inability to continue due to financial issues
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Breach of major contract terms, such as deviation from approved plans
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Include a Stepwise Termination Process
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Issue a written notice of default with a specific cure period (e.g., 30–60 days).
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If the builder fails to comply, the society can pass a resolution to terminate and initiate action to appoint a new developer as per GR dated July 4, 2019 and Bye-law 175.
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Practical Advice for Societies
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Societies must negotiate firmly with developers, emphasizing that a termination clause is for mutual protection.
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Termination is a serious step and should be exercised only when default is clear and documented.
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Societies should engage a legal consultant experienced in redevelopment projects to draft a robust DA.
Conclusion
A termination clause is not optional; it is a safeguard for all members. Without it, societies risk long delays, financial strain, and legal complications if the builder defaults. By defining clear timelines, penalties, and grounds for termination, the society ensures smooth execution and accountability throughout the redevelopment process.
