What is the first legal due diligence that a property buyer must do, to safeguard one’s investment and assure clear title to the property?
In India, considerable importance is attached to the ownership of property. While for the rich, it implies a sense of power and prestige, for the immense majority of the middle-class population, it is a cherished dream, and sadly, for the less privileged, it is leisure beyond reach. While some countries have analysed the process of buying property, including the authentication of claim papers by the government, in the Indian meaning, the method of identifying the apt property is fraught with several risks, legal and regulatory barriers. Buyers are often at the commiseration of brokers or builders and motivated to make choices, by the promise of exponential returns or irresistible proposals. However tempting and productive the prospect may appear, it is crucial for the buyer to exercise due discretion and obtain appropriate legal counsel, to safeguard his interest before purchasing a property.
1. Verification of title & ownership of the seller
As a first step, the buyer should begin due diligence, to determine the existence of the claim with the seller, the nature of the title and its marketability and the skill of the seller to convey clear & marketable title, free from encumbrance.
It is a valid legal principle that a person can’t convey a better title, than what he has. Documents, for 30 years, if not more (and where documents are not ready, for a minimum time of twelve years) must be examined & the seller may be called upon to render the following documents/information:
i. Title papers of the property – government order for grant, succession certificate, sale deed, gift deed, will, separation deed, etc., evidencing the transfer of title over the years, ending in the vesting of property with the retailer.
ii. Khata filed in the name of the seller.
iii. In case of the seller claiming development rights to the property, the development agreement and authorisation of attorney, executed by the owners in the inclination of the seller.
iv. All title documents being duly stamped and registered at the office of the jurisdictional sub-registrar of assurances.
v. Nature of title – leasehold, freehold, or development right.
vi. Information on pending or previous litigation.
vii. Availability of authentic title documents with the retailer.
2. Verify the identity of the retailer
Similar to checking the title to the property, the buyer should further ascertain the identity of the seller and any particular conditions, governing the ability of the retailer to convey the property. The following occurrences may be noted for representation:
i. Residence status and nationality of the retailer, in case of an individual and whether permissions from government authorities are required for sale.
ii. Identification of all owners, in case of properties held collectively.
iii. Where the seller is a corporation, trust, partnership firm, society, etc., the constitutional documents of the entity are required, to authenticate its ability to own and transfer the property, besides discovering that the person executing and registering the sale lease is duly authorized.
iv. Orders from the accountable court, permitting the sale of the property and designating a guardian, where the capital is held by a minor or person of an unstable mind.
3. Conversion & land use permits
With increasing urbanisation and merging of interest lands with urban conglomerates, conversion of property for non-agricultural use assumes critical significance, since several state laws restrict the purchase of agricultural property by non-agriculturists. Secondly, the buyer must review the Master Plan and satisfy that the property is exhibited in accordance with the zoning plan – like residential, commercial, industrial, public/semi-public, parks and open spaces, etc. Where tangible use is different from the stated zoning, obtaining orders from the Town Planning Authority allowing change of land use, is necessary.
4. Construction Permissions
For acquisition of apartment or land with constructed building, the buyer should also examine the building plan/layout plan sanctioned by the local municipal authorities, along with approvals issued by the government, statutory and regulatory authorities, for giving infrastructure facilities, water, sewage, electricity, environmental clearance, fire safety permission, etc.
5. Occupancy Certificate
It is obligatory for the seller to obtain the occupancy certificate from the competent authority, before conveying the property. Use of the property, without obtaining possession, exposes the buyer to fine under the applicable building bye-laws, besides the risk of the destruction of the property.
6. Check the status of tax pay
Non-payment of property taxes establish a charge on the property, affecting its marketability. Hence, the buyer must authenticate with the municipal authorities that the seller has not defaulted on payment of property tax/taxes.
Searches at the jurisdictional sub-registrar of assurances, where property documents are enrolled and data available on the web portal of the Ministry of Corporate Affairs, in case of the retailer being a corporate thing, will reveal information of any registered hindrance on the property. By way of warning, the purchaser may also issue a public notice in newspapers, before completing the transaction, calling for petitions from interested third parties, if any.
8. Physical survey & access to the property
The buyer may initiate a physical survey and confirm the extent & measurement of the property. In the case of land, it is desirable to identify and demarcate the boundaries and access to the property & further, determine any other physical attributes that may hinder the pleasure of the property.
9. Compliance with the Real Estate Act, 2016 (RERA)
RERA mandates that developers should register their projects with the authority constituted under the Act. A buyer, planning to buy a property in a project coming under the ambit of RERA, is advised to confirm whether the property has been registered with the officials under RERA. Information available on the official web portal of RERA for each state also provides details of any cases/complaints filed on the developer of the project & default by the developer, if any and thus, provides valuable insight into the credibility of the developer and the project & helps the buyer make an informed decision.
While purchasing a property, it is better to err on the side of warning. With proper legal advice, analysis of documents & verification of relevant information about the property, the buyer can make sure that the investment brings peace of mind and a sense of security.