Real Estate Sector & Legal Issues With the increasing opportunities in the real estate sector, many heads are turning towards it in order to benefit from its escalating market. However, like other sectors, there are many hurdles which are bound to make those fall who move too fast beyond the line of caution. Many of those who fail in this sector, fail because of lack of legal knowledge. Its essential for a real estate developer, a buyer or a builder to have the basic knowledge about the usual legal issues faced by the people of this sector. The difference between Leasehold and Freehold Property In order to understand the nature of property, one must first distinguish between a leasehold and a freehold property. Leasehold properties whether a plot or built up are those properties whose perpetual lease has been granted by the title paramount in favour of the Lessee. In this case, the title paramount i.e. President of India acts through the Land & Development Authority to grant the perpetual lease. Annual lease charges are required to be paid to the Land & Development Authority (Lessor). Leasehold properties are not freely transferable. Depending upon the covenants of the Lease Deed, prior permission of the lessor i.e. Land & Development Authority is required to transfer the property. On the contrary, freehold properties are those where the title paramount has conveyed the property in favour of the purchaser by execution of conveyance/sale deed. This has no restrictions on the right of the holder to further transfer the property. But every time, the property is transferred, stamp duty is payable on the registration of the sale deed. The record of ownership of the freehold property can be ascertained from the Office of the Sub-Registrar of Assurances. A freehold property has better marketability as it can be sold, mortgaged or can be kept as security, which is difficult in the case of leasehold property. Importance Of verifying the title’s reliability in transactions Usually, the point where investors fear while buying a property is the reliability of title i.e., the right of ownership in a property. Here, we will discuss various issues which affect the real estate sector in such cases. More importantly, Legal issues will also be discussed which are to be kept in mind by the investors / end users before entering into a contract for purchase of land, residential apartment or any commercial property. A title means legal ownership, right of possession and interest in the property. Title due diligence means verifying the title to the property, ensuring that the same is unencumbered and is not fraught with litigations or fake/improper documentation. It is prudent to purchase the property only after proper title due diligence since the legal proceedings in India are usually slow and the disputes over title could even deprive the buyer from using the property and the right to further sell the property. In some cases, it is possible that the original documents are pledged with any bank or financial institution as collateral security Following are the To-do’s while purchasing a property: • To check the classification of property from the Govt. records along with the copy of site plan, survey no., layout, sanctioned plan etc. • Identifying the property against the adjoining land. • The documents should be certified by the officer of the Land Records. • To check whether the land is to be used for agricultural purposes or can be used for industrial, commercial or residential purposes. In case of change of land use, the permission given by the competent Govt. authority and the fee paid for conversion should be checked. • To ensure that the land is not subject to land acquisition proceedings by verifying the records in the Office of Tahsildar and by seeing the notifications issued by the land acquisition authorities. • To check chain of title deeds, with stamped receipts/lease deed/gift deed through which the property has been transferred/acquired by the present owner. • To ensure that the provisions contained in the title deed do not restrict the right of the owner to transfer the property. • If the property is in joint names, then NOC should be obtained from the co-owner(s). • In case the property is held by HUF or is an ancestral property, to check the family tree and to verify death certificate of original owner, copy of will, succession certificate, probate obtained from Court, legal heirship certificate in original, registered copy of the partition deed/ gift deed/settlement deed, as the case may be. • In case the property belongs to partnership firm, society or trust, to check the copy of the partnership deed/trust deed. • In case the property belongs to a company, then check the Memorandum & Articles of Association, Resolution passed by the Board of Directors/Shareholders (as applicable) under section 293(1) (a) of the Companies Act, 1956 authorising the sale of the property. Inspection should also be done at the office of the Registrar of Companies (where the registered office of the Company is situated ) • to ensure that the property has not been mortgaged/charge created under the Companies Act, 1956 in favour of any Financial Institution/Bank/Debenture Trustee