🧾 Introduction: Understanding the Purpose of a Development Agreement
In the realm of property transactions, especially in urban areas where real estate prices are high and space is limited, development agreements play a crucial role.
This legal instrument serves as a collaborative framework between a landowner and a real estate developer, wherein the developer undertakes construction activities on the landowner’s property.
Rather than the landowner selling the land outright, a development agreement allows the land to remain in the owner’s name, while the developer invests resources and expertise to build on that land.
This arrangement is beneficial in many scenarios — such as when a landowner doesn’t have the means or knowledge to develop the land themselves but would like to retain a share of the developed property.
For instance, the landowner may receive several completed flats or a percentage of the sale proceeds, while the developer earns profits by selling the remaining flats.
🤝 Legal Relationship Between Landowner and Developer
A development agreement does not involve the transfer of ownership from the landowner to the developer.
Instead, it grants specific rights to develop the property, subject to clearly defined conditions.
The developer typically agrees to:
- Construct a building or multiple units,
- Obtain all statutory approvals and clearances,
- Invest the required capital,
- And, in many cases, market and sell a portion of the constructed area.
The landowner, in turn, either receives:
- A fixed monetary consideration,
- A specified share of the built-up area (flats/units), or
- A combination of both.
The agreement will clearly lay out how the developed property will be shared, along with timelines, specifications, and consequences for breach of contract.
This type of arrangement is especially common in cities like Bangalore, Hyderabad, Chennai, and Mumbai, where landowners often prefer joint development models with reputed builders instead of selling their property.
📜 Is Registration of a Development Agreement Mandatory?
Yes. Under the Registration Act, 1908, a development agreement must be registered with the jurisdictional Sub-Registrar to be valid and legally enforceable.
Here’s why registration is important:
- It creates a public record of the arrangement.
- It helps avoid disputes between the parties.
- It enables the developer to obtain sanctioned plans and approvals from authorities like the BBMP or BDA in Bengaluru.
- It is often required for bank loans or project financing.
The stamp duty applicable may vary by state, but in Karnataka, it is generally calculated based on the value of the development rights or construction cost mentioned in the agreement.
Failure to register the agreement may result in it being declared inadmissible as evidence in court, which can severely prejudice the interests of either party.
⚖️ Key Clauses in a Well-Drafted Development Agreement
To avoid ambiguity and future litigation, a comprehensive development agreement should include the following essential clauses:
1.
Description of the Land
Details such as survey number, khata number, measurement, and boundaries must be mentioned accurately.
2.
Scope of Development
Type of construction (residential, commercial), number of floors, built-up area, and layout must be specified.
3.
Sharing Ratio
The agreement must mention whether the landowner will receive a fixed number of flats or a percentage of the total built-up area. Common sharing ratios are 60:40 or 70:30, depending on land value and location.
4.
Obligations of the Developer
Including responsibility to:
- Get RERA registration,
- Obtain building plan approval,
- Pay for construction, labour, and materials,
- Pay taxes, premiums, and utility charges.
5.
Obligations of the Landowner
To:
- Provide peaceful possession of land,
- Cooperate for approvals,
- Execute Power of Attorney, if needed.
6.
Power of Attorney Clause
Usually, the landowner grants a limited POA to the developer for handling project approvals and selling flats on the developer’s share.
7.
Timeline and Completion Date
Expected timeframe for project completion, with penalties or interest payable if there is delay.
8.
Force Majeure Clause
Covers events beyond control like natural disasters or changes in law.
9.
Dispute Resolution Mechanism
Arbitration clause or jurisdiction clause to decide how disputes will be handled.
🧱 Difference Between Sale Deed and Development Agreement
| Feature | Sale Deed | Development Agreement |
| Transfer of Ownership | Yes | No |
| Purpose | Sale of land/property | Grant of development rights |
| Stamp Duty Basis | Sale consideration | Value of development rights / construction value |
| Parties | Seller & Buyer | Landowner & Developer |
| Registration | Mandatory | Mandatory |
| Use | Buyer gets title | Developer builds and sells on landowner’s behalf |
📍 Bengaluru-Specific Practice and JDA Model
In Bengaluru and other parts of Karnataka, Joint Development Agreements (JDA) are a common form of development agreement.
In this model:
- The landowner retains ownership,
- The developer invests in construction,
- The landowner is allotted specific flats or commercial units,
- And a General Power of Attorney (GPA) is given to the developer for project-related tasks.
However, post-2011, the Supreme Court in Suraj Lamp Industries v. State of Haryana held that ownership cannot be transferred through GPA alone.
So, developers now:
- Enter into registered development agreements,
- Get registered sale deeds executed when selling units,
- And often also sign a tripartite agreement involving the buyer, developer, and landowner.
Buyers are advised to verify the chain of documents, especially the title of the land and the registered JDA.
🙋 Frequently Asked Questions (FAQs)
1. Is it safe to buy a flat in a project under development agreement?
Yes, if the development agreement is registered and legally sound. Always verify title documents and check RERA compliance.
2. Can the landowner stop construction after signing the agreement?
No, unless there’s a breach of terms. Both parties are bound by the registered agreement.
3. Is GST applicable on development rights?
As per the latest GST rulings, transfer of development rights is subject to GST, but exemptions exist for consideration in the form of constructed flats.
4. What happens if the builder defaults?
A well-drafted agreement will include penalties and the right of the landowner to cancel the agreement and recover possession.
5. Is mutation needed after the development agreement?
Not immediately. Mutation applies when ownership is transferred — such as after selling units through registered sale deeds.
📢 Call to Action
Are you a landowner looking to collaborate with a builder?
Are you a developer trying to structure a safe and enforceable development deal?
We can help you with:
- Drafting or vetting development agreements
- Reviewing Joint Development Agreements (JDAs)
- Drafting Power of Attorney documents
- Ensuring legal protection throughout the project lifecycle
📞 Mobile: +91 80884 17193
🌐 Website: www.rjpropertylaw.com
📩 Email: ranjinijayaram@rjpropertylaw.com
Let’s work together to make sure your development journey is smooth, safe, and legally sound.