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A Reasonable man’s checklist of documents for Due diligence before a land purchase

By Neha Agarwal June 24, 2016


The concept of taking care and being a reasonable person before entering into an agreement or doing a transaction with another party is called Due Diligence.‘Due’ means sufficient and ‘diligence’ means ‘persistent effort to work’. Due diligence is a way of averting harm to either party involved in a contract.

With the increase in the real estate transactions there is a high amount of risk involved in such transactions resulting in the need to take steps to mitigate such risk. Due diligence is a process that helps in alleviating such risk. There is no legal obligation on the buyer to conduct due diligence (investigate the documents )before purchasing a property and the concept finds its root in the legal maxim of ‘Caveat Emptor’ which lays down the duty and the responsibility upon the buyer before making any purchase.

Since there is no legal obligation on the buyer, there is no set procedure on how a due diligence has to be conducted and which documents need to be checked to ensure that the buyer gets exactly what is represented to him. Here comes the need to investigate some important documents to ensure that the property has a clean title and is free from any risks associated with it.

Below is the checklist of some core documents:-

1) Sale Deed: Original sale deed is a proof of sale and transfer of ownership of the property from the seller to the buyer. The original title deed in the name of the seller should be checked to ensure that the property is not mortgaged.  It is important that before the Sale Deed is executed one should execute the sale agreement and should check for compliance of various terms and conditions as agreed upon between the buyer and the seller.

  • If it is executed by a minor then prior permission to sell must be obtained from the court  subsequent ratification;
  • If it is executed by Power of Attorney holder, then copy of such Power of Attorney should be checked to establish whether the previous Sale or Purchase was carried out by authorized person on Seller or buyers behalf.     
  • Allotment letter and possession letter: If property is acquired from the State Industrial Areas Development Board or other statutory Development authority (for example Delhi Development Authority in Delhi) then documents relating to allotment, lease cum sale agreement, possession certificate or builder-buyer agreement needs to be checked.

2) Mother Deed/ Parent Deed :It might be the case that a property has passed various hands resulting in different ownerships at different points of time. It is crucial for the buyer to know the origin of the property (how the seller became the owner of the property?) A mother deed contains all the details of all the previous owners chronologically arranged. This involves checking all the ‘chain of documents’ for the last thirty years at least. Certified copies have to be obtained from the registering authorities if such documents are not made available.

3) Land Records (7/12 extract or RTC or Patta or Jamabandhi) & Mutation Entries: These are the record of rights; tenancy and cultivation issued by Registerar of land holdings and is obtained from the Tehsildar’s office. The nomenclature of land records varies from state to state. Mutation of a property is the transfer or change of title entry in revenue records of the local municipal corporation containing details about the type of ownership, number of owners (and their share in property) of the property, loan on the property, tenant in the property (if any), cultivable and non -cultivable areas in the property, source of irrigation (if any), assessment for the property. These extracts may not cover all the names of the persons so it is advisable to check mutation entries.

4) Khata extract and certificate: For any new registration obtained after paying the tax, a khata certificate is issued to the owner of the property or to his family members. It states that a particular property no. “F” is in the name of Mr Y. This certificate is required to apply for water connection, electricity connection, trade license and building license.

5) Ceiling Limit: As per the type of the property there is a limit provided for the holding of the Land, the buyer should check that the land which he is purchasing is not crossing it’s limit as well as the present owner is also not holding it as excess land. 8 A Extract is the document which gives an idea about the exact holding of the owner; therefore it is advisable to check that document for calculation of the total holding of the present owner.

6) 6 C Certificates: 6 C Certificates is the document which gives information about the names of all legal heirs of deceased occupant or the name of the deceased "other right holder." Names of the heirs with whom land is in actual possession. ("Occupant").

7) Village Form No. 8: This Form gives account details of the holder of land in respect of various lands held by him in the said village.

8) Property Registered Card: A property card provides information about the ownership of a property and history of holdings of a land located in urban area. Most of the developers, local governing bodies and investors seek property card of the owner before closing a deal. This document is also used in court litigations related to land within city limits.

9) Encumbrance certificates: it ensures that the property is free from any legal and monetary liabilities. An EC shows whether in a given period of time from when the property was bought or sold there been any transaction or mortgaging or not. It gives details to the buyer of all property transactions and charges created till date.

10) Commencement certificate (for under construction property): A Commencement certificate is a legal document issued by the local authorities after the inspection of the site. Non availability of Commencement Certificate will result in the construction being considered illegal, levy penalties and can even attract an eviction notice.

11) Completion certificate (for a constructed property): A Completion Certificate is issued by the municipal authorities denoting that the building is in compliance with their rules in terms of height, distance from the road, and is constructed as per the approved plans etc.

12) NOC from Electricity Department/Pollution Control Board/Water Works/ Air Port Authority- To ensure government approvals are in place a no objection certificate from all the government Departments is required. NOC from revenue authority for the sale of the said land is also required.

 

Note-This list is not exhaustive and there might be other documents that needs verification.

 

Image source:

http://www.crowddd.com/images/blog/6a155f9f17a89582454be953fbf9c3e1.jpg

 

 

 

 

 

 

 

 

 

 

 

 

Tags: due dilligence , land purchse , sale deed , mother deed , land records , khata extract , property registered card , encumberance certificate , commencement cerificate , ceiling limit , completion certificate , NOC


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