‘Title’ is a legal term; it means the ownership right to property. Investigation of title is essential to ascertain the ownership of the property and ensuring that, the title is complete and free from any doubts, risks and interest. However, in India, the procedure of property acquisition and land due diligence is arduous and complicated, due to the involvement of various regulatory authorities, State specific laws and judicial precedents. It is pertinent to analyse certain issues in relation to the real estate property such as ownership title, legality of development & construction, permitted use, easements and encumbrances which have the potential to influence the essential attributes of any property and its suitability to a given transaction.
The process of title due-diligence typically involves preparing a checklist in accordance with the state jurisdiction and legislation. Such exercise is to be categorically conducted to procure a crystal clear vision on the preceding title of ownerships of the immovable property together with all permitted uses, encumbrances/ charges, compliance of statutory requirements, restrictions vested in the property and modus operandi to overcome obstructions, if any.
A due diligence exercise is possibly the most important aspect of a transaction involving real estate immediately following a working understanding of the involved financials. This process has the potential of not only impacting the financials of a transaction but also determining the feasibility of the transaction itself. While the commercials often pay high importance to expedite the conclusion of a transaction, it is critical in the interests of the parties to provide adequate time and attention to a detailed due diligence of the property in question.
This paper aims to highlight and explain the various aspects that the title due diligence exercise entails. Why it forms an indispensable part of any transaction, the types of title due diligence, and the aspects one needs to particularly scrutinise in a title due diligence process will be elaborated on in this paper. In each of this paper’s following sections we have discussed some of the key elements involved in conducting a title due-diligence of properties in India, followed by the last section that deals specifically, with particular conditional categories of land in Maharashtra.
Due diligence is primarily conducted to verify the ownership of title over the property and any encumbrances over such property, so as to protect one against any pre-existing claims over the property in question. Such claims could either effect the ability of the transferor to transfer the property or could attach themselves to the property even after it is transferred.
The primary objective of a due diligence exercise is therefore to gather information, and to cross reference such gathered information to ascertain its truthfulness. The extent and type of due diligence to be undertaken by the purchaser’s lawyer will depend on the following, (i) the risk profile and business objectives of the purchaser/ lessee; (ii) the type of real asset involved; (iii) nature of the real estate transaction (i.e., whether it is a purchase, long term/ short term lease, mortgage or financing of the real property); (iv) the time frame for completion of the transaction; and (v) whether the purchaser is looking at obtaining third party financing either pre-transaction or post-transaction.
In case of a prospective purchase, a lease of the property or real estate financing, a title search is performed primarily to answer three questions:
Apart from undertaking title search/ due diligences for purchase or lease of properties, a title search/ due diligence is also performed when an owner wishes to mortgage the property with any bank, financial institution or a lender. Such bank/ financial institution/ lender may require the owner to submit a due diligence report of the property or may conduct such diligence on its own.
The type of title due diligence that ought to be conducted is highly reliant on nature of the transaction, the property involved and the objective of the participants. Keeping in mind these considerations, due diligence can be classified into two broad categories.
Firstly, a full search which is generally conducted at the time of giving the title certificate of the property in instances of sale/ resale/ long term lease transactions and for transactions that involve obtaining of financing by mortgaging the property in question. Herein the search regarding status of ownership of the property is generally conducted for a period preceding thirty (30) years (or more) from the date on which the seller in question came to acquire the property.
A full search also entails a detailed search of all aspects relating to the history of that property such as the status of encumbrances over the property, the status of disputes relating to the property, the applicable regulations and the status of compliance of such applicable regulations relating to the property in question.
The second category is formed by what is known limited search, which is generally conducted in transactions where the property is taken on lease for a short term (usually under 9 years). In instances of this nature, the period for which the preceding ownership of the property is traced is generally restricted to fifteen (15) years (or less) from the date on which the current owner of the property came to acquire the property.
Unlike full searches, in a limited search, the search relating to the history of the property may be limited to restricted aspects such as recent title history, encumbrances on the property, disputes related to the property etc.
