Tripartite agreement: what it is and how it works

When you take a home loan for a flat that is still under construction, three parties are involved: you, the builder and the bank. A tripartite agreement is the contract all three sign. It sets out who pays whom, when, and what happens if one of them fails to do their part.

The bank pays the builder directly, in stages. The builder commits to hand over the flat free of any other claim once it is complete. You commit to repay the loan.

What it does for each party

• For you: the builder agrees not to sell or mortgage your flat to anyone else once the agreement is signed.
• For the bank: its money goes only towards your specific unit, and the flat stands as security for the loan.
• For the builder: payments arrive as construction progresses. If the builder departs from the agreed timeline or specifications, the bank can hold back further payments.

Lenders generally insist on a tripartite agreement before they fund an under-construction flat, so in practice you will not get the loan without one.

The clauses to read

The format varies by lender and developer, but these appear in nearly all of them.

1. Property details: the flat number, tower and project.
2. Loan terms: the amount sanctioned, the interest rate, and the disbursement schedule tied to construction stages.
3. The builder's obligations: complete on time, give clear title, and not resell, mortgage or transfer the flat.
4. Your obligations: pay on time, follow the loan conditions, and use the loan only for this property.
5. The bank's rights: release money according to progress, recover dues if you default, and take possession of the property if it has to enforce the loan.
6. Default and termination: what happens if you stop paying, or if the builder does not finish. Read this one twice. It tells you what you owe the bank if the builder stops work.
7. Possession and handover: how the flat is handed to you on completion.

How it works, step by step

1. You choose an under-construction flat and apply for a home loan.
2. The builder gives the bank the project's approvals and RERA registration for verification.
3. Once the loan is approved, the agreement is drawn up, usually in the bank's own format.
4. All three parties sign. Some lenders also ask for it to be registered.
5. The bank releases the loan to the builder in instalments as construction milestones are reached. RBI requires banks to link disbursal to the stage of construction and not pay the whole amount upfront on an incomplete project.
6. On completion and final payment the builder gives you possession. The flat stays mortgaged to the bank until you repay the loan in full.

If there is no tripartite agreement

Without one, nothing in writing stops the builder from mortgaging the unit, and you can end up in a dispute if the developer defaults on its own project loans. The bank's security is weaker, which is why it will not lend. A missing agreement can also slow down a later resale or any legal proceeding, because the bank's claim on the flat is not clearly recorded.

Common questions

Can it be signed after the loan is approved?

Yes. It should be signed before the first disbursement.

Do NRIs sign one too?

Yes, if the purchase is financed by a loan. An NRI buyer often signs through a Power of Attorney holder in India. Ask your lender what form of Power of Attorney it accepts.

What if the builder defaults?

The bank can stop further payments and take legal action. Separately, under Section 18 of the RERA Act, if the builder does not give possession by the date in your sale agreement, you can withdraw and claim a refund with interest, or stay and claim interest for each month of delay.

Can it be changed or cancelled later?

Only if all three parties agree, and the change should be recorded in a written addendum.

The same structure is sometimes used for redevelopment projects and for commercial property bought with a loan.

If you want help reading the payment schedule in a builder's agreement, book a free call with a relai advisor.