Homebuyers tend to sometimes take a very casual approach when they're looking to purchase property in a ready-to-move-in unit and often forget to look at the critical legal aspects while buying a flat or a commercial unit.
While purchasing a ready-to-move-in, firstly buyers must understand the importance of title due diligence--the investigation of ownership rights of the vendor. Title investigation is an important step that every purchaser must undertake prior to the purchase of flats or immovable property, especially when one is purchasing a property in a ready-to-move-in building. Title investigation helps obtain the legal status of a property and related information on its ownership.
Most homebuyers think that title investigation just a mere formality. However, title investigation is a very detailed process and requires the keen eye of a lawyer.
We have listed down 10 legal aspects to consider while buying a flat or commercial unit especially when it comes to buying a property in a ready-to-move-in property. These aspects are important as they enable buyers to be more aware and to help them understand that buying is not merely a transfer of title on payment of consideration.
Important legal aspects to consider when buying a flat/commercial unit in a ready to move-in building
Reviewing of document title:
Reviewing of document title is undertaken by a legal expert on behalf of the purchaser to trace the manner in which the vendor has acquired the property. This exercise is important as it includes the verification of documents such as deeds i.e., sale, gift; certificates issued by the society. If the property is acquired through inheritance, then succession laws governing the person owning the property are traced, right from the inception.
Additionally, experts address matters relating to the property such as what are the encumbrances created? Whether a property is mortgaged to a third party? If the vendor is actually the owner? Addressing these questions allows a starting point in terms of ascertaining what are the main issues that can arise in a property transaction.
Searches in public registries:
Information related to immovable property is available in the public registers under the Indian Registration Act of 1908, as every document creating an interest in an immovable property having a value of Rs 100 or more compulsorily needs to be registered with the concerned office of the sub-registry.
Since these are publicly available records, as part of title due diligence, searches are undertaken in the concerned office of the sub-registrar to ascertain the documents executed and registered in relation to a particular property. This would enable the purchaser to verify the chain of title from the first owner to the current owner of the property and whether there are any other documents affecting the ownership rights of the owner.
Tenure of land:
Understanding the tenure of the land is an important aspect especially in cities like Mumbai where various properties are constructed on land leased by the municipal corporation or by the collector. To illustrate, if a flat is located in a building constructed on land granted on a leasehold basis from the collector, then the permission of the collector is required prior to the sale of the flat as also payment of transfer premium. This has a direct impact on the cost and timing of the transaction.
Public notices are typically issued by an advocate on behalf of the purchaser, prior to execution of sale deed, in the local newspapers where the property is located. The purpose of issuance of a public notice is to inform the public at large that the target property is proposed to be sold and in the event, any person has any right or interest in the property then they have an opportunity to raise an objection to the sale. This is an important step in the title due diligence process.
Building permissions are given by various authorities that confirm the building is constructed according to the sanctioned plans. When a developer starts constructing a building, they need something called an Intimation of Disapproval (IOD) which essentially means the plans to construct a building is sanctioned.
Once the entire building is constructed as per the sanction plan or with modifications, then the municipal Corporation will then inspect the premises and issue an occupation certificate for the building. Upon issuance of the occupation certificate, a building is permitted to be occupied by flat buyers. Since an occupation certificate validates the construction of a building, it is extremely important to verify this permission before purchasing a flat in a building.
These are the monthly or quarterly expenses that are payable in respect of a flat such as maintenance, electricity charges etc. The documents for this should be reviewed to ascertain whether there are any outstanding dues payable to the society/condominium or the utilities department. This is important as it ensures that the purchaser is not saddled with any financial liabilities.
Cost and taxation:
While purchasing a property, the following are a few costs that a purchaser will incur:
Stamp duty – Stamp duty is a tax levied primarily by the state government on various types of documents recording legal transactions between the Parties.
Registration charges – These are charges payable to the Office of the Sub-Registrar at the time of registration of a document
Society/Condominium transfer fees– Society/condominium transfer fees are payable at the time of transfer of a flat/unit. Typically, such charges are shared between the vendor and the purchaser equally, however, it is subject to agreement between the parties
Brokerage charges – Brokerage charges are generally in the range of 1-2 percent.
Transfer premium charges- If the flat is located on a collector’s land, then additional transfer premium charges are payable.
A flat purchaser should keep in mind the above charges at the time of purchasing the property and plan his finances accordingly.
In the aspect of taxation, the following concepts of deducting tax at source is important:
Deducting tax from the purchase consideration: Payment of any sale consideration to a seller is subject to deduction of tax at source. As per the extant regulations, the liability of deducting tax is on the purchaser and therefore, if the purchaser fails to deduct tax at source or deducts a lower amount than the one prescribed under the Income Tax Act, then the Purchaser could be deemed to be in default of the applicable provisions of the Income Tax Act, 1961.
Different rates of taxes applicable when you are deducting tax: Tax rates differ according to the tax residency status of the Vendor. If an NRI is selling the property then the purchaser will have to deduct tax at a higher rate. On the other hand, if the seller is an Indian tax resident, then the rate of TDS is lower i.e. 0.75 percent.
Bank loans: Many times, property purchasers require bank loans to purchase a property. The bank before giving the loan has certain requirements of its own. The most important aspects that banks focus on are legal clearance and receiving NOC from society or condominiums for creation of charges; the disburse loan after the whole transaction and the receipt of all original documents.
Title investigation is important when it comes to buying a flat or a commercial unit. Through this exercise, property purchasers are able to get a complete understanding of what they are getting into through the purchase of a property. Since property matters are extremely complex in India with multiple State and central laws governing immovable properties in India, it is advisable for flat purchasers to conduct a title investigation through a legal expert in this field.