Checklist for buying a high value property
Buying a property requires hefty capital investment and any mistake made during the process can cause you a great deal of trouble. Therefore, it is imperative to exercise caution and check all the property-related documents before signing on the dotted line. Buying a property is a big decision, but it does not have to be difficult as everyone has to face this once in a life time. This is a huge financial decision so make sure that you do it correctly. You can also get in touch with a good real estate agent, lawyer & experts who can take you through the entire process. It is better to take your time to understand the details rather than making any mistakes. When buying a house, it is extremely crucial to pay heed to the location, surroundings and most importantly, the legal documents of the property to avoid later troubles. While there are numerous documents to be signed, you cannot overlook anything as even the slightest mistake can cost you heavily in the future. Every document is significant and preserves your ownership rights. Hence, peruse each document thoroughly and understand their prominence in the home buying process or any other property.
Real Estate Laws in India are governed by both State-specific laws and Federal laws. This is because, according to the Constitution of India, ‘Land’ falls under the State List while ‘Transfer of property and registration of deeds and documents’ falls under the Concurrent List. Due to this, the process of buying and registering a property can seem complicated.
The Indian Stamp Act, 1899 governs the payment of stamp duty relating to land. It forms a major component of costs involved in property registration and is to be paid to the state governments by the buyer. Since it is collected by the state government, the rates vary from state to state. In most states, stamp duty is paid in terms of a percentage of the total transaction value.
The other act that comes into play in buying and selling of property is the Transfer of Property Act, 1882. As per the Transfer of Property Act, a ‘sale’ is the transfer of ownership in exchange for a price paid or promised or a price part-paid and part-promised. In the case of tangible immovable property, the transfer can only be made by registered documents, as enumerated in the Registration Act, 1908 which is mentioned above. Under Section 55 of the Act, the seller has a duty to disclose to the buyer any material defect in the property or in the seller’s title of which the seller is, and the buyer is not aware and which the buyer could not, with reasonable care, discover. Misrepresentation gives the buyer the right to compensation or indemnity from the seller. Though the seller discloses all information about the property as well as his title, the buyer should exercise due diligence and check the title of the seller. That was a brief introduction to the Real Estate Laws in India. Now let us talk about the documents that a buyer should check before purchasing the property.
Indian Easement Act, 1882 allows the occupier of a property to utilise it for a specific period. It simply delves into the various aspects of non-possession of a property, despite using it.
Indian Contract Act, 1872 governs the laws regarding contracts in India, including but not limited to the capacity to enter into a contract, its execution, implementation, breach, and remedies available to the signees in case of any discrepancies. The sections and chapters of the Transfer of Property Act, 1882, that are related to contracts are treated as a part of this act.
Land Revenue Codes: Numerous States across the country have formulated their own land revenue rules that govern regulations regarding land revenue, tenancy types, agricultural land holding, and other associated matters. The specified code comprises the division and classes of immovable property in a State, transfer restrictions, duties and powers of revenue officers, and rules and penalties for violating the code.
Inheritance laws
One should be aware about inheritance laws which are religion specific and many properties would have been transferred to their current owners based on applicability of these religion specific laws. Buyers are advised to be circumspect while buying inherited property as title of the property could be challenged at a future date and buyer could face ugly situation.
Inheritance laws in India are also legally called Succession Laws. There are two situations to consider for inheritance:
a. A Will/Testament
b. Laws of Intestate Succession
The properties that fall under the Laws of inheritance are:
a) Ancestral Property and
b) Self-Acquired Property
Please remember that inheritance laws in India are based on the rules of the faith followed by the holder of the property. Anybody who is entitled to receive shares of property, either through a Will or by succession acts, is a legal heir.
The Hindu Succession Act covers inheritance among the Sikhs, Jains, Buddhists and Arya Samaj. The beneficiaries under Hindu inheritance laws are classified into various classes based on the relationship with the holder – Class I, Class II, Agnates and Cognates. You would see this most commonly in a HUF (Hindu Undivided Family) though applicable in nuclear families too.
