This article is written by Ankur Kumar and team Get Me Roof. The article is a simple guide to understand legal review of residential projects.
Why legal review is important?
Legal review is an important phase of property research when you are buying a home. Helps you in assessing the soundness of a property from a legal standpoint. Common cases of statutory violation in real estate include construction on a disputed land, not getting required clearances from civic bodies before starting construction, deviation in construction plan etc. This guide will help you understand multiple aspects of legal review of properties, the process, and outcome.
A property which doesn’t have a clear title can lead to financial loss later if resale is hit or renting it out becomes difficult. In addition, fear of eviction, bulldozing is probable if required permissions are not granted to a project by the civic officials.
How legal review can be done?
Approach an experienced property lawyer in your city. You can search online for contact details of notable lawyers who are willing to offer their service. Most lawyers charge anywhere between Rs 5,000 to Rs 30,000 for such service.
Get ‘Tax CD’ from your builder. Tax CD is nothing but a collection of all property documents the builder has related to the project. These documents are required for legal examination.
If property documents are in regional language, it is best to hire a lawyer who is well versed in the regional language to avoid any gap in understanding the documents.
List of common property documents/details which the builder must provide:
- RERA registration number and RERA project URL(this helps in going through the state RERA website for checking details about the project).
- Registration(Title) document of the land(in builder’s name).
- Land conversion certificate (if the land was converted from agricultural to residential).
- Project plan and plan approval letter.
- Fire NOC (if it’s a high rise apartment).
- Environmental and Pollution Board clearance.
- Encumbrance Certificate.
- Commencement Certificate.
- Property insurance document.
- Completion Certificate/Occupancy Certificate (for completed projects).
- Property tax receipts.
-Lawyers usually ask for at least a week’s time to evaluate and revert if they are reviewing a project for the first time.
Outcome of legal review
Fix up a follow-up meeting with the lawyer to understand the merit in the project’s paperwork. Ask for any gaps and any follow-ups you should do with the builder for any of the documents.
If at this stage, you are informed about any missing document by your lawyer, it is best to ask the builder about the same and ask for time frame within which the builder will get back.
If a builder is not able to give convincing answers for lack of a paperwork or if your lawyer advises against investing in the project because of missing documents or unclear title, pick another project of the same builder or another builder and a project.
Repeat the process of getting a legal examination done for the new project.
If the outcome of the review is positive, the lawyer can also help you in getting sale agreement reviewed and vetted before you sign it. Especially in resale agreements, it is important to have a clear MoU set between the Seller and the Buyer. The lawyer can help you draft the same and can cover you from corner scenarios such as penalty clauses when an agreement is cancelled by any party, TDS deductions in sale amount etc.
Once sale agreement is executed, you are good to apply for home loans and close your property registration process. For under construction projects, registration can happen only once possession is granted.
Examples of dubious paperwork or infrastructure development in a project
RERA registration is not completed and informed to be pending to prospective buyers.
Title of land on which construction is done is not clear as it is not completely bought from existing owners and is disputed.
Construction site violates National Green Tribunal(NGT) norm of keeping sufficient distance from primary, secondary and tertiary drains(also called rajkaluves in states like Karnataka).
Constructed floor count is different than pre-construction approved count.
The discrepancy in approvals in Fire NOC obtained pre-construction and post-construction.
Floor Area Ratio (FAR) limit is not strictly followed.
Sewage Treatment Plant(STP) rules are not followed. Apartments with specific flat count size and above are mandated to set up an STP for handling sewage waste.
Environmental and Pollution board clearance is not met. This can happen for apartments which are built in industrial hubs without necessary approvals and face sound pollution menace above safe residential limits.
Completion Certificate is not obtained after building construction is completed to certify authorized and safe construction.
Occupancy Certificate is not obtained after apartment becomes ready to move in with all fire, water, sewage, electricity equipment being checked.
Property tax is unpaid for a significant amount of time leading to arrears which residents have to bear when they move in.
Corpus fund collected under ‘Clubhouse Charges’ by the builder is not transparently transferred to the Resident Welfare Association (RWA) formed once builder decides to pass on maintenance ownership to the society.
Construction and Sell Agreement drafted by the Builder has loopholes which can legally protect a builder if there is a default in quality of amenities constructed and overall construction quality.
Land on which construction is done is a leased one while the builder communicates it to be freehold one.
The project doesn’t have approvals from a Public Sector Bank(PSU for a home loan). Only has private banks or other Non-Banking Financial Companies(NBFCs) ready to give a loan. Project having the tie-up with PSU banks is always safer as PSU banks do more stringent paperwork checks(though not a guarantee for the genuineness of a property title and other clearances).
Conclusion
While a real estate investment has so many ownership and legal aspects to be evaluated before you decide to invest, it is also imperative to understand that it is very difficult to find projects which have all clearances and paperwork in right shape and state. This is partially due to bureaucratic delays in getting approvals and partially due to negligence by the builders. If it is former, it also drains a builder who is unable to sell units because of missing paperwork. If it is latter, it is frustrating for buyers who have paid the token amount or have already taken up loans but have to run after the builder to get an update on paperwork.
In conclusion, it is important to only shortlist properties which have necessary clearances and required approvals during your property research. An incorrect move can make your investment a bad one – leaving you desperate for recovering losses in future.
