Due Diligence in Indian Real Estate Transactions

Indian Real estate transactions due diligence

 

Legal due diligence in Real Estate Transactions in India

Legal due diligence in real estate transactions is the investigation of property records of real estate and matters related to the sale, purchase, lease or mortgage of real estate. In other words, it refers to the reasonable measures that everyone should take before signing and implementing agreements related to real estate. The purpose of legal due diligence is to make it understand and grasp the risks that may exist in the transaction, and to control the risks to a minimum according to their own needs. In India, due to the influence of various regulatory agencies, country-specific laws and judicial precedents, the procedures for property acquisition and land due diligence are extremely time-consuming and complicated. Therefore, investigating and mastering specific information related to real estate (such as ownership, legal development and construction rights, use permits, easements, and other situations that may affect real estate transactions) are particularly important for smooth and safe transactions.

 

 

 What legal due diligence in Real Estate transactions include?

The legal due diligence process of Indian real estate transactions mainly includes:

preparing a review checklist in accordance with the laws and regulations of the state where you are located, reviewing the status of litigation against real estate, ownership burdens/expenses, registration/approval by local government authorities, etc.

Carrying out an accurate real estate legal due diligence can clearly grasp the ownership inheritance status, license status, rights burdens and fees, compliance status and restrictions of the target real estate, and remove obstacles to the operation of the transaction.

 

There are two ways of legal due diligence in real estate:

  •          Thorough investigation
  •          Limited investigation

 Both of these two methods of investigation can get a comprehensive and detailed report. The difference is that the investigation covers the target real estate in a different time span.

The comprehensive investigation will generally be conducted back to 30 to 99 years or based on the required number of years, while the limited investigation It usually dates back to less than 15 years.

 

 

What are the main contents of due diligence of Indian real estate laws?

The main contents of due diligence of Indian real estate law are:

1. Review of real estate ownership

 

1.1 If the ownership of the real estate is obtained through sale, the beneficiary shall review the registered sales contract and other ownership certificates held by the real estate owner.

In addition, in a real estate transaction, all acquired rights in the real estate should be transferred to the beneficiary.

 

1.2 If the ownership of the real estate is acquired through gift, the beneficiary should carefully review the registered gift agreement or other relevant documents that make the real estate gift effective.

 

1.3 If the ownership of the real estate is acquired through a will or inheritance, the transaction executor should review whether the terms of the will document violate mandatory laws and the competent court in any way (the competent court refers to the court that grants the legality of the will) Writ.

 

1.4 If the ownership of the real estate is obtained through lease, the transferee shall review the real estate lease and the rights and obligations of both parties to ensure that the real estate transfer meets the requirements.

2. Review of real estate ownership transfer

In order to legally and effectively transfer the real estate ownership to the beneficiary or new owner, it is necessary to review the continuity of the rights stipulated in all executed legal documents or government departments.

 It is usually necessary to go to relevant government departments to review all historical documents, change documents, Jamabandi/Khatiyan documents (Jamabandi/Khatiyan documents are very important documents and rights record documents in Indian real estate transactions, including land type, holding status, a lot of other important information, such as the type of ground structure, owner, location, etc.).

 In addition, when signing a legally binding sale or purchase contract, the real estate assignor should be “eligible as a legal subject”, that is, it cannot be a minor or unsound mind.

 

3. Costs and rights burdens involved in the target real estate

When conducting due diligence on real estate laws, it is necessary to obtain corresponding documents from relevant departments to verify whether the target real estate has cost burdens, such as whether there are unsettled costs.

The burden of rights refers to whether the real estate has guarantees such as mortgages or liens to banks or financial institutions, and such real estate guarantees should be avoided to affect transactions.

 

4. Specific types of transfers

In India, the local legislation of individual states may stipulate that the relevant real estate belongs to a “specific caste” or “specific tribe” or other “backward class”, and the real estate can only be transferred to similar tribes or groups, but not to other classes and groups transfer.

For example, Karnataka “Karnataka Specific Castes and Specific Tribes (Prohibition of Transfer of Specific Land) Act of 1978”.

Generally, the purpose of such legislation is to protect and protect the backward and poor people, specific castes and specific Tribes provide residential land.

Accordingly, when conducting due diligence on real estate laws, if the property owner finds that the ownership of the real estate belongs to a “specific caste” or “specific tribe” or other “backward class”, it should be the first time Transfer to relevant government.

 

 

5. Special purpose sublet

In India, the government will lease some land to land lessees for agricultural purposes. Such land can continue to be sub-leased, but only for agricultural use. Therefore, when conducting legal due diligence on agricultural land, it should be noted that the sublease transaction of such land is not allowed for any commercial or residential use.

 

 

6. Real estate development and construction

When conducting due diligence on real estate laws, it is necessary to verify whether the development and construction of the real estate comply with local laws and regulations, whether relevant approvals have been obtained in accordance with the law, and whether a development agreement has been signed.

 In addition, the nature of the real estate should also be confirmed, that is, whether agricultural land or non-agricultural land. If it is agricultural land, changing the purpose of land use requires approval from the state government.

 

7. Government approval and authorization

Real estate legal due diligence should also check and verify whether all approvals and authorizations related to the transaction have been obtained from relevant competent authorities, such as construction and industrial approvals, insurance, taxation, and environmental assessments.

 

 

8. Requisition procedures

In India, laws concerning land acquisition restrict the transfer rights of the original owner. In other words, when conducting real estate legal due diligence, it is necessary to ensure that there is no land acquisition procedure for the target real estate.

Once the target real estate has been requisitioned by the government, the relevant real estate transaction will be deemed invalid from the beginning and thus not legally binding.

 

9. Announcement

From the perspective of transaction security, the beneficiary should publicize the transaction in at least two local newspapers.

 When disputes occur in the future, the public announcement will help endorse the beneficiary’s bona fide ownership.

 

In summary, legal due diligence plays an extremely important role in the process of related real estate transactions (sales, purchases, leases, mortgages), whether it is transactions by individuals or financial institutions.

 Legal due diligence will try to obtain and analyze all records and information that may affect the nature and process of the transaction to ensure that transaction risks are minimized.

In addition, we recommend that before conducting any such real estate transactions, you should ensure that all agreement documents, ownership documents, encumbrance certificates, insurance policies and government licenses are in the form of legal requirements.

 

 

 

 

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