In this section we aim to take a look at certain essential elements that one needs to verify, while engaging in a title diligence exercise:
It forms to be of prime importance to, before entering into any transaction, determine the ownership of the property in question. The following considerations are the most relevant in aiding such determination:
The rights of transferor with reference to the ownership of property may be absolute or limited. Ownership may be seen as absolute when possession, enjoyment and disposal rights are vested in the owner without any restriction otherwise it is said to be limited. In order to execute a valid transfer, it is mandatory for such absolute right to dispose to be vested in transferor.
Thereby, in conducting a title verification it is pertinent to inspect the nature of the right of the transferor. It helps us to identify if the said property is transferable and whether the transferor has the absolute right to transfer the property.
Here, we must also consider the recent ruling in Dahiben v. Arvindbhai Kalyanji Bhanusali through Legal Representative and Others [Civil appeal no. 9519 of 2019]. Wherein the court stated that in cases where the entire sale consideration had not in fact been paid, such non-payment could not be a ground for cancellation of the sale deed. The court held that “Even if the whole of the price is not paid, but the document is executed, and thereafter registered, the sale would be complete, and the title would pass on to the transferee under the transaction. The non-payment of a part of the sale price would not affect the validity of the sale. Once the title in the property has already passed, even if the balance sale consideration is not paid, the sale could not be invalidated on this ground.” Herein, the Court also relied on its own previous judgment in the case of Vidyadhar v. Manikrao & Anr. [(1999) 3 SCC 573].
A pre-requisite of any title due-diligence is to carry out searches in the offices of the Sub-Registrar of Assurances in order to have a comprehensive and complete record of all registered documents including any lis pendens on the subject property. To what extent and up to what period the prior title deeds are to be perused may vary from case to case. However, it is advisable to peruse the title deeds for the last 30 years as per the provisions of the Indian Limitation Act, 1961 in order to ensure that, there are no claims affecting the subject property.
One of the pre-requisites of a diligence exercise involves ensuring that, all documents are adequately stamped under the provisions of the Indian Stamp Act, 1899 read with the State-specific Stamp Acts and further, all compulsorily registrable documents are subsequently registered under the provisions of the Registration Act, 1908.
The period of limitation in case of mortgages to redeem or recover possession of mortgaged immovable property (Article 61a), for foreclosure of mortgages (Article 63a) or suits by or on the behalf of the Central Government or any State Government is 30 years (Article 112);
Under Section 90 of the Evidence Act, 1872, a document 30 years or more is presumed to be validly executed and the contents thereof are presumed to represent the correct agreement or understanding between the parties there to.
However, a search for the last 12 years may be treated as normally sufficient depending on the transaction since the limitation period to file a suit in the following cases is 12 years:
It is pertinent to be heedful when a minor is involved in transfer of property. Under Section 8 (2) of the Hindu Minority and Guardianship Act, 1956, a court permission in favour of a natural guardian is a pre-requisite to alienate the minor’s interest in property. Further, any transfer of immovable property made by a guardian may be accepted by the minor on attaining majority (eighteen years of age in India) or revoked by challenging such transfer by way of a suit within the prescribed period of three years from attaining majority under Article 60 of the Limitation Act. Therefore, as held by the Supreme Court of India on 25th February, 2019 in Murugan & Ors. vs Kesava Gounder (Dead) THR. LRS. And Ors. [CIVIL APPEAL NO.1782 OF 2019 (arising out of S.L.P. (C) No. 21091 of 2010)] such transaction/transfer by a guardian is voidable and can be set aside upon three years from the date of the minor attaining majority.
As a part of the title verification process, it is necessary to ascertain the nature of the property, as to whether it is government-owned or privately owned. Any property which is under title of government cannot be further transferred or alienated without the prior permission of the relevant competent authority, failing which such transfer will be void ab initio
Further, based on land use, property can be divided into two broad categories i.e. agricultural land and non-agricultural land. While conducting title verification it is necessary to identify the land use or status of property in question, as to whether it is agricultural land or non-agricultural land. If it is non- agricultural land then it should be further classified as residential or commercial, institutional, industrial etc .
