Published On:
February 10, 2026
Updated On:
February 10, 2026
A recent Supreme Court ruling clarifies that renting out a residential apartment does not automatically disqualify a homebuyer from being considered a "consumer." The court held that unless a builder can prove the property was purchased primarily for commercial profit-making, the buyer retains full protection under the Consumer Protection Act.
For years, a silent battle has been waged in consumer courts across India. On one side are homebuyers—people who invest their life savings to secure a future home, often waiting years beyond the promised delivery date. On the other side are developers who, when dragged to court for delays or deficiencies, deploy a technical legal defense to escape liability: "The buyer has rented out the apartment; therefore, they are an investor, not a consumer."
This argument has been a potent weapon. Under the Consumer Protection Act, goods or services purchased for a "commercial purpose" are excluded from protection. Developers have long argued that the moment a homebuyer signs a lease deed to rent out their flat, they are engaging in commerce, thereby forfeiting their right to sue for delayed possession or poor construction.
However, a landmark judgment by the Supreme Court of India has just dismantled this defense, offering a massive sigh of relief to millions of property owners. If you are a homebuyer who plans to rent out your apartment—or already has—this ruling fundamentally protects your legal standing.
The clarity comes from a recent case, Vinit Bahri & Another vs. M/s MGF Developers Ltd., which originated from a dispute over a housing project in Gurugram.
The facts were all too common: A homebuyer booked a villa in 2005, paying a substantial booking amount. The project faced severe delays, and possession was eventually handed over years late, in 2015. Aggrieved by the delay and alleged unauthorized changes to the layout, the buyer approached the National Consumer Disputes Redressal Commission (NCDRC) seeking compensation.
The developer’s defense was strategic. They pointed out that after taking possession, the buyer had rented out the property. They argued that this act of renting converted the residential unit into a commercial asset, meaning the buyer was no longer a "consumer" but a commercial entity. The NCDRC accepted this logic and dismissed the complaint.
The buyer appealed to the Supreme Court, which set aside the NCDRC's order. The Apex Court’s observations serve as a new guidebook for real estate consumer rights.
To understand why this ruling is so significant, we must look at the legal definition of a "consumer."
Under Section 2(1)(d) of the Consumer Protection Act (both the 1986 and 2019 versions), a consumer is anyone who buys goods or services for consideration. However, the law explicitly excludes anyone who avails of these services for "resale or for any commercial purpose."
This exclusion clause was intended to prevent large businesses from clogging up consumer courts with trade disputes. For example, a retailer buying 100 air conditioners to sell in their shop is not a consumer; they are a trader. But is a family buying a second home to rent out for extra income a "trader"?
Developers have aggressively argued "Yes." They contend that rental income is profit, and profit implies commerce. The Supreme Court has now firmly said "No."
The Bench, comprising Justices Prashant Kumar Mishra and NV Anjaria, laid down several critical principles that empower homebuyers.
The Court ruled that the mere act of leasing out a property does not ipso facto (by that very fact) imply that the property was purchased for a commercial purpose. A person might buy a house for their residence but rent it out temporarily due to a job transfer, financial constraints, or to pay off the EMI. This does not turn them into a real estate tycoon.
The Court emphasized the "Dominant Purpose" test. To exclude a buyer from consumer protection, the transaction must have a close and direct nexus with profit-generating activity.
Unless the dominant intent of the purchase was to engage in the business of real estate trading, the buyer remains a consumer.
Perhaps the most significant aspect of this ruling is the shift in the "onus of proof." Previously, buyers often had to prove they weren't investors. The Supreme Court has reversed this.
Now, if a builder wants to claim you are not a consumer, the builder must prove it. They must provide concrete evidence that you are engaged in the business of buying and selling properties for profit. Simply showing a rent agreement is no longer enough to dismiss your case.
This judgment has immediate practical implications for anyone invested in the Indian real estate market.
It is worth noting that while the Real Estate Regulatory Authority (RERA) is a dedicated tribunal for property disputes, the Consumer Court remains a preferred avenue for many due to its broader powers to award compensation for "mental agony" and "deficiency of service."
This ruling ensures that the doors of the Consumer Court remain open. Buyers are not forced to choose between earning rent and retaining their consumer rights—they can now do both.
The relationship between a homebuyer and a builder is often unequal, with the latter holding significant financial and legal power. This Supreme Court ruling helps level the playing field. It recognizes the reality of the modern housing market: that a regular middle-class buyer may rent out their apartment for sustenance or EMI management, and that this financial prudence should not strip them of their legal protections.
If you are facing delays or quality issues with your builder, do not let the fear of legal technicalities silence you. Whether you live in your home or rent it out, the law recognizes you as a consumer, and your rights are intact.
