DEVELOPING THE PROPERTY THROUGH JOINT VENTURE

DEVELOPING THE PROPERTY THROUGH JOINT VENTURE

Urbanization has accelerated migration of people to the nearby cities in search of jobs and other means of livelihood. This increased influx of population to the cities has in turn created paucity of residential accommodation. The employees prefer to have accommodation near their job centres for obvious reasons. This has resulted in vertical growth of cities instead of lateral growth. Vertical growth saves lot of land and can accommodate a large of number of families in a limited space. But, vertical development of land requires heavy investment which an individual cannot generally invest and thereby the joint venture activities.

What is meant by Joint Venture?

The words “Joint Venture” is described as “a business activity by two or more people or companies working together”. Many times an individual may own some land, but may not have funds to fully exploit it. Similarly a builder/developer who has resource may need some land to employ his resource profitably. For vertical development of land which comprises of a number of flats lot of money, manpower and expertise are necessary all of which an individual cannot possess. More over, unlike in the case of construction of independent house, the group housing or construction of apartments is more complicated. It requires approval from various agencies like water supply board, sanitary department, electric power supply board, Airport Authorities, Pollution Control Board, Survey Department, Telephone Department, etc. The group housing project also has to get through a much stricter compliance of procedure for obtaining project loans from the banks.

Thus, for a joint venture project, the owner and the developer join hands to develop the land for the benefit of both. To avoid the likely disputes, misunderstandings between them and for smooth completion of the project, they enter into a Joint Venture Agreement wherein details of the terms and conditions are spelt out in unambiguous terms. The development agreement must be in writing and needs registration.

What does a Joint Venture Agreement contain?

A Joint Development Agreement generally contains the intention of the parties to develop the land, sourcing of funds, time schedule for completion of the project, apportionment of the developed property/flats between the land owner and the builder, commitment of the promoter for adherence of the statutory requirements, expenses to be borne for getting the statutory permissions of the competent authority, finding the prospective purchasers, common areas and facilities specifying the percentage of undivided interest in the common areas and facilities available to each flat owner, type of use of the apartment building, penalties for non-adherence of the terms and conditions by the parties etc. In short, the Joint venture agreements clearly stipulate the duties and responsibilities, obligations and rights of land owner and the builder.

PROCEDURE FOR JOINT DEVELOPMENT:

After examination of the property of the land owner, the developer puts forth his intention to develop the property. This offer basically consists of the percentage of the built up area which shall be offered to owner towards cost of the land and the amount of refundable or non-refundable security deposit to be deposited by the developer with the land owner. The percentage of area or flats offered to the owner is arrived at after taking into account several factors such as cost of the land, cost of construction, escalation in cost of construction, cost of obtaining approvals for the building, marketing and administrative expenses and most importantly the selling price of apartments in that area.

If the offer is attractive, the land owner will give his acceptance and hand over a copy of the title documents to enable the builder to get the same verified by his Advocate.

If the builder’s Advocate approves the title, a draft copy of the Joint Development agreement laying down the terms and conditions of the development is given to the landowner who generally gets it vetted by his Advocate before giving his consent.

Upon finalization of the Joint Development agreement, the same is registered upon payment of the prescribed fees. This agreement is signed by both the builder & land owner and thereupon the builder pays the first installment of refundable security deposit to the landowner. Along with the Joint Development Agreement, the landowner also gives a Power of Attorney to the Builder to enable him to apply for various approvals needed for the construction of apartment building and to sell the apartments falling to the share of Builder.

The builder gets the plan prepared by an Architect taking into account the requirements of the landowner. Once the plan is ready and approved by the landowner, the same is submitted for approval of the Government authorities. All the procedures, formalities and costs for approvals are taken care of by the builder.

After the plans are submitted and approved, the builder takes possession of the land from the owner. At this stage, the remaining balance of refundable advance is paid to the landowner.

On receipt of the approval of the competent authority, the builder commences the construction and notifies for public the availability of flats for sale.

