What is the basic legal due diligence that a property buyer must do, to safeguard one’s investment and ensure clear title to the property? We explain…
Property investments are highly capital intensive and any mistake made during the process, can cause a great deal of trouble for the buyer. This makes it imperative for a buyer to exercise due caution while examining the property documents.
Interestingly, land might be a physical asset but who it belongs to, cannot be merely proven by a claim of ownership – the same must be validated by several documents that prove the ownership status of the property.
With proper legal advice, scrutiny of documents and verification of relevant information pertaining to the property, the buyer can ensure that the investment brings peace of mind and a sense of security.
In this article, we talk at length about the documents a buyer has to seek and examine before he is ready to sign a deal.
1. Property documents checklist
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:
- 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.
- Nature of title: Leasehold, freehold, or development right.
- 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.
- All title documents being duly stamped and registered at the office of the jurisdictional sub-registrar of assurances. Khata registered in the name of the seller.
- Information on pending or past litigation.
- Availability of original title documents with the seller.
2. 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:
- Residence status and nationality of the seller, in case of an individual and whether consents from government authorities are required for the sale.
- Identification of all owners, in case of properties held jointly.
- 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.
- 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.
Documents that typically help you to ascertain the identity of the seller, include one’s Aadhaar number, PAN number, passport, income tax returns, salary certificates, etc.
3. 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. Secondly, 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.
4. 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.
5. Occupancy certificate
It is mandatory for the seller to obtain the 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.
6. Status of tax payment
Non-payment of property taxes constitute a charge on the property, affecting its marketability. So, the buyer must verify with the municipal authorities that the seller has not defaulted on payment of property taxes.
Do ask for the receipts of all utility bills from the seller. Please note here that once the property is transferred in your name, you will be liable to pay all pending dues against the property, utility or otherwise.
Searches at the jurisdictional sub-registrar office or the official web portal of the Ministry of Corporate Affairs (if the seller is a company) will reveal information of any registered encumbrance on the property. By way of caution, the purchaser may also issue public notice in newspapers, prior to completing the transaction, calling for claims from interested third parties, if any.
8. 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 further, ascertain any other physical attributes that may impede enjoyment of the property.
9. 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.
10. Documents required in case of loan outstanding
In case there is any loan outstanding on the property you are buying, it is crucial to perform due diligence and check some documents, before signing a deal. As a potential buyer, you can ask the seller to clear the outstanding home loan amount or a part of it, obtain the original property documents from the bank and get the property registered in your name, after which you can pay the remaining amount.
You can also apply for the transfer of the seller’s loan to your name, in case you are planning to take a loan for the property’s purchase. The bank will be responsible for the KYC, checking your eligibility and checking the seller’s file, before transferring the loan to your name. You must ask for a copy of the title documents and statements pertaining to the loan outstanding due from the bank, to ensure there is full disclosure.
It is advisable that the buyer requests for the closure of the loan and gets a ‘no dues certificate’ from the bank, before the purchase.
Risks of proceeding with a property purchase without due diligence
Unless you are absolutely certain of the credentials of the seller and his ownership over the asset is duly testified by documentary proof, a buyer should avoid getting into a deal, irrespective of how lucrative it might seem. Sometimes, people try to sell disputed properties at low prices. This prospect might seem attractive in the beginning but would eventually prove to be a major headache. Also, never engage with a seller who wants you to use unaccounted money to make the purchase in order to save taxes. This could also lead to a lot of future troubles.
Some quick tips for buyers:
- Never agree to sign on the dotted line, without doing your own research.
- 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.
Should I check the 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.
Do banks do due diligence on the buyer’s behalf?
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.
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.
- The home buyer should check if the property has a sanctioned building plan from the local authority.
- The Completion Certificate (CC) or 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.
- 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.
- One should ensure that the seller has cleared all dues pending to the society or against the house.
- 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.
- When opting for a resale property, buyers should check the mutation deed and get a copy of previously registered agreements.
- 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).
Importance of checking electricity bills while buying a property
Some of the simple documents such as the last few months’ electricity bills of the exiting owner of the property as well as the buyer will help in ascertaining the monetary position and also the ownership of the seller and buyer.
Importance of Khata Certificate and Extract while buying 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.
Importance of sale deed while buying a property
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. 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.
What are the features of a sale deed that must be checked while buying a property?
- A sale deed must be registered in the office of the sub-registrar in whose jurisdiction the property falls.
- 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.
- 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.
- The sale deed can also be called ‘Title Deed’ or ‘Mother Deed’ or ‘Conveyance Deed’.
- For future selling of the property, the sale deed will again be the most important document.
- The sale deed acts as documented proof of the ownership of the property. It must be carefully examined before buying property.
- Before executing the sale deed, the buyer must check if the property in question has a clear title.
- 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.
Source – www.housing.com