through filing of Form No. 8/10. • In case the property is being sold by the Official Liquidator, the Court order authorising the Official Liquidator to sell the land/property should be verified. • To check the occupation certificate and also the environmental clearance issued by the competent authority. • In some cases, the seller may not be physically present to sell the property and might appoint an agent with the power to sell. In such cases it is necessary to check the Power of Attorney to see if the principal who has executed the power is the owner of the property. The Power of Attorney must bear the photograph of the principal and it should be registered in the office of the Sub-Registrar. • In case the owner is an NRI and the Power of Attorney (POA) has been executed in a foreign country, the POA should be notarised before the Indian Consulate for the purpose of authentication and thereafter it is to be attested by the Sub-Registrar of the area concerned In order to safeguard against the subsequent third party claims, it is advisable to give a public notice by way of advertisement inviting objections, if any, before the purchase of property. The • Above check list is only illustrative and not exhaustive since some more areas may need to be looked into depending upon the nature of the transaction. Buying a property may perhaps be the largest investment in any one’s life. Therefore, one needs to be extra cautious in buying a property lest one’s precious savings go down the drain. Following are some documents to be checked while buying a flat from a Builder : - • Approved plan of the building. • Whether the land is a freehold land and free from encumbrances. • To check the building bye-laws as applicable in that area and ensure that the builder is constructing without any violation of such bye-laws etc. • To check that the urban land ceiling NOC (if applicable) has been obtained. • NOC from water, electricity and lift authorities has been obtained. Besides the aforesaid documents the buyer should also carefully go through the flat buyers’ agreement/construction agreement with the builder, to ensure that all the necessary terms and conditions viz., the size of flat (carpet area & super area), floor plan, car parking space, details of various amenities, date of completion and delivering of possession of the flat and other standard specifications have been incorporated in the said agreement. The agreement should also contain the payment schedule. It is preferable to opt for a construction linked payment plan as compared to a time bound payment plan since in a construction linked plan the buyer is assured of the progress of the project. The buyer should also check that the agreement contains a penalty clause for delay in giving possession of the flat by the builder. In case, the builder is unable to give the possession of the flat on time and also avoids the payment of penalty, by justifying the delay on flimsy grounds, then it tantamounts to breach of contract and is also construed as deficiency in service within the meaning of Consumer Protection Act, 1986 for which the buyer has got recourse to the Consumer Forum. REGISTRATION OF PROPERTY In case of freehold property, the sale deed should be stamped and registered at the Office of the Registrar of Sub-Assurances as per the provisions of the Indian Registration Act, 1908, within a period of four months from the date of execution of the Sale Deed. Both, the developer/seller and the purchaser need to be present at the Sub-registrars office for registering the sale deed. The stamp duty is levied by the State Government and is usuallya percentage of the circle rate fixed for that area. Most of the States charge concessional stamp duty in case one of the transferees is a woman. In case of leasehold property, the sale of property takes place through execution of Power of Attorney and other documents like agreement to sell and execution of the Will in favour of the buyer. Since no sale deed is executed, the transfer of property is not subject to levy of stamp duty. However, the buyer has to get the Power of Attorney and the Will registered with the Sub-Registrar’s Office. Although the buyer gets the possession of the property but the title deeds continue in the name of the original allottee until, the buyer opts for conversion of the leasehold property into freehold property by paying the required stamp duty to the concerned Development Authority, which had originally given the property on lease. The above were some of the main legal issues in the real estate sector, there are many more issues which need attention and discussion. With a constantly rising population, the real estate market in India is bound to gain new heights with every passing day, however, its being marred by irregularities. Such irregularities can only be curbed if the buyers as well as the all the people involved are well aware of the laws relating to the real estate. Knowing the laws is not enough, one must also be willing to follow them because this will ensure a transparent market which will surely affect the whole nation positively.
Posted on: Tue, 21 Oct 2014 10:54:25 +0000
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