Builder’s share of apartment will be registered on completion of the building in favour of the purchaser. In respect of the apartments falling to the share of the land owner, the land owner may retain some apartments and sell the balance according to his wishes. The landowner may sell his apartments when the construction of the building is nearing completion or after completion or even earlier to this. The builder can sell the landowners apartments after the consent of the land owner and pass on the consideration to the landowner as and when the same is received from the buyers. When the landowner’s flats are sold and full payment is received, the landowner will register these apartments in favour of the buyers.

On completion of the project, the flats retained and unsold by the landowner are handed over to him. The security deposit deposited by the builder will be refunded to him. The builder and the land owner will facilitate the formation of a Flat Owners’ Association and upon formation of such an association, the title documents of the property will be handed over to the Association.

FACTORS CONSIDERED BY THE BANKS FOR SANCTION OF HOME LOAN

FACTORS CONSIDERED BY THE BANKS FOR SANCTION OF HOME LOAN

It is very difficult to construct house without availing housing loan. There are various banks and Housing Finance Institutions (HFIs) which provide housing loans. In spite of existence of these agencies, availing housing loans may not be an easy task. Though banks and financial institutions do have a positive approach in matters concerning housing loans, they would be handicapped to entertain any application for housing loan unless and until the applicant has good and marketable title over the property and has complied with the requirements of bank for sanction of housing loan. Therefore, the primary requirement which a borrower of housing loan has to fulfill is to comply with the procedural requirement of the lending institution with necessary supporting documents and proving the marketable title of the property.

Types of Housing Finance/Loans

Banks and financial institutions entertain applications for grant of housing loans for purchase of site, ready built house or flat, for construction of house, renovation and repair of house etc.

a] Loan for purchase of land –Though most of these institutions do not welcome applications for grant of loans for house sites because of the risk involved in these transactions are more than those in other types of loans. Still banks and financial institutions do grant loans for house sites.

b] Loan for House Construction – Generally, a large number of people get loan from the banks and financial institutions for construction of a building as per sanction plan.

c] Composite Loan – Under composite loan, banks and financial institutions grant loans for both buying the site and also for constructing a house thereon under a single application.

d] Loans for renovation or repairs - Banks and financial institutions grant loans for renovation or repair of the existing house upon being satisfied with the property documents and the repaying capacity of the borrower.

e] Loan for purchase of ready built house or Flat – Banks are not averse to grant loans for purchase of ready built house or flat.

f] Take over Loan – In cases where a borrower has already availed housing loan from one of the financial institutions or banks, but desires that the loan amount outstanding in that bank be taken over by another bank for various reasons such as low interest rate, flexible EMIs, conversion of flexible rate of interest to fixed rate of interest etc., the latter bank upon being satisfied with the title of the property and the credibility of the borrower would clear the outstanding loan amount of the previous bank by sanction of loan on the basis of the property documents already pledged with the previous bank and upon fulfilling the procedural requirements of latter bank. Once there is take over of loan, the borrower would be liable for repayment of the loan amount with interest of the latter bank.

The following are factors which are considered by the banks for sanction of housing loan:

Regular Income of the applicant

The first and foremost aspect which the Banks consider before entertaining the loan application is to know whether the applicant has the regular monthly income or not. For this purpose, in the case of salaried persons, employment in a reasonably good organization with loan repaying capacity would be the criteria adopted to decide as to whether the borrower could be considered for grant of housing loan or not. In the case of self employed or businessmen, the duration of their standing in the profession or business, their financial status etc., would be considered before entertaining the application for housing loan. To arrive at the quantum of loan permissible, the Banks will take into consideration the income declared in the I.T. return for the last three years, bank statements for the last 6-12 months and other relevant documents. The financial transaction statements issued by the bank will disclose various relevant information such as outstanding loans and repayment, if any, details of bounced cheques, if any, regular credits of income, subsisting encumbrance if any etc.

Credit Rating

In the case of salaried people, loan will be sanctioned on the basis of the present net salary and only 50% of the salary amount will be considered by the Bankers for loan repayment purpose. For instance, if the applicant is getting Rs. 10,000/- PM take home salary, loan will be sanctioned taking into consideration 50% of the salary only. The Banks will also look into the total number of dependents of the applicant to ascertain his repayment capacity. If the dependents are more, the loan amount sanctioned will be obviously less. In addition to this, the applicant’s antecedents are also thoroughly checked before sanctioning the loan. Similar criteria will be adopted in the case of self employed and business people. To make doubly sure of repayment of loan by the borrower, in many cases, the banks do insist on providing a guarantor for the loan sanctioned.

