Renting Out a Flat Does Not End Consumer Rights, Supreme Court Clarifies

The Supreme Court has made it clear that simply renting out a residential flat does not take away a homebuyer’s rights under consumer law. A buyer will lose the protection of consumer laws only if it is proven that the flat was purchased mainly for a commercial purpose.

The Court said that the key test is the buyer’s dominant intention at the time of purchase, not what the buyer does with the property years later.

What Was the Dispute About?

The case arose from a residential housing project called “The Villas” in Gurugram, developed by MGF Developers. The buyers booked a residential flat in 2005, and the agreement promised possession within 36 months, that is, by September 2009.

However, according to the buyers:

• The developer changed the layout plan without consent
• Additional financial demands were raised repeatedly
• There was a significant delay in handing over possession

The buyers finally took possession of the flat in January 2015, but under protest.

Why Did the Consumer Case Get Rejected Earlier?

In 2016, the buyers rented out the flat. Later, in 2017, they approached the National Consumer Disputes Redressal Commission (NCDRC), alleging delay, deficiency in service, and unfair trade practices.

The NCDRC dismissed the complaint, holding that since the flat was leased out, it must have been purchased for a commercial purpose, and therefore the buyers were not “consumers” under the law.

What Did the Supreme Court Say?

A Bench of Justices Prashant Kumar Mishra and N.V. Anjaria disagreed with the NCDRC’s view. The Court held that renting out a flat at a later stage cannot automatically mean that the original purchase was for commercial use.

The Court clarified that:

• Buying a residential property, even multiple units, does not automatically become a commercial transaction
• Leasing the property later does not prove commercial intent at the time of purchase
• Whether a purchase is for “commercial purpose” depends on facts and circumstances of each case

The Court emphasised that the dominant purpose behind the purchase must be commercial for the buyer to be excluded from consumer protection.

Who Has the Burden of Proof?

The Supreme Court also clarified that once a buyer shows that services were hired for consideration, the burden shifts to the builder to prove that the transaction falls under the “commercial purpose” exclusion.

In this case:

• The flat was booked in 2005–06
• The lease deed was executed almost 10 years later, in 2016
• The builder failed to produce any solid evidence showing commercial intent at the time of purchase

Final Outcome

The Supreme Court set aside the NCDRC’s order and held that a buyer cannot be denied consumer status merely because the flat was rented out later. The focus must remain on the buyer’s intention at the time of purchase.