Buying Off-Plan Property in Mumbai: Legal Protections, Escrow Rules and Buyer Rights

Regulatory Framework for Off-Plan Purchases in Mumbai

Buying off-plan real estate in Mumbai, locally termed under-construction property, is governed primarily by national and state-level statutory frameworks. The fundamental law protecting real estate buyers across India is the Real Estate (Regulation and Development) Act, 2016 (RERA). In the state of Maharashtra, which encompasses the Mumbai Metropolitan Region (MMR), the act is enforced and regulated by the Maharashtra Real Estate Regulatory Authority (MahaRERA).

Under RERA regulations, no developer or promoter in Mumbai can advertise, market, book, sell, or offer for sale any residential or commercial real estate project without first registering the project with MahaRERA. Registration is mandatory for any project where the land area exceeds 500 square metres or where the number of proposed apartments exceeds eight units.

Mandatory Escrow Account Provisions

Escrow protection is mandatory for all off-plan property developments registered under MahaRERA. The mechanism is established directly by Section 4(2)(l)(D) of the RERA legislation.

Developers are legally required to deposit 70% of all funds collected from buyers into a dedicated, separate bank account opened in a scheduled commercial bank. This account functions as a regulated project escrow account. The money deposited into this account can only be used to cover the actual costs of land acquisition and project construction.

To withdraw money from this escrow account as construction progresses, the developer must submit professional certifications to the bank at each stage. These include:

• A certificate from an architect stating the percentage of physical construction completed.
• A certificate from a structural engineer verifying quality and progress.
• A certificate from a practicing chartered accountant confirming the construction costs incurred and verifying that the withdrawal amount is proportional to the percentage of work completed.

Compliance with escrow regulations is monitored directly by MahaRERA, which requires developers to file annual financial audits certified by a chartered accountant within six months of the end of every financial year.

Milestone Payment Structure and Agreement Rules

Off-plan purchases in Mumbai follow a standardized Construction-Linked Payment (CLP) plan designed to prevent developers from demanding large upfront payments before physical work occurs.

Under Section 13 of RERA, a promoter cannot accept a sum exceeding 10% of the total property cost as an advance payment or booking fee without first entering into a written, legally binding Agreement for Sale with the buyer and registering that agreement.

Once the Agreement for Sale is registered, subsequent payments are tied strictly to verified construction milestones. A standard CLP structure in Mumbai typically operates along the following schedule:

• Booking advance: Up to 10% on initial booking (before agreement registration).
• Execution of registered agreement: 10% to 15% upon registration of the Agreement for Sale.
• Completion of excavation and plinth: 10% to 15%.
• Completion of individual floor slabs: Staggered payments (often 2% to 5% per slab cast).
• Completion of brickwork, internal plastering, and flooring: 10% to 15%.
• Completion of external plaster, plumbing, and electrical fittings: 10%.
• On notice of possession / occupancy certificate: Final 5% balance payable at handover.

Developers who offer alterative schemes, such as subvention or deferred payment options, remain strictly bound by these statutory limits regarding advance deposits.

Buyer Remedies for Construction Delays

When a developer fails to complete a project or hand over possession of an apartment within the date specified in the registered Agreement for Sale, the buyer has clear statutory rights under Section 18 of RERA.

The buyer has two distinct choices under Section 18:

1. Withdrawal and full refund: The buyer may choose to exit the project entirely. In this scenario, the developer is legally bound to refund the full amount received from the buyer, along with statutory interest and compensation. The interest rate is prescribed under MahaRERA Rules as the State Bank of India (SBI) Highest Marginal Cost of Funds Based Lending Rate (MCLR) plus 2% per annum. 2. Retention and monthly delay compensation: If the buyer chooses to remain in the project and wait for completion, the developer must pay interest for every month of delay from the agreed handover date until the actual delivery of possession. The interest rate applied is identical to the refund interest rate (SBI MCLR plus 2% per annum).

To enforce these rights, a buyer files a formal complaint online through the MahaRERA portal. MahaRERA adjudicates complaints through dedicated benches, issuing binding orders for refunds, interest payments, or execution of possession.

Recovery of Funds on Developer Insolvency

If a developer fails completely or enters liquidation, buyer funds are protected through dual legal mechanisms.

First, under RERA, MahaRERA has the authority to revoke a developer's project registration under Section 7. Upon revocation, MahaRERA can facilitate the completion of the remaining construction work by directing the association of buyers (homeowners' association) to take over the project, or by appointing a new developer, utilizing the remaining balance in the 70% escrow account.

Second, under the Insolvency and Bankruptcy Code, 2016 (IBC), real estate allottees (buyers) are formally recognized as financial creditors. If the developer enters corporate insolvency resolution proceedings before the National Company Law Tribunal (NCLT), buyers hold voting rights on the Committee of Creditors (CoC) proportional to their financial exposure. This status places buyers in a secured category during debt restructuring or liquidation payouts, ensuring their financial claims are represented alongside institutional lenders.

Checking Project Legal Status and Land Records

Before committing funds, a buyer in Mumbai must verify the project and land title across two official government bodies.

1. MahaRERA Online Portal

Every approved off-plan project must be looked up on the official MahaRERA online portal (maharera.maharashtra.gov.in). By entering the project name or MahaRERA registration number, a buyer can review:

• Approved building plans and layout approvals issued by the local municipal body, such as the Brihanmumbai Municipal Corporation (BMC).
• Land title status and encumbrance certificates.
• Quarterly progress reports submitted by the developer, showing actual construction milestones achieved.
• Pending legal disputes or complaints registered against the project or promoter.

2. Inspector General of Registration and Stamps (IGRS) Maharashtra

To verify ownership of the underlying land and ensure the plot is free of unauthorized mortgages, buyers check state property records managed by the Inspector General of Registration and Stamps (IGRS Maharashtra) and the local Sub-Registrar of Assurances. Land title extracts, such as the 7/12 extract or Property Card (PR Card) for urban Mumbai areas, confirm the registered landowner and disclose registered charges or encumbrances.

This statutory framework ensures that off-plan property investments in Mumbai operate under defined legal boundaries, restricted advance payments, ring-fenced project funds, and enforceable remedies for project default.