What is force majeure and how does it work in the Indian real estate sector?

by myuser

Real estate developers in India have expressed some satisfaction, after finance minister Nirmala Sitharaman disclosed some of the details of India’s mega Rs 20-lakh-crore Coronavirus stimulus package on May 13, 2020. The FM allowed developers to cite the ‘force majeure’ clause, as a legal justification for delays in project deliveries. This absolves the developer community from paying up to 10% of their entire project cost as penalty, for not meeting the deadline fixed at the time of project registration with state real estate regulatory authorities.

Sitharaman said that the government would direct state real estate regulatory authorities, to consider the entire duration of the COVID-19 pandemic in India as force majeure – a French term that literally stands for a superior or irresistible force in English and ‘अप्रत्याशित घटना’ in Hindi – as far as housing projects are concerned.

Before we venture into what the government’s move would mean for home buyers in general and the housing sector in particular, let us look at how force majeure, more commonly known as the ‘Act of God’, works, vis-à-vis contracts.

See also: Covid real estate impact

 

What does force majeure mean?

The Oxford Dictionary defines force majeure as “Unexpected circumstances, such as war that can be used as an excuse when they prevent somebody from doing something that is written in a contract.”

According to the Black’s Law Dictionary, force majeure is an event of effect that can neither be anticipated nor controlled.

“Such a clause is common in construction contracts, to protect the parties in the event that a part of the contract cannot be performed, due to causes which are outside the control of the parties and could not be avoided by exercise of due care,” it says.