Real Estate Legal Angle

The very word real estate brings to one’s mind land and building on the one hand and the lawyer’s office and the Registrar’s office on the other hand. All real estate transactions have to be compulsorily registered lest the documents are invalid and not actionable. So also, all real estate transactions need fool proof documentation to avoid any confusion and to convey clear and valid title.

The Indian Contract Act: This is the act that basically governs all real estate transactions for, an agreement to sell a piece of land or a house, a gift deed to convey title in a property to a beneficiary, a Will devolving the rights in properties upon its beneficiaries, a deed of donation to give rights in a property to a donee, a deed of partition witnessing partition of properties among the coparceners of a Hindu Undivided Family or a settlement deed settling rights among the members of a family, a dissolution deed supported by a memorandum of understanding for distribution of properties of a firm among its partners- all these are documents conveying rights and interests in property which are contracts basically, and hence are covered by the Indian Contract Act. Co-ownership of land, easement rights, acquisition of others’ rights for some small purpose like approach or parking or recreation also are governed by the Contract Act. Creation of charge against a property or recording a lien or mortgage on the property also are covered by the same Act.

All the above mentioned documents form the first step in a real estate transaction. Once the title of the seller is established, a document like agreement to sell should be drafted. This agreement to sell introduces both parties, lays down the terms of sale, the consideration to be paid, the mode of payment, the periodicity of payment and how and when the possession would be handed over, etc.

The next step in the transaction is to execute a sale deed, where in all the above facts are reiterated and the rights are conveyed to the buyer.

Where the transaction is for development and sale of plots, flats or commercial establishments, the buyer who is also the builder/developer enters inter alia into agreements with individual buyers for sale of plots etc. The law recognizes co-ownership of land. The present flat system arose out of this part of Law. The land on which the residential complex or the commercial complex stands is owned by all the residents.

Where there is adverse possession of property as a result of continued use and occupancy over a period of time, conveyance of clear title is difficult. The buyers have to make some settlement with the parties having adverse possession.

Workers like plumbers, painters; professionals like architects, engineers and surveyors and material men like business men who supply materials are entitled to a lien for services rendered. This is known as Mechanic’s and Material men’s lien. This is another aspect of Law which needs careful handling and drafting.

Another aspect in real estate development that needs careful handling is zoning regulations. State and Local governments have authorities to pass ordinances regulating real estate transactions in certain zones for the protection of general health, safety and welfare of the people. Eminent Domain is the power of the Government to acquire private property be it land or building for public purposes.

Indian Stamp Act: Many of the real estate transactions have to be executed on stamp papers. The Indian Stamp Act prescribes the stamp duty to be paid for each type of document. A document is not actionable unless proper stamp duty is paid. A document when it intends to convey title in an immovable property to another person has to be registered with the Registrar.

The Negotiable Instruments Act: Real estate transactions involve exchange of large sums of money. While some part of the transaction is carried out through cash payment, a major portion of the money changes hands through cheques, Demand drafts, banker’s cheques etc. All these instruments are governed by the Negotiable instruments Act and the parties have to take care that the provisions of this Act are not flouted.

Foreign Exchange Management Act [FEMA]: The FEMA allows investment in immovable properties in India by NRIs. The Reserve Bank of India also has reduced considerably the restrictions on transfer of funds to and from the country. In these circumstances many NRIs are coming forward to buy residential as well as commercial properties in India. These transactions are covered by FEMA.

The Wealth Tax Act: The Wealth Tax Act recognizes urban land as an asset within the meaning of Section 2ea. It also recognizes guesthouses, residential houses, and farm houses if situated within 25 km from any municipality or cantonment board and commercial buildings as assets which are liable to be subjected to Wealth Tax in India.

The Income Tax Act : Any income earned on properties whether as rent or lease is subjected to income tax. Where the real estate transactions result in profit tax on the capital gain, has to be paid or necessary investments allowed by the Act have to be made. If there is a loss on long term capital asset the provisions of set off and carried forward of losses come into play.

Other miscellaneous Laws like Consumer Protection Act and other Civil and Criminal Laws will be evoked if any situations of defaults, frauds occur during the course of the transaction.