The Islamic law of inheritance does not differentiate between self-acquired and ancestral property keeping the succession laws similar for both. The laws are dealt with differently for Shias and Sunnis. Under Muslim inheritance laws, the widow of the deceased is entitled to one-fourth share if she is childless and one-eighth share if she has children. On the other hand, a widower gets half of the deceased wife’s property if there are no children and one-fourth share if they have children. A son is supposed to receive double the share of what the daughters get. Only one daughter gets half of the property of her father. Islamic law of inheritance divides the beneficiaries into Sharers – wife, mother and children, Residuaries – next kin and Distant Kindred. Whatever is left of the property is divided among people falling in the category of Residuary. In the absence of both Sharers and Residuaries, the property goes to Distant Kindred.
Christian Laws of Inheritance: In the Indian Succession Act 1925, this falls within sections 31 to 49. Under this, there are no differences in the rights of a widow and that of a widower. Both a widow and a widower are entitled to one-half of the property if they have no children and one-third share if there are children in the marriage. Both can inherit the total property if there are no children, relatives or distant kin. Two-third share of the property is equally divided among the children if the spouse of the deceased is alive. If the spouse of the deceased is no more, the complete property is equally divided among the children. In the absence of spouse and children, first the parents, then siblings and finally relatives get preference in that order.
Laws of Inheritance for Parsis: The Indian Succession Act 1925 puts Parsi Laws of inheritance under sections 50 to 56. Just like Christian Laws of inheritance, there is no distinction between the rights of the widow and widower. There is a lot of ambiguity in the laws for Parsis. In general, after the demise of a Parsi male, his widow, son and daughter would get equal shares while each of his parents receives half the share of what every child receives. If there is a pre-deceased son, his share is divided among his widow and children; if there is a pre-deceased daughter, her share is divided among her children. Next-of-kin in order of standing is given priority in succession. Thus, even if the deceased has no children, the widow/widower receives only half of the share, and the remaining goes to the next of kin.
Mutation of Title Deeds
Mutation refers to the change in ownership of a property from the seller to the buyer. It is essential to make the buyer the official owner of the property. It also enables the government to levy a property tax. Application for mutation is made at the City Survey and Land Records Department by the buyer who has to submit a duly signed application form along with the notarized copy of the Sale Deed. The City Survey and Land Records Document decides the value of tax on the property and issues the Letter of Mutation in favor of the buyer. Then the buyer is the owner of the property under the Indian real estate law.
Important documents needed before buying a high value property in India:
1. Right, Title and Interest of “Owner” in the property
Right, Title and Interest constitute a legal triplet. It signifies ownership and is generally used in drafting Property Agreement or deeds of transfer to denote ‘anything and everything’ in a property.
Ø ‘Right’ stands for ‘legal right’ in a property
Ø ‘Title’ indicates legal recognition of ‘ownership’ of a property
Ø ‘Interest’ manifests outcome of ownership with ‘right & title’, including enjoyment in all & whatsoever manner that “Owner” desires
‘Right, Title & Interest’, enunciates same thing when used in property dealings, though they are not synonyms in language and in jurisprudence. Title and Ownership are closely related. One has no existence without the other. They can be said to be the 2 sides of the coin.
Ownership is the legal right. It is also a social recognition to possess and enjoy a property, absolutely. It denotes the relation between a person and the property. Title, Possession & Ownership upon a property constitute a legally signified triangle.
Title deed
The title deed is the most important document that records the transfer of ownership of a property. Thus, buyer should check the “title deed” of the property to ensure that the seller has absolute right over the asset and he/she is entitled to sell or mortgage it further. As a rule, the title deed should always be in the name of the seller. It is always better to get hold of the original papers as in most cases people show copies of the originals. Besides, this will help you ascertain the permissible usage of the property, whether commercial or residential, free from any reservation or negative covenants. It is also important to ascertain the legal status of the land on which the property is situated. It would be better to hold the payment until the legal position of the property is verified and certified by Property Lawyer of repute. A property can be inherited in a number of ways, such as on the death of the original titleholder. However, in case there is a Will, it should be registered with the authorities so that the beneficiaries get the right to transfer their respective shares through Probate. At times, it has been noticed that even if a Will is present, the property is mutated as per natural succession, which is considered illegal. Therefore, it is best to satisfy the genuineness of Ownership title.
