Archit Kumar Sood
Property has traditionally been considered one of the most preferred assets. Legally, most properties broadly fall under two categories, ancestral and self-acquired. In the case of self-acquired property, the owner has the right to further develop or dispose of the property as they see fit as long as it is through legal means.
However, when it comes to ancestral property, matters become more complicated. An ancestral property has a complicated ownership structure, which makes it difficult to manage repairs, maintenance, or sale. As a result, ancestral properties are often left to ruin. However, there are alternative means to manage such properties, such as handling them through a property management firm.
Complex property rights
Property rights in India are complex, especially in the case of ancestral properties due to the complicated nature of ownership. The property can be divided through a partition deed or as per a family arrangement. It ceases to be an ancestral property as soon as the agreement comes into effect.
In the case of an undivided ancestral property, there can be multiple generations of lineage. Since an amendment in the Hindu Succession (Amendment) Act, daughters now have equal rights to ancestral property, increasing the number of claimants. So, even with three generations, we have to consider all claimants. Apart from the first generation owners in their 70s to 80s, we can have second generation claimants in their 40s to 50s and the third generation in their teens and 20s.
The number of claimants increases with each additional sibling in every generation. If the second generation, which is generally responsible for getting all stakeholders, including first generation owners and siblings, onto a common platform for mutual resolution, does not act on time, it can leave the ancestral properties unattended for perpetuity.
The third and subsequent generations are generally more mobile and do not prefer incurring large capex for real estate or may be settled abroad and unable to assemble at one place at a given time.
The resolution process then becomes cumbersome and may need multiple hearings in front of relevant government bodies. In many cases, all parties are unable to resolve such ancestral property issues even as the number of owners increases and the first generations get too old to intervene. The failure to involve first generation owners can prove expensive in the long run as they have an influencing power on second generation siblings and can get them to coordinate effectively.
For instance, we can take the case of an operational industrial plot in a prime city location with multiple owners in a family. This may lead to disputes in subsequent generations if not resolved in time. One of the possible solutions could be to relocate the factory operations to the city periphery wherein one can buy larger land at cheaper values while availing better infrastructure.
The property can be subsequently sold for a higher value. Alternatively, the original property in the prime city area can be redeveloped for higher value and better use as per the city’s development regulations, such as hotels, retail outlets, or commercial centres.
Consequently, the challenge with most ancestral properties is that the share keeps decreasing with each successive generation. With time, even a prime property will have multiple claimants with each owner entitled to an increasingly insignificant value share.
How to realise the worth of the property
Unlike a self-acquired property where the owner has complete rights to the asset, here we have multiple owners. As a result, no single owner has the right to dispose of the property alone. They must take consent from all joint owners of the property, which can get tricky as each claimant may have a different demand. It is not surprising then that almost half the family feuds in Indian court pertain to property related cases.
With multiple owners, no one wants to touch the property for redevelopment or monetisation as the hassle to get all parties’ agreement often outweighs any monetary gain.
Family resolution: One of the best options is to find a mutual agreement within the family by involving the elders to reach a peaceful resolution. Partition of the property is rarely beneficial.
Legal route: Most property cases do end up in courts, especially when the conflicts between different parties escalate and mutual resolution becomes impossible. Unfortunately, this is one of the most time-consuming, expensive, and futile exercises as ancestral property cases tend to drag on with multiple hearings.
Quite often, it can become impossible to get all owners to the table, especially if one or more parties have relocated outside India. When one considers the accumulated legal fee and the harm to interpersonal relationships, returns become even more negligible.
Seeking consultation: One of the most practical options here is to go with property consultants. With a thorough analysis of the current state of the property and its potential, they can help in exploring various options to develop the property in a manner that can maximise returns. The consultants act as a third party with no vested interest who can then divide the property to everyone’s benefit.
Consultants are often even more useful where the property is divided into multiple owners and each owner stands to gain a smaller percentage, making any more subdivision undesirable. IPCs can help in monetising such properties through other alternatives, such as selling the property and distributing the proceeds equally between the owners.
Another popular option is to redevelop the property into a larger, more high value project and then sell it with each owner getting an equal share from the sale. In the case of a multiple ancestral properties portfolio held by a family, a consultant can subdivide the properties between various family members, keeping in mind the current market valuation and future potential of properties with respect to real estate dynamics in and around the properties, growth of city vectors, permissible uses or restrictions, etc.
For example, where a land has four generations of lineage, parcelling into smaller portions will mean miniscule returns for each portion. In such a case, a consultant can be brought in to develop this land into a larger project, such as a residential complex or an office, thereby increasing the property’s overall value. This can then be divided between the original owners.
Ancestral properties are complicated to take care of due to multiple ownerships. As a result, even high value properties at prime locations can fall into disrepair. Eventually, it becomes too expensive and convoluted to develop it to everyone’s benefit. Therefore, it is best to resolve the issue as soon as possible. Third parties can help in untangling this knot and ensure the highest possible returns for each claimant.
The author is MD, Valuation and Professional Services, Savills India