Introduction:
Due diligence is ‘an investigation, audit or review that is performed to confirm facts or details of a matter under consideration.’ It’s a process that requires a potential buyer or an investor to know the details that would be necessary to finalize a transaction or an investment. It involves verifications and precautions that need to be taken to prevent probable risks.
Importance of Due Diligence:
By performing due diligence, one assesses the sort of risks that are linked with that particular immovable property that they plan on purchasing.
Legal due diligence is important for a transaction that involves the sale, purchase, or mortgaging of immovable property to financial institutions. In India, the procedure of ‘property acquisition and land due diligence’ is quite time-consuming and complicating. This is because of the association of various regulatory authorities, specific state laws, and judicial precedents.
The process of legal due diligence involves:
- Preparing a checklist in agreement with different state jurisdictions,
- Statutes,
- Examining litigations pending against immovable property,
- Encumbrances, charges and registrations,
- Consents with government authorities.
Due diligence reports can be conducted in 2 ways:
1. Full search report: This report is done for a title period that’s prior 30 years since the date of the seller who’s in question came into existence. It has all the necessary details that is related to the history of that particular property.
2. Limited search report: The tenure of this type of report is limited to 15 years. It is performed for the transactions where the property is taken on a lease.
Factors to Look Out for in a Due Diligence Report:
- Legal capacity of the seller: The report must state the legal capacity of the seller. So, the current owner or previous title holders shouldn’t be a minor or someone of unsound mind. [If the person is of unsound mind then a person who is appointed as their legal guardian can sell on behalf of the owner.]
- Ensure that all taxes are paid: It is important to check whether all taxes are paid by the seller. Ex: Property tax
- Necessary documents: The following documents are important to keep in place:
1. Occupation and Completion Certificate: It is given to a building by the municipal authority after the necessary documents are verified. The ownership of a flat is applicable only after these two certificates are received.
2. Sale deed: It is a must to check that the original sale deed is on the seller’s name and that the property is not mortgaged.
3. Power of Attorney: In some cases, the person selling might not be present (physically) to sell the property. So, he selects an agent to sell by giving him the power of attorney (POA).
4. Allotment and possession letter: When a property is acquired from “The State Industrial Area Development Board”, then the documents relating to the allotment, lease cum sale agreement, and a possession certificate should be checked.
5. Khata Certificate: For a registration that is acquired after paying tax, a Khata certificate is given to the owner of the property.
- Nature of the present owner’s property: The nature of rights can be absolute ownership or freehold.
- Encumbrances over the property: It is important to check if there are any charges or mortgages on the property. Records of the sub-registrar must be searched and an encumbrance certificate must be issued and verified by the sub-registrar.
- Acquisition process: One must do a check on whether the property is in process of acquisition by the government or any other authority. If the government has acquired the property, then the property terminates to belong to the actual owner and hence it becomes property of the acquiring property. So, the property cannot be sold or alienated until it is free from the acquisition process.
- Publication: Its always better that a transaction be printed in at least 2 local newspapers. This is done so that no third party can claim right over the property.
DERIVATION OF OWNERSHIP: One can get their rights by:
1. Purchase: The sale deed after registration and title documents of the previous owners should be verified.
2. Will: Probate and letters of administration need to be validated.
3. Inheritance: If a will exists then conditions applicable in personal laws need to be determined.
4. Gift: The registered gift deed and the terms in it has to be verified.
5. Partition: The deed of partition and the terms in it needs to be substantiated.
6. Perpetual lease: In this, the deed of lease, its extent, and transferability of rights of the lesser need to be verified.
Occupancy certificate in relation with Bangalore Development Authority (BDA):
An occupancy certificate is a document that is issued by a statutory authority that gives the applicant (i.e. the builder) permission to occupy the property. In Bangalore, the statutory authority is Bangalore Development Authority, (another one being BBMP). This occupancy certificate is required for commercial buildings and residential buildings that have more than 5 units. An occupancy certificate is issued to an entire building and not to individual flats .
Approvals for Layout Projects:
In order to obtain approval for a layout project by the Developer, it is important that the Developer furnishes the following documents before the competent authority and the same documents besides other title deeds, should also be looked into while conducting the title due diligence for a layout project:
- Registered documents that establish ownership (sale deed/gift deed/partition deed / release deed as applicable).
- Mutation copy.
- R.T.C (record of rights, tenancy, and crops).
- Conversion order.
- Survey Sketch, Atlas, Tippani, Akaarbhandh, village map from Dept. of Land Records.
- Encumbrance Certificate in Form No.15 / 16 (updated).
- Site Plan with Google Map showing the existing developments in the surrounding area of the proposed land and details of HT Line, valley, hilly terrain and water body.
- Total Station survey map with contours.
- Three copies of the proposed layout plan.
- Copy of Aadhar Card of authorised signatory.
- Recent Tax paid receipts.
- If the area is more than 10 acres / 40,468 sq m, then the applicant has to obtain NOC from Karnataka State Pollution Control Board.
- Any other documents required by the Authority.
Written by Nelekha P., a student of St. Joseph’s College of Law
References:
[1] James Chen, Due Diligence, Investopedia (Jul 06, 16:10), <https://www.investopedia.com/terms/d/duediligence.asp.>
[2] What Does Due Diligence Mean When You Buy A Property, Makaan, (Jul. 21, 14:34), <https://www.makaan.com/iq/legal-taxes-laws/what-does-due-diligence-mean-when-you-buy-a-property#:~:text=Due%20diligence%20in%20real%20estate,you%20are%20planning%20to%20purchase.>
[3] What Does Due Diligence Mean When You Buy A Property, Makaan, (Jul. 21, 14:34), <https://www.makaan.com/iq/legal-taxes-laws/what-does-due-diligence-mean-when-you-buy-a-property#:~:text=Due%20diligence%20in%20real%20estate,you%20are%20planning%20to%20purchase.>
[4] Ravi Singhania, Legal Due Diligence In Real Estate Transactions, Singhania, (Jul. 21, 14:55), <https://singhania.in/blog/legal-due-diligence-in-real-estate-transactions>
[5] Ramasamy Santhanakrishnan, Legal Due Diligence- Corporate And Real Estate Transactions, Lawyered, (Oct. 01, 15:28)
[6] Arathi Many Yajaman, Overcoming the Occupancy Certificate hurdle to your dream home, begaluru.citizenmatters, (Jul. 25, 21:12), <https://bengaluru.citizenmatters.in/how-to-get-occupancy-certificate-home-bangalore-bbmp-6640.>
[7] Bangalore Development Authority User Manual, 7, <https://bdabangalore.org/uploads/files/EoDB/TPM/UserManualLayoutApproval.pdf.>
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