It is a settled legal principle that a person cannot convey a better title, than what he himself has. As a first step, the buyer should undertake due diligence, to ascertain the existence of the title with the seller, the nature of the title and its marketability and the ability of the seller to convey clear and marketable title, free from encumbrance. Documents, for a period of 30 years, if not more (and where documents are not available, for minimum period of 12 years), must be examined and the seller may be called upon to provide the following documents / information:
Ø Title documents of the property: Government order for grant, succession certificate, sale deed, gift deed, will, partition deed, etc., evidencing the transfer of title over the years, culminating in the vesting of property with the seller.
Ø In case of the seller claiming development rights to the property, the development agreement and power of attorney, executed by the owners in favour of the seller.
Ø All title documents being duly stamped and registered at the office of the jurisdictional sub-registrar of assurances.
Ø Khata registered in the name of the seller.
Ø Availability of original title documents with the seller.
Sale or Conveyance registered deed
A sale deed is one of the most important documents which forms the basis of the legal proof for sale and the transfer of ownership of the property in question. Sales deed registered under Department of stamps and registration of state has detailed information of the property in question and such information is mutually decided by the buyer and the seller. The deed consists of details such as terms and conditions, the selling price of the property, etc. A registered sale deed is one of the most important documents which forms the basis of the legal proof for sale and the transfer of ownership of the property in question. The sale deed has detailed information of the property in question and such information is mutually decided by the buyer and the seller. The deed consists of details such as terms and conditions, the selling price of the property, etc.
Ø A sale deed must be registered in the office of the sub-registrar in whose jurisdiction the property falls. Sale Deed is also known locally with different nomenclature and get yourself acquainted with this.
Ø The sale deed must be registered within four months from its date of execution. It is one of the most important steps in buying a property.
Ø If the sale deed is not registered in this time frame, a penalty will have to be paid otherwise, the deed registration would stand invalid.
Ø The sale deed can also be called ‘Title Deed’ or ‘Mother Deed’ or ‘Conveyance Deed’.
Ø For future selling of the property, the sale deed will again be the most important document.
Ø The sale deed acts as documented proof of the ownership of the property. It must be carefully examined before buying property.
Ø Before executing the sale deed, the buyer must check if the property in question has a clear title.
Ø The seller of the property must settle all statutory payments such as electricity bills, water charges, property tax, society charges and maintenance charges before preparing the sale deed.
Ø Copy of latest property register card to indicate that the property does not belong to the government obtained from the City Survey Department
Ø Copy of a municipal tax bill to indicate the year in which the property was constructed
Khata Certificate, Extract & 7/12 of a property
A Khata is a document that acts as a proof that the property has been constructed according to local laws, authorised plans and regulations. It is important to check the validity and legal status while buying a property. Khata certificate is a must while registration of a new property as well as the transfer of property. 7/12 Extract in a transaction involving land is a must.
2. Kind of property
It is better to know if the property is freehold, leasehold or a government accommodation. Freehold property means that you own the land on which the property is built. However, a leasehold property is where you have the right to live in a property for a stipulated period of time. In the majority of cases, freehold properties are a better option.
3. Land measurement
It is wise to get the land size measured by authorised land surveyor or state government’s land record department before finalizing the deal & registering the property in your name. Look out for measurement figures in the property documents with what you are buying. Even constructed property should also be measured by registered engineer to ascertain correctness of area as there are confusion and mis-selling in terms of Carpet area, built up area, super built up area & saleable area.
4. Pending litigations against the property
Ascertain any pending litigations against the property through appropriate means including inviting claims if any by releasing public notice in local & prominent newspapers in both local & national language.
5. Tax receipt and bill
A property tax is an annual charge levied by the state government on property owners. It is a huge liability; hence make sure that the seller has cleared all the property tax bills in the past and has receipts of the same. Also, keep a check for any notices or pending litigations against the property. At times, there are unpaid utility bills that the new buyer is expected to pay. One should always take note of such pending payments.
“Property tax receipts and utility bills can also be used to establish the ownership rights of the seller. However, in case the seller does not possess the required tax receipts, the buyer can contact the concerned registrar’s office with the survey number of the land and confirm the original owner of the land. Several other documents can be used to establish the ownership of a property, including record of rights and survey documents.