Because knowing the land use pattern will help the buyer to determine the utility of the property. For instance, only non-agricultural land can be used for residential purposes. If on verification it is found that property in question is classified as agricultural land then you have to apply for the conversion of land with an authorization to use it for residential purposes. If the conversion is permitted, only then is it advisable to proceed with the transaction. This information can be derived from the assessment register maintained by the local municipal authorities.
In the case the property in question has some ongoing developments or construction, a few steps may be seen to be added to title verification process. It must be ensured that any construction, that may be ongoing, is in adherence to the building plan and sanction plan in the same manner as prescribed and passed by the appropriate municipal authorities.
In addition to this, builders are required to seek a number of permissions and approvals with regard to infrastructure and utility facilities like water, sewage, electricity, environment compliance etc. The appropriate acquisition and sanction of these ought to be adequately ensured.
In case of ‘ready to move-in’ properties, one also needs to duly verify check occupancy and completion certificates.
Therefore, while conducting title verification it is advised to determine whether all the local construction rules were followed and complied with or not.
Further, if the property is under construction stage it is important to scrutinize following aspects –
Real covenants on the property may come in to the picture owing the housing society’s bye-laws. Such bye-laws enumerate the restrictions and allowances with respect to construction on the property.
For example, bye-laws of the society may not be allowing you to cover the balconies and open spaces or you may be required to follow a specific construction plan or there might be some parking restrictions which are to be considered before investing in property. So, these bye-laws must be scrutinized while conducting title verification.
Easementary rights too may pose an issue. It is possible that the owner may have provided a right to way to an adjacent property, or there can be easements created for utility services like a portion of property may have been reserved for installation and repair of water and sewage pipelines, electrical cables etc. which have to be looked into and verified while conducting title verification.
One must scrutinize the Property Register Card, Encumbrance Certificate, Khata/Patta Certificate and other revenue records (by whatever name called in different States uas per applicable State laws) as material for reference to ascertain and clarify the chain of title of past holders. However, one should be cautious as to their conclusive value since entries mutated in the revenue records are not title deeds and the same cannot be relied on for establishing absolute title in favour of the holder/owner. Record of rights and mutation records (available through revenue authorities in different States) though not held as official title documents can still be seen as a promising source for the verification as such documents reflect the nature of the right of the transferor with respect to subject property.
The same has been observed by the Apex court on 16th April, 2007 in Suraj Bhan & Ors. vs. Financial Commissioner & Others. [CIVIL APPEAL NO. 1971 OF 2007.]
In a landmark judgment passed by the Hon’ble Bombay High Court on 26th August, 1991 in Ramniklal Tulsidas Kotak and Others vs. Varsha Builders and Others [Notice of Motion NO. 966 OF 1991 In Suit No. 1094 OF 1991], the following guidelines to be adopted by the Advocates and Solicitors while issuing title certificates have been laid down:
This section deals in particular with the conditional categories of land in the state of Maharashtra. In conducting a title due diligence on any land that may be classified any of the following categories that is to be subject of transfer of title, one must take note the specific provisions mentioned herein.
It is pertinent to note that, for the following categories of land in Mumbai, Maharashtra, prior permission is required for transfer:
Taking into account all that has been discussed above, we can ascertain that Legal Due Diligence plays a pivotal role in the amicable resolution of any transaction related to real estate property for its sale, purchase, lease or mortgage. To ensure the sanctity of the title of the property, which forms the subject of the transaction, it is imperative to conduct a thorough title verification process. For a defective title hold no real value, and it the title to the property that creates the ownership rights and ensure that they are free from any doubts, risks and clear of any kind of claims, encumbrances and defects.
It is obligatory to investigate, evaluate and scrutinise every such record or information about the real estate property which affects the nature and transactions of such property. Further, it is advisable before entering into any such transaction of a property, to determine and ensure that all chain deeds, title documents, encumbrance certificate, insurance policies and government authorizations are in accordance with the statutory requirements.
This article was originally published in Mondaq on 8 July 2021 Co-written by: Bhoumick Vaidya, Partner; Asmita Hegde, Associate. Click here for original article
Contributed by: Bhoumick Vaidya, Partner; Asmita Hegde, Associate
This is intended for general information purposes only. The views and opinions expressed in this article are those of the author/authors and does not necessarily reflect the views of the firm.
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