Age Factor and joint applications

Banks do not generally entertain applications for repayment of housing loans beyond the age of 65 years. In other words, housing loans are to be cleared before the borrower attains the age of 65 years. To entertain applications for sanction of higher housing loans than normally admissible to an applicant, banks do consider joint applications and sanction housing loans by considering the income factors of both the borrowers. Be that as it may, no applications from person with irregular and uncertain monthly income will be entertained by the banks for sanction of housing loans.

Property age

The age of the property is the primary deciding factor for sanction of housing loans in respect of old buildings. For sanction of housing loan for purchase of old buildings, the banks consider the conditions of the building, date of construction etc. But no housing loan is sanctioned if these buildings are of more than 50 years old. In addition to this, the property which the borrower intends to purchase should be within the geographical limits approved by the Banks for sanctioning the loan. If the applicant intends to buy properties situated in the areas which are black listed by the Banks for various reasons, no loan whatsoever would be sanctioned, irrespective of borrower’s financial status.

Legal Scrutiny

When once the banks are satisfied with the status and the repaying capacity of the borrower, the banks do collect copies of the property documents for examination and opinion from their expert body. The bank’s advocate shall examine the title of the property right from its origin, flow and the present status. If the title is not clear, the application will not be entertained. The Banks will not sanction the loan even if the opinion is clear but the supporting original documents are missing since it may conclude that the property is either mortgaged elsewhere or having some other problem.

Margin Money

Usually, Banks provide the loan to an extent of 85% of the total estimated amount of the plot or property or flats. The remaining 15% has to be arranged by the applicant and the loan will be sanctioned by the bank only after giving satisfactory evidence regarding his capability of mobilizing that 15% of the balance amount. The actual market value and the percentage of depreciation of the property will also be taken into consideration before the sanction of the loan.

Negative List:

As sanctioning of housing loans is left to the wisdom and sweet will of the banker, some of the multi-national banks do not entertain the loan applications from artists, police, journalists, politicians and advocates.

Presently the banks have stringent instructions on the grant of housing loans from the Reserve Bank of India and the Finance Ministry. In spite of this, banks do entertain good proposals for grant of housing loans.

OPTING FOR THE RIGHT HOUSING LOAN FINANCIER

OPTING FOR THE RIGHT HOUSING LOAN FINANCIER

The dream of every person on this earth would be to own a house in his life time. with so many financial institutions around, getting a housing loan has become very easy and in fact the aspirant thinks it is a boon. his desire to construct a house drives him crazy to the extent that he may blindly sign any document to get the loan even without reading the loan document. Seeing the present trend, it is quite clear that banks and financial institutions are ready and more interested to provide housing loans. a notable fact here is that there is no prescribed norm or procedure of either RBI or Indian Bankers Association as far as housing loans are concerned except timely cautions to the banks in respect of over exposure to the housing loan and interest rates. 

Each bank has its own type of documents related to housing loan and many a times, the applicant is kept in dark about the documents required and the procedures followed for the purpose of housing loan. The Financial Institutions make the borrower to submit himself and gives him no choice other than to accede to its terms and conditions. On many occasions, the applicant is made to sign the documents on the blank papers and also on blank cheques which is highly irregular and it is also not advisable.

There is a meteoric growth in the housing and building construction sector and one of the main reasons is the easy availability of housing finance to all income groups.

MAIN CATEGORIES OF HOUSING FINANCE

Housing Finance Companies, old scheduled banks, and New Generation banks form the three main categories of the housing finance. Though housing finance companies are also in the fray, the competition between the Old Scheduled banks and new Generation banks are rather stiff and both of them have their own positive and negative aspects.

OLD SCHEDULED BANKS

All the nationalized banks and private scheduled commercial banks which are rather old can be categorized under the above head. The process to sanction the loan takes a lot of time. But the advantage in these banks is the transparency factor where the transactions are lucid. Original documents need to be deposited in the bank once the loan is cleared.

