Red Flags in a Development Agreement: What Every Society Member Must Check

The development agreement (DA) is the single most important document your society will sign during redevelopment. It is the master contract between your co-operative housing society and the developer, and once it is registered it governs your rights for years. The biggest red flags are simple to name: a missing or weak bank guarantee, a vague or open-ended completion timeline, an unregistered agreement, one-sided penalty and termination clauses, and language that lets the builder freely mortgage, sell or transfer your land. Below we map each danger clause against what a fair, law-compliant clause should say, and against the protections the Government of Maharashtra and RERA already make mandatory.

Many of these protections are not optional "nice to have" terms — they are legally required. If your draft agreement leaves them out, that absence is itself the red flag.

The protections your agreement must legally contain

For co-operative housing societies in Maharashtra, the redevelopment process is governed by a binding State directive issued under Section 79A of the Maharashtra Co-operative Societies Act, 1960 (which empowers the State to issue directions that societies must follow). The current directive is dated 4 July 2019 (No. SGY-2018-PK 85-14-S, Co-operation, Marketing & Textiles Department), which superseded the earlier 3 January 2009 directive.

This directive lays down several terms that a compliant development agreement is expected to reflect. Treat any of the following being absent, watered down or "to be decided later" as a serious red flag:

• A developer bank guarantee of 20% of the project value. This is your financial safety net if the builder abandons the project. A draft with no bank guarantee, a token amount, or a guarantee that quietly lapses after a year fails this standard.
• Completion within 2 years of the plinth commencement certificate (CC), extendable to 3 years only in exceptional cases. Watch for timelines tied to vague events ("from receipt of all approvals") with no outer limit.
• Registration of both the development agreement and each member's Permanent Alternate Accommodation Agreement (PAAA). The PAAA is your personal contract recording your new flat's area, rent, corpus and timeline. An unregistered document is a red flag on its own (see the next section).
• Non-transferable development rights. The developer should not be free to assign the whole project to a third party or to mortgage your society's land without the society's consent. Open assignment and mortgage powers are among the most dangerous clauses to sign.
• No committee member, office-bearer or their relative may be the developer. The directive bars this outright to prevent conflict of interest. If the appointed builder is linked to a managing-committee member, stop.
• The developer must have at least one MahaRERA-registered project, and the developer-selection Special General Body Meeting (SGBM) must be video-recorded with a Registrar's authorised officer present. A builder pushing you to sign outside this process is a warning sign.

The directive also fixes how the society may lawfully approve the deal: requisition by not less than one-fifth of members, an SGBM quorum of two-thirds of total membership, and approval by not less than 51% of total membership strength (absentees excluded). A DA "approved" without these numbers can later be challenged. For a full walkthrough, see our 79A process guide.

Red flags clause by clause: unfair vs fair

Most one-sided agreements do not look alarming at first glance. The danger sits in ordinary-sounding clauses drafted to favour the builder. Use the table below to compare what a risky clause says against what a balanced, member-protective clause should say.

Our agreement clause library gives model wording for each of these, and the offer comparison tool lets you line up competing builder offers side by side so a weak clause cannot hide.

The RERA safeguards a builder cannot contract away

The Real Estate (Regulation and Development) Act, 2016 (RERA / MahaRERA) sits on top of your agreement and gives members rights that a clever clause cannot cancel. MahaRERA has held that a redeveloping society can itself be a promoter or co-promoter, so these duties apply squarely to redevelopment.

• No unilateral plan changes. Section 14 of RERA bars the promoter from altering the sanctioned plans or layout without the consent of at least two-thirds of allottees. So a clause letting the builder "modify plans at its sole discretion" contradicts the law.
• Five-year defect liability. Section 14(3) makes the promoter liable to repair structural defects or poor workmanship reported within 5 years of possession, at no cost to you. A short "snag list" window in the DA does not override this.
• Remedies for delay. Section 18 entitles allottees to a refund with interest, or interest for the period of delay, where possession is late. This is why an honest completion timeline and delay penalty matter so much.
• Registration before selling. Section 3 requires the project to be registered with MahaRERA before it is advertised, marketed or sold (Section 3(2) exempts very small projects — land up to 500 sq m or up to 8 apartments). A builder collecting sale bookings before registration is a red flag.

To understand how these provisions work in a society context, read RERA for redevelopment, and see real orders in our judgments section.

A worked example: reading between the lines

Suppose your draft says: "The Developer shall endeavour to complete the building within 30 months from the date of receipt of all approvals and permissions, failing which no penalty shall be payable, and the Developer may raise construction finance by creating a charge on the property."

Three red flags are hidden in one sentence:

1. "Endeavour" and "receipt of all approvals" — there is no firm deadline. Approvals can take years, so the 30-month clock may never really start. Compare this with the directive's benchmark of completion within 2 years of the plinth CC, which fixes a definite start point.
2. "No penalty shall be payable" — the builder faces zero consequence for delay, while your rent and corpus are usually time-bound. This is one-sided and ignores your Section 18 remedies under RERA.
3. "Create a charge on the property" — this is a mortgage power over your society's land. Without the society's consent and clear ring-fencing of members' flats, a lender's charge could threaten your homes if the builder defaults.

A fair rewrite would fix the start point, add an escalating monthly penalty plus continued rent, and make any financing charge conditional on the society's written consent and subject to members' entitlements.

What this means for your society

The practical lesson is that red-flag review is a committee-and-members job, not something to leave entirely to the builder's lawyer. The builder's draftsman works for the builder. Your society needs its own independent legal and technical eyes on the draft before the general body votes.

Three habits protect most societies:

• Compare, don't accept. Get more than one offer and put them side by side so weak clauses stand out. The offer comparison tool is built for exactly this.
• Get a professional tender and agreement review. An independent review checks that every 79A-mandated and RERA-mandated protection is present and correctly worded. Our tender review service covers the tender and the draft DA.
• Insist on registration and the PAAA. Do not hand over possession or sign consent letters until the development agreement is registered and your individual registered PAAA is in your hand.

Getting these right early avoids the most common disputes we see later — delayed possession, shrinking carpet area, unpaid rent and unresolved defects. For what to do when things still go wrong, see builder delay: what to do and possession and corpus.