This article is written by Dilnaz Bapasola, Hariani & Co., Advocates and Solicitors
Drafting transactional documents is crucial to any deal. No matter what area of expertise you may be involved in, the skill of “drafting” is an essential tool. The basis for rights in property and the mode in which they are crystallized is through various transactional documents. In real estate deals, a transactional document forms “the title” to the property and hence must be carefully drafted and correctly executed. These documents including ancillary documentation/s embody the parties’ rights and interest in the property and hence are of great importance.
The method or system of drafting a deed is termed as “conveyancing”, which involves the synthesis of (i) law, (ii) effect, (iii) facts and (iv) language. There is no preset format for such transactional documents. Drafting, therefore requires a correct conception of law connected with the document, a complete grasp of the facts and a good control over the language of the deed.
So the next question would be “Where do I start”? You may have heard of the new age adage ‘Don’t believe everything you read on the internet’. Well, the same applies to precedents. If you need a starting point, you may take the guidance of precedents which are available from a reliable and recommended source such as commentary penned by a prominent author and not from the first link that pops up on your Google search. One should bear in mind that even a reliable precedent cannot be adopted verbatim and modifications should be made depending on the transaction. Also, most students are under the misconception that if you’ve drafted a document once, you’ve drafted them all. Pulling out a precedent from a commentary or the internet and relying solely on the same is perhaps the most common mistake a newly graduated lawyer can make, one which can have some serious repercussions.
TOP 10 KEY POINTS ONE NEEDS TO KEEP IN MIND WHILST DRAFTING A LEGAL DOCUMENT
There is no fixed format for a deed however every document or contract has a similar basic skeleton comprising of the following:
- Name of the Deed/Document:
A deed should start with its name, if possible. For example, “Deed of Conveyance” or “Leave and License Agreement”. This is merely for convenience. It should be noted that the nomenclature does not finally decide whether the document is, in fact, as described by the name and the same would depend on the entire contents of the document.
- Date and Place:
The insertion of the date of execution plays an important role from various aspects such as limitation, priority, registration. The place of execution gains importance in the event a dispute arises, with regards to the jurisdiction of the Court.
There are ordinarily at least two parties to a document, depending upon the nature of the transaction. It is common practice to mention the name, capacity in which one is executing the document, age, place of residence etc. for purposes of correct identification. It is important to note that a document is only binding upon the parties thereto and thus and therefore it is common practice to have the definition given to a particular party to mean and include “his heirs, executors and assigns” in case of individuals and “successors and assigns” in the case of a corporate body. The nomenclature of the parties varies in case of individual, corporate, trust, partnership firm etc.
This is synonymous with the preamble to a document and sets forth a brief history of the facts and circumstances that have led to the execution of the document. They usually consist of two types; (i) narrative recitals that trace the title of the property and (ii) introductory recitals that state the object of executing the document.
Recitals are usually followed by the provisions relating to the transfer which usually begin with the words “Now This Deed Witnesseth and It Is Hereby Agreed By and Between The Parties As Follows:-“. This is known as a testatum. Words that are commonly used include “doth”, “Witnesseth” which may seem a bit archaic but there is absolutely nothing wrong with keeping it old-school!
- Operative part:
Arguably the heart and soul of your document, the operative part consists of words or expressions of the nature of transfer intended to be made. It also includes (i) clauses relating to consideration, (ii) a full description of the property etc. (iii) an “all estate clause” which transfers all appurtenances to the property intended to be transferred, (iv) a Habendum clause which defines the estate the purchaser takes such as absolute owner or otherwise; (v) clauses regarding any exceptions or reservations such as right of way etc., (vi) terms and conditions, (vii) covenants including for title, possession, further assurances etc.
Often, to ensure that a document flows correctly and is not interrupted by lengthy descriptions and details, certain portions are referred to in a Schedule, usually appearing at the end of the document. It may include a complete description of the property to be conveyed, or rights to be transferred.
A deed generally ends with a Testimonium clause which is usually worded as “In Witness whereof the parties hereto have put their hands/signatures on the day and year first hereinabove written”.
- Signature clause or execution:
Every document is required to be properly executed by the parties thereto. In certain cases, failure to properly execute a document could render the document invalid. The correct method of execution depends upon the nature of the document, the nature of the parties and the relevant laws relating to attestation by witness thereof, if applicable.
- Receipt clause:
This is inserted in the event any money is paid before or on execution of the document. It is not usually required if receipt has been acknowledged in the operative part, however, it is often inserted out of abundant caution.
These are briefly some of the points to keep in mind but each document varies from another and tailoring of the same is necessarily required in order to meet the specification of the parties, mitigate future legal liability as well protect the rights of the parties thereto.
CONVENYANCING VIS A VIS JUGEMENTS AND DECISIONS
So, if you think that mastering the language implies that you have generated a good draft, unfortunately, you are mistaken. Every transaction is also governed by various judgments and decisions of the various authorities, tribunals and courts which would give an in depth interpretation of the provisions of statutes, the correct method of compliance with and application of the same with respect to the transaction. Thus, it is essential that these judgments and orders be considered in order to correctly draft your transactional documents.
There are also various practical exercises and due diligence, the results of which would affect the drafting of transactional documents and have an important bearing on the transaction as a whole. From time to time legislations also go through amendments which would affect the commercial interests of the parties and the construction of the transaction document. For example, by virtue of recent amendment in April 2015 to the Maharashtra Stamp Act, 1958 the stamp duty leviable in case of gift of agricultural property / residential flat to certain restricted relations i.e. husband, wife, son, daughter, grandson, grand-daughter, wife of deceased son is Rs.200/- instead of 2% of market value as was earlier required. In any other case, the stamp duty shall be 5% of the market value of the property. Thus, the amendment makes certain transfers by way of gift deed far more commercially attractive and viable as opposed to transfer by other modes. Thus, even a minor amendment can have a huge impact on the determination of the optimum transactional document to be adopted.
Lack of knowledge or understanding of the legal effects of non compliance with the various laws, statutes, rules, regulations, notifications, judgments etc. as well as failure to correctly incorporate the same in the transactional document could result in serious penalties and may even render the transactional document void! Hence a practical and in depth understanding of the various legal factors involved in drafting or conveyancing is indispensable for any professional in the legal field.
A five-part lecture series on Real Estate Laws including on the relevant laws and factors that must be considered when drafting various types of transactional documents is being offered by Hariani & Co., Advocates and Solicitors from 3rd to 7th August 2015 at the Indian Merchants’ Chamber, Mumbai. With 25 years of expertise and knowledge on real estate laws, the lectures promise to give an insider view and provide valuable and practical information to anyone who is a part of or interested in joining the legal profession.
For details and registration, click here.