6. Encumbrance Certificate
Before buying the property, ensure that the owner has “no encumbrance certificate”. This certificate ensures that that the property is not mortgaged. If the property is mortgaged and there are pending dues, the owner is liable to clear them before selling the property. This certificate can be acquired from the office of the sub-registrar.
7. No-Objection Certificate
A No Objection Certificate (NOC) is one of the most crucial legal documents required during the sale and purchase of a property. A NOC is issued to certify that the property did not violate any building laws at the time of construction. Moreover, you may also require a NOC while availing a home loan; hence, ensure that the builder furnishes you a copy of the NOC.
8. Pledged land
In some cases, owners avail bank loans by mortgaging the property. As a buyer, you should ensure that the owner has paid back the entire amount and has no dues left. Also, check if the owner has received a No-Objection Certificate (NOC) from the bank in this regard.
9. Verify the identity of the seller
Similar to verifying the title to the property, the buyer should also ascertain the identity of the seller and any specific conditions, governing the ability of the seller to convey the property. The following instances may be noted for illustration:
Ø Residence status and nationality of the seller, in case of an individual and whether consents from government authorities are required for the sale. Buying property means you have to deduct TDS @ 20% plus applicable cess & surcharge.
Ø Identification of all owners, in case of properties held jointly and whether their share is defined in the Property document because the payment consideration has to be propionate to their ownership.
Ø Where the seller is a company, trust, partnership firm, society, etc. The constitution documents of the entity are necessary to confirm its ability to own and transfer the property, besides ascertaining that the person executing and registering the sale deed is duly authorised. In a case of Trust property, ascertain permission requirement from Charity Commissioner or any other authorities
Ø Orders from the competent court, permitting sale of the property and appointing a guardian, where the property is held by a minor or person of unsound mind and payment should also be accordingly deposited in “escrow account”.
10. Seller’s basic documents
Documents to check before buying a plot or property include documents that typically help you to ascertain the identity of the seller, include one’s Aadhaar number, PAN number, passport, income tax returns (last 3 years), salary certificates, etc.
11. Past litigation about property and Seller/s
Get information about past litigation about the property and about seller also to ascertain clear & marketable Title of the property as well as about seller.
12. NOC for sale of Property u-s 281 of IT Act
To be absolutely sure, request the seller to obtain NOC from Seller’s Income Tax assessing officer under section 281 of the Income Tax Act, 1961. This will clear the doubt about seller’s pending Income Tax liability as pending tax dues can be recovered from the buyer of the property in the event of default by the seller in future date.
13. Conversion and land-use permissions
With increasing urbanisation and merging of revenue lands with urban conglomerates, conversion of property for non-agricultural use assumes crucial significance, since several state laws restrict purchase of agricultural property by non-agriculturists. The buyer must examine the Master Plan and satisfy that the property is developed in accordance with the zoning plan – such as residential, commercial, industrial, public/semi-public, parks and open spaces, etc. Where actual use is different from the notified zoning, obtaining orders from the Town Planning Authority permitting change of land use is mandatory.
14. Construction approvals
For purchase of apartment or land with constructed building, the buyer should also scrutinise the building plan / layout plan sanctioned by the local municipal authorities, along with approvals issued by government, statutory and regulatory authorities, for providing infrastructure facilities, water, sewage, electricity, environmental clearance, fire safety approval, etc. It is necessary to request the builder for copies of NOCs from different departments, such as the Pollution Board, Environment Department, Sewage Board and Traffic and Coordination Department, which forms the ‘intimation of disapproval’ or the first permit required for building construction.
15. Building Completion and Occupancy certificates
It is mandatory for the seller to obtain the building completion as well as occupancy certificate from the competent authority, prior to conveying the property. Use of the property, without obtaining occupancy, exposes the buyer to penalty under the applicable building bye-laws, besides the risk of demolition of the property.
16. Physical survey and access to the property
The buyer may undertake a physical survey and confirm the extent and measurement of the property. In the case of land, it is advisable to identify and demarcate the boundaries and access to the property and ascertain any other physical attributes that may impede enjoyment of the property.
