2. INTRODUCTION
Legal Due Diligence in a real estate transaction is an investigation of real
estate property records and anything else deemed relevant to the sale,
purchase, lease or mortgage of the property.
Legal Due Diligence consists of – A scrutiny of all, or specific parts, of the legal
affairs pertaining to a property with a view of uncovering all legal risks involved
in acquiring the property and to provide the buyer an extensive insight into the
nature of the property and risk involved in purchasing the same.
Legal Due Diligence often improves the buyer’s position by pointing out the
risks involved in purchasing the property and ensures that necessary
precautions in relation there to.
In the current scenario, legal due diligence is an important component of a
transaction involving sale, purchase or mortgaging the immoveable property
to any Financing Institutions.
3. ACQUISITION OF PROPERTY
The Immovable property in India can be acquired by any of the following ways:
By Registered Conveyance
By Gift
By Relinquishment
By Operation of Law
By Foreclosure of Mortgage
By Inheritance/Succession
By Lease of Land
By Partition of HUF Property
By Family Settlement
Registered Conveyance
Gift
Relinquinshment
Operation of Law
Foreclosure of mortgage
Inheritance/Succession
Lease of land
Partition of HUF Property
Family Settlement
4. ..cont
Due diligence is conducted mainly to verify the ownership of title over the
property and any encumbrances over the property, so as to protect one
against pre-existing claims over the property.
Hence, legal due diligence is an important component of a transaction
involving sale, purchase or mortgaging the immoveable property to any
Financing Institutions.
Due Diligence often improves the buyer’s position by pointing out the risks
involved in purchasing the property and ensures that necessary precautions
in relation there to.
5. TITLE VERIFICATION OF PROPERTY
Documents
Revenue Records
Registrar of Assurances
Registrar of Companies
Encumbrances
Possession
Rights bestowed by law
Inviting Public Objection
Court of Law
The Title Verification can be done
by following ways:
• Verification of Property Documents
• Verification of Revenue Records
• Verification of Records with Registrar of
Assurances
• Verification of Records Registrar with of
Companies
• Verification of Encumbrances
• Checking Possession
• Rights given by Law
• By Inviting Public Objection
• Verifying records with appropriate Court
of Law
6. DOCUMENTS TO BE VERIFIED
1. Registered title deed.
2. Chain of last 30 years of title documents.
3. Sanctioned permission issued by the concerned authority.
4. Environmental clearance certificate.
5. Latest property tax receipt.
6. Latest electricity bill.
7. Structural stability certificate.
8. 7x12 extract if it is land.
9. Mutation entries if it is land.
10. Share certificate if the property is in society.
11. Details of mortgage if any.
7. ..cont
12. NOC from the concerned financial institutions if the property is mortgaged.
13. Details of litigations if any.
14. SRO search report.
15. ROC search report if it is a company.
16. Legal heir certificate if the owner has expired.
17. NOC from concerned airport authority.
18. NOC from the concerned fire stations.
19.Order of the court if the owner is minor.
20. Collector order if the agricultural land is converted into non agricultural land.
21. RERA registration certificate if the property is newly constructed post
enactment of the RERA Act, 2016.
8. ..cont
Documents mentioned in the previous two slides may changes as per the
property requirement. Any other documents may also be require after perusing
the above mentioned documents. Properties of residential nature, commercial
property, property forming part of society, agricultural land, non agricultural
land, Industrial land, SRA property, property owned by partnership firm, property
owned by company, list of documents may changes as per the ownership of
the property and as per the types of the property. If the property is newly
constructed post enactment of RERA Act, certificate of RERA may also required.
If the property is acquired by inheritance additional document like Legal heirship
certificate may required. Hence, list of documents to be verified before buying,
leasing or mortgaging property changes as per the requirement.
9. WHY LEGAL DUE DILIGENCE?
Due Diligence process is to eliminate unknown risk.
It normally involves tracing of the title verification of the present and preceding
owners.
It provides information about any litigations, rights of any party and about the
ownership details of the present owner.
It saves buyer/Lessee/Licensee/Mortgagee from avoiding future litigations and
thereby saving huge cost and time involved.
It plays a significant role for an individual as well as the FI’s in any transaction
related to real estate property for its sale, purchase, lease or mortgage.
It is highly essential which covers all the possible areas of anticipated liabilities.
It gives clarity about the rights of the property holder on the property.
10. STEPS INVOLVED IN LEGAL DUE DILIGENCE OF PROPERTY
To determine intended use of the property is lawful under the law of the land
and if not, whether such property can be used for intended purpose with
certain permits/approvals.
Verification of the property documents.
Verifying whether all the previous transfer has been made as per the
operation of law.
Verifying the sanction permission and any other approvals have been
obtained which is required to have a clear and marketable title.
Verifying the proper stamp duty has been paid.
Carrying out searches with Sub-Registrar of Assurances, Registrar of
Companies, Court of Law, CERSAI.
11. RISK INVOLVED IF LEGAL DUE DILIGENCE IS NOT
PERFORMED
Information will not be available if the property is not legally transferred.
Information of property mortgaged will not be available.
Details of any pending litigation cannot be traced.
If the property is given on lease/leave and license basis than there is great risk
in transfer of title.
Whether the property is constructed as per all approved plans and all the
sanctioned permission has been obtained cannot be identified.
If there are any pending dues over the property without due diligence it
cannot be identified.
Whether the proper stamp duty has been paid or not cannot be identified.
Whether all the transferor are transferring the property and all the transferor
are competent to enter into contract cannot be identified.
12. CONCLUSION
In view of the above, Legal Due Diligence plays a significant role for an
individual as well as for any Financial Institution in any transaction related to
real estate property for its sale, purchase, lease or mortgage. It is obligatory to
probe and evaluate 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. It will saves the time and cost
involved in litigation In future. Hence, Legal Due Diligence of Property is a must
before entering into any transaction of purchase, lease or mortgage.
