Diligence before buying Property

In India, considerable significance is attached to the ownership of property. While for the rich, it connotes a sense of power and prestige, for the vast majority of the middle-class population, it is a cherished dream and unfortunately, for the less privileged, it is a luxury beyond reach. While some countries have simplified the process of buying property, including the authentication of ownership documents by the government, in the Indian context, the process of identifying the right property is fraught with several risks, legal and regulatory hurdles. Buyers are often at the mercy of brokers or builders and motivated to make decisions, by the promise of exponential returns or irresistible offers. However tempting and lucrative the prospect may appear, it is imperative for the buyer to exercise due caution and obtain appropriate legal advice, to safeguard his interest before buying a property.

1. Verification of title and ownership of the seller

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. Though, I suggest that all title documents must be verified right from the initial period, i.e. from ownership of land to construction of structure and thereafter individual units. However, in most cases this is not viable and practically not possible. And hence a cut off period is usually taken. In the absence of initial documents, at least a title certificate from an Advocate dealing in property matters is must be considered. It is however, not a substitute. Documents, for a period of 30 years, if not more (and where documents are not available, for minimum period of 12 years – since inter alia limitation period for filing a suit for possession of property is twelve years from dispossession of person claiming the possession in Suit) must be examined and the seller may be called upon to provide the following documents / information:

1. 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.
2. Nature of title – leasehold, freehold, or development right.
3. 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.
4. All title documents being duly stamped and registered at the office of the jurisdictional sub-registrar of assurances. It is better to compare the documents in possession of the seller with the certified copy obtained from the Sub-registrar’s office.
5. Khata registered or property card in the name of the seller.
6. Information on pending or past litigation.
7. Availability of original title documents with the seller.

In case of buying the unit in a building it is also pertinent to verify that the land beneath the structure is conveyed properly. That may mean transfer of land beneath structure from erstwhile owners, builders, developers to society, structure owner etc. Also, one must verify if the structure is built in lease hold land or free hold land. Possession of leased land on expiry of lease returns to the lessor owner. In such case the structure owner will face difficulties. A lessee is not an owner and hence cannot convey good title to the buyers. Similar is the case with tenanted properties. A tenant has no right to transfer tenancy without the consent of the land lord. Moreover, after Maharashtra Rent Control Act, 1999 coming into force, tenancy agreement is compulsorily to be executed. A person who does not have title cannot further transfer the title.

In case of inherited properties one must ask for Will, Probate, Succession Certificate, etc. This is a safeguard from claims from other legal heirs and also establishes proper trail of title.

2. Verify 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:

1. Residence status and nationality of the seller, in case of an individual and whether consents from government authorities are required for the sale.
2. Identification of all owners, in case of properties held jointly.
3. 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.
4. 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.

This becomes very important in the cases of sale by Power of Attorney holders. As well the content of the Power of Attorney must be verified thoroughly to ensure that the Attorney has power to sell the property and the Power of Attorney is valid. Many times one may across such situations when seller is merely an investor or seller supposedly has appointed agent or family member to sell the property and so on.

3. Conversion and 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. Also it is pertinent to note that the use of the property must be verified from local self body.

Not only that, in many towns and cities, under Urban Land Ceiling Act, the land in excess of the land holding permitted to an individual was vested with government. Due care must be taken to ensure that the land holding is not affected by the same, And if and order was passed under this Act, then same is reversed.  Different states have different laws pertaining to land, It is better to enlist the help of local lawyer dealing in property cases to verify the status of the land.

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.

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. Check status of tax payment

Non-payment of property taxes constitute a charge on the property, affecting its marketability. Hence, the buyer must verify with the municipal authorities that the seller has not defaulted on payment of property taxes.

7. Encumbrance

Searches at the jurisdictional sub-registrar of assurances, where property documents are registered and information available on the official web portal of the Ministry of Corporate Affairs, in case of the seller being a corporate entity, 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)

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 RERA, is advised to verify whether property has been registered with the authority under RERA. 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.

Conclusion

While buying a property, it is better to err on the side of caution. 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.