17. Compliance under the Real Estate (Regulation and Development) Act, 2016 (RERA)
The RERA mandates that developers should register their projects with the authority constituted under the Act. A buyer, intending to buy a property in a project coming under the ambit of the RERA is advised to verify whether property has been registered with the authority. Information available on the official web portal of RERA for each state also provides details of any cases / complaints filed against the developer of the project and default by developer, if any and thus, provides useful insight into the credibility of the developer and the project and helps the buyer make an informed choice. Buyers should take note of the fact that the law mandates that all real estate brokers should also be registered with the state RERA, in order to operate legally. Hence, hire a property broker, only after asking for his RERA registration. Also, note that agents need to get their RERA registrations renewed, periodically. Ensure that you are dealing with the right person. One of the biggest benefits of having a regulatory body is that it requires a standard process of operation and violators are penalised.
18. Property deal through a Power of Attorney (PoA)
PoA stands for Power of Attorney and this is a legal instrument that gives another person the authority to act as a legal owner, on behalf of the actual owner. If you are buying a property, make sure that you check these documents, to ascertain the rights of the PoA holder. As per Supreme Court judgment, PoA has to be a registered document with Registrar’s office. Notarised PoA is not acceptable at Registrar’s office. In case of NRIs selling property through PoA, the same should have been routed through India’s consulate in that country where NRI is resident and the same is required to be registered with Registrar’s office locally also.
19. Banks Due Diligence
If you are a prospective home buyer, who has submitted their documentation and papers with a bank and looking forward to your home loan being sanctioned, rest assured, your bank will do the due diligence. However, do not leave it to the bank altogether. The number of property-related cases that find their way into Indian courts every year is a reminder that one must be careful throughout the home buying journey.
20. Documents to check before buying a resale flat
Prospective home buyers planning to purchase a resale property should take note of certain things and rules to make an informed decision. Firstly, all the documents required during the primary sale of property are also required in the case of a resale property. If one is buying a flat in a housing complex, the original sale deed and society share of certificate are crucial documents to consider.
Ø The home buyer should check if the property has a sanctioned building plan from the local authority.
Ø The Completion Certificate (CC) & Occupancy Certificate (OC) issued by the local authorities on the completion of the project, prove that the property had been constructed as per the approved layout and building laws. The documents are need when applying for loans from a bank/ financial institution or for water/electricity connection.
Ø One should also ask for the possession certificate. The document is issued by the builder to the first owner and it is not re-issued in case of resale. However, the seller should hand over the same to the new buyer.
Ø Things to check before buying a house should include ensuring that the seller has cleared all dues pending to the society or against the house
Ø Also, the encumbrance certificate is a vital document, which would prove that the property has no financial or legal liabilities. The certificate can be obtained from the registrar’s office where the property registration was done. For instance, an encumbrance certificate for a property in Maharashtra can be obtained from the SRO under department of stamps and registration Maharashtra.
Ø When opting for a resale property, buyers should check the mutation deed and get a copy of previously registered agreements.
Ø Get NOC from the Society or Apartment Association before buying the flat, office or shop.
Ø If the property is mortgaged, an undertaking by the owner must be given to the bank, mentioning that he or she has agreed to give property documents to the buyer upon the home loan foreclosure. Upon transferring money to the seller’s account, the bank will release all the original property papers along with a no-objection certificate (NOC).
21. Society, Electricity & Gas bills while buying a property
Obtain last months’ bills (indicating owner’s name) received from Society, Electricity undertaking & Gas Supply company which would also indicate pending liability. Ascertain transfer formalities from these authorities and obtain seller’s signature on these transfer documents
Some quick tips for buyers:
· Never agree to sign on the dotted line, without doing your own research and consulting experts from respective field
· Make seller’s family members as witness to the sale deed to ensure no future litigation from them
· Even if an agent or a developer is recommended by people know to you, check their RERA ID and registration
· Never agree to offer money in black in lieu of tax discounts
· Do not agree to buy/sell a property on someone else’s behalf as Government is very strict for money laundering & Benami Transactions (Prohibition) Act prohibits Benami transactions and gives the government the right to recover Benami property
CA Harshad Shah, Mumbai harshadshah1953@yahoo.com