Immovable properties are usually freehold or
leasehold.
-
Freehold: Owner has
absolute ownership rights on property, including the right to transfer.
-
Leasehold: Holder of the
property has the right to enjoy property for a certain period or in perpetuity
for a specified consideration and subject to other terms and conditions.
Immovable
properties can also be held under a leave and license. This gives the property
holder a bare license to use the property; the ownership title belongs to
another person.
Pre-contractual
arrangements
Once the parties to purchase of property have
completed commercial negotiations, the main terms of their agreement are
recorded either in an informal document called Memorandum of Understanding or in a
formal Agreement for Sale.
An Agreement for
Sale would generally have following points:
-
Sale price of property.
-
Details of
property being sold like any additional facilities and applicable charges.
- Things to be
done before sale of property. These include clearing encumbrances in, if any, relating to property,
any approvals/clearances to be obtained & so on.
- Payment
schedule.
- Details of due
diligence to be done including that of seller's title.
- Time frame for
completion of the transaction. Often the buyer pays a part of the consideration
to the seller as a token amount under the agreement for sale. An agreement for
sale is subject to stamp duty in accordance with the laws in the relevant
state.
In many cases,
the buyer and the seller may directly execute a deed of conveyance or sale deed
and not enter into an agreement for sale.
Once the buyer is satisfied that all pendency has been cleared parties
execute a Sale Deed or a Deed of Conveyance.
Appropriate stamp duty must be paid on the document.
Under the Sale Deed or a Deed of
Conveyance, all the rights, title and interest of the seller are
transferred to the buyer in return for the consideration set out in the
document. A Sale Deed or a Deed of
Conveyance is essential to establish the buyer's ownership of the property.
Both an Agreement
for Sale and a Sale Deed or a Deed
of Conveyance are legally binding and enforceable only when all essential
requirements for a valid contract as provided under the Indian Contract Act
1872 are satisfied.
Registration
& payment of Stamp duty
Registration of the document with the jurisdictional registration
office as provided under the Indian Registration Act 1908 is mandatory on
payment of Stamp Duty at a rate as specified in Act. Rate of Stamp Duty payable
varies from state to state. Generally in all the states there is a rebate of 2%
on Stamp Duty payable if property is registered in the name of a Female and 1%
if in the name of a corporate or institution.
Buyer and Seller must register the same before the relevant
Sub-Registrar of Assurances (Registration Act 1908).The registration of a
tangible immovable property is compulsory if the value of such property exceeds
INR100 (Registration Act 1908). Therefore, the title can be said to pass to the
buyer once registration is completed.
In addition, the documents must clearly reflect the
intention of the parties that the document is binding on both of them. If the
parties specifically mention that some provisions of the document are not
binding then the same are not considered binding on the parties.
Seller's
liability to the buyer
As per Transfer Of Property Act 1882, The seller must do the following
in sale of property, in addition to other things:
Before
completion of the sale:
- Disclose material defects, if any in property;
- Produce title deeds;
- Answer buyer’s queries related to title;
-
Execute the Conveyance
Deed.
After completion
of the sale:
- Deliver possession of the property to the buyer;
- Deliver the title deeds and documents upon the full payment of
consideration.
Due diligence is typically carried out before an acquisition
- Scrutiny of all the documents including the title documents of the to
ascertain and verify the title and ensure there is no lien marked on it and the
validity of the documents.
- Scrutiny of the land records of the property.
- the seller concerning, for example, the physical attributes of the
property, and the technical and environment related aspects of the property.
- Search of the land records of the property to ascertain any encumbrances
in relation to the property.
- If the seller is a company, search with the Registrar of Companies to
ascertain whether there are any charges on the property that have been
registered with the Registrar.
- Public notices about property in local newspapers in the area where the
property is located. The public notice is usually issued in two languages one
in English and other in local language newspaper. The notice invites claims and
objections from the general public in relation to the proposed sale of property.
Physical
inspection of property, usually by an Architect.
Obtaining report
from an Architect, based on physical inspection of property on its condition
and use.
Obtaining a
declaration of oath on title from the seller, confirming the factual position
relating to the seller's title to property.
Based on the
findings, the buyer's lawyers consider and confirm whether the seller's title
to the property is clear, marketable and free from encumbrances.
A Sale Deed or a Deed of
Conveyance generally covers following in relation to the immovable
property. These include the following:
- That the seller has clear and marketable title to the immovable
property free from any encumbrances, liens or charges.
- That the seller
has absolute ownership and/or possession of property.
- That the seller
has the absolute right, power and authority to assign, sell, transfer and
convey the property in the manner set out in the Sale Deed or Deed of Conveyance.
- That there are
no outstanding payments in relation to the property including taxes and or
other statutory levies.
- That there are
no litigation or any prohibitory or attachment orders or any notices from the
authorities for acquisition of the property.
- That there is no
easement rights enjoyed by any person over the property.
-
That no third
party approvals are required for the sale and transfer of property.
-
The seller must
disclose any material defects in the property or in the seller's title, which
the seller is aware of and the buyer is not aware of and which the buyer could
not in the ordinary course of diligence discover.
A few instances of material defect are:
- Existence of a
restrictive covenant attached to the property.
-
Existence of a
public right of way over the property that could not be discovered in ordinary diligence.
- Existence of a
permanent lease granted in relation to the property.
In any event
this seller's obligation is subject to contractual provisions in the contract.
Also, where the seller expressly undertakes to indemnify the buyer if any defect
is discovered, it is liable to damages on the discovery of the defect even
though it was not previously aware of it.
As normal industry practice, the following costs
are typically borne by the buyer:
- Stamp duty and registration fees.
- Legal due diligence costs.
-
Fees of advisers
and consultants such as lawyers, architects, environment consultants and
brokers, engaged for diligence or identifying a property & getting deal
through.
As a matter of practice, following costs are
typically borne by the seller:
- Costs for obtaining approvals required for the sale of the property.
- Cost for creating a clear and marketable title of property.
- Fees of consultants such as lawyers, architects, brokers engaged by the
seller.
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