Development Agreement Between Landowner and Developer in India
Development Agreement Between Landowner and Developer in India
1. Meaning
A development agreement is a contract where a landowner allows a developer/builder to undertake development of his land (construction of flats, commercial units, etc.) in return for:
A share in the constructed property (flats/units), or
A portion of the sale proceeds/profit, or
A lump-sum consideration.
It is essentially a collaboration agreement — the landowner contributes land, the developer contributes finance, expertise, approvals, and construction.
2. Legal Nature
It is a contractual arrangement governed by the Indian Contract Act, 1872, the Transfer of Property Act, 1882, and the Specific Relief Act, 1963.
It is not a transfer of ownership by itself — unless a registered conveyance deed or Power of Attorney transferring rights is executed.
The developer’s right is only contractual and not proprietary unless a registered transfer is made.
3. Essentials of a Valid Development Agreement
Ownership proof – Landowner must prove clear and marketable title.
Scope of development – Type of construction, number of floors, layout plan, approvals.
Sharing ratio – Division of built-up area, flats, or sale proceeds between owner and developer.
Responsibilities – Developer arranges approvals, finances, construction; owner provides land and executes necessary documents.
Consideration – Either cash + built-up space or only built-up space (joint venture model).
Registration – If it creates an interest in immovable property, registration under Registration Act, 1908 is compulsory.
4. Rights & Obligations
(A) Landowner
Right to receive agreed share of flats/consideration.
Obligation to hand over possession or necessary rights to developer.
To execute conveyances/POAs as agreed.
(B) Developer
Right to enter property, develop, market and sell units (if permitted).
Obligation to obtain statutory approvals, construct as per sanctioned plans, deliver owner’s share.
To maintain accounts of sale proceeds (if sharing arrangement).
5. Tax and Registration Aspects (briefly)
Development agreement usually attracts stamp duty and registration.
In certain states, joint development attracts GST/Service Tax (depending on timing).
Ownership transfer of flats/units requires registered sale deeds.
6. Remedies in Case of Breach
Specific performance – A party can sue for enforcement of the agreement (Specific Relief Act, 1963).
Injunction – To restrain illegal transfer or construction.
Damages – Compensation for breach or delay.
7. Case Laws
(i) Chaturbhuj Dwarkadas Kapadia v. CIT (2003, SC)
The Supreme Court held that in a development agreement, transfer under tax law occurs only when possession is given in part performance of contract (Sec. 53A, TPA), not merely on signing. This case clarified taxability of capital gains for landowners.
(ii) Sushil Kumar Agarwal v. Meenakshi Sadhu (2019, SC)
The Court ruled that a development agreement is not per se a conveyance; it is only a contract. Ownership does not pass unless a registered conveyance is executed. Developers get only contractual rights.
(iii) Nathulal v. Phoolchand (1970, SC)
The Court explained part performance under Section 53A TPA: if the transferee (developer) takes possession in pursuance of an agreement and is willing to perform his part, the transferor (owner) cannot evict him even if the agreement is unregistered.
(iv) Faqir Chand Gulati v. Uppal Agencies (2008, SC)
The SC held that in a collaboration agreement between builder and landowner, the builder is not a mere contractor but has an obligation to deliver the owner’s share; disputes can fall within Consumer Protection Act if the builder fails to deliver.
(v) Suraj Lamp & Industries Pvt. Ltd. v. State of Haryana (2012, SC)
The Court held that ownership cannot be transferred by Power of Attorney or development agreement alone; only a registered sale deed or conveyance can transfer ownership. Development agreements are valid contracts but do not by themselves confer ownership.
8. Practical Example
A owns 2 acres of land in Delhi.
He enters into a registered development agreement with B (developer).
Agreement: B will construct 40 flats; 15 flats go to A, 25 flats + right to sell go to B.
A must execute POA to allow B to approach authorities for approvals.
If B defaults, A can sue for cancellation, damages, or possession.
If A refuses to execute conveyance, B can sue for specific performance.
9. Legal Principles Derived
Development agreement ≠ ownership transfer (Sushil Kumar Agarwal case).
Section 53A TPA protects developer in possession (Nathulal v. Phoolchand).
Tax arises only when possession/part performance given (Chaturbhuj Dwarkadas Kapadia case).
Consumer protection available to landowners against developers (Faqir Chand Gulati case).
Transfer of ownership only through registered deed, not POA (Suraj Lamp case).
10. Conclusion
A development agreement in India is a collaborative contractual arrangement between landowner and developer. It does not transfer ownership but creates mutual rights and obligations: the owner contributes land, the developer provides construction expertise and finance. Courts strictly enforce the owner’s right of redemption and the builder’s duty to deliver agreed share, while ensuring no ownership passes without a registered conveyance.
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