NEW GENERATION BANKS:

There is a radical change in the functioning of the New Generation Banks when compared with old scheduled commercial banks. They are not very particular about the title or the valuation of the property, and the loan is released irrespective of the registration value of the property. The major disadvantage while dealing with these banks are it is next to impossible to get all the details of other charges imposed by the bank as in many cases they are handed over for outsourcing. There would be a long wait to get back the original documents despite clearing the complete loan amount as the documents will be preserved in some other metro city.

Direct Selling Agents or DSA act as a commission agents between the borrower and the new generation banks. They market the products of the financial institutions on a commission basis which will be charged on the loan of the borrower as service charges. Their job will be to get you the cheque of the loan and once they do that, they will forget the borrower all together as the business relationship with the borrower would come to an end. They are just agents who want to solicit business and make every attempt to satisfy their principle company and to get their commission. Once that is done, it is the transaction just between you and your financier.

Hidden cost:

The borrower should be more prudent and ensure that what other fees are to be paid apart from interest on the loan. In most cases, huge fees are charged other than the interest amount thereby nullifying the benefit of lower interest rates. The other fees may include processing fee, legal fee, administrative fee, inspection charges, notice charges, etc. Each bank has got its own technique and methods to collect various other charges from the borrower.

Selecting the financier

Even though there are plenty of home loan lenders, it is always difficult to select the right lender. The borrower should not get carried away by the attractive schemes and colorful advertisement which is just an eyewash. There are a set of parameters which plays a major role in deciding the proper and reliable home loan lender.

It is always advisable to choose the lender whom you know for sometime and also the antecedents of the lender. This is because in a long period of loan repayment of 10-20 years, there is a chance of getting EMI default due to various reasons viz. illness, social commitment, death, job shifting etc. If such a thing happens, the financier with whom you have borrowed the loan may take severe steps and slap hefty fines, interest, and legal notice and may even resort to intimidation. Further, the Securitization and Reconstruction of Financial Assets – Enforcement of Security Interest (SRAFESI) is very strict and if the default of the EMI continues for a period of three months, the account will be considered as a Non performance Account (NPA). The banker will send 60 days notice under the SRAFESI Act. After the expiry of 60 days, the possession of the property will be taken by the financial institution and the property will be auctioned. This may be avoided to a certain extent if the lender is a known person to the borrower and may take a bit lenient step by giving the borrower some breathing time to clear the loan.

Interest Rates

There are normally two types of Interest rates viz. Floating and fixed rates. It is advisable to opt for the floating rate as it goes down further from time to time and the bank will notify duly about the loan amount charged every month and the new EMI is less than the previous month.

Now even fixed rates have increased. Fixed rates are easy to calculate the EMI for entire period of loan. When the rates are falling, it is advisable to go for floating interest rate but fixed rates are always better to make a commitment for your lender for entire loan period.

These days, the Housing loan interest rates are getting increased by all the banks and Financial Institutions.

Negative list

Each home loan financiers have their own set of rules for providing housing loan. There are some home loan financiers who do not encourage professionals like film artists, TV artists, police, journalists, politicians, Advocates, self employed who do not possess bank statements or who can influence their position and create trouble at the time of repayment. It is better to approach banks who do not ask for income proof or a guarantor.

Track record of the financiers

It is quite common these days to hear about the confiscation of the property by the banks whenever there is any default of the EMI. Some of the banks employ Goondas and anti-socials elements to recover the property through illegal way.

Even though the rate of interest may be a tad above the other financial institutions, it is advisable to opt for such an institution where there is a good policy and customers are treated with respect.

However, it is a good practice to receive acknowledgement of all the original documents you hand over to the lender.

BUILDING BLOCKS FOR YOUR HOME

BUILDING BLOCKS FOR YOUR HOME

India is a vast country, having a population of more than 1000 million. Many are without shelter of their own. After independence, the successive governments have addressed this problem with various government-sponsored programmers. They targeted the poorest of poor and houses with barest facilities were provided.

The problem was too gargantuan to be met by the government alone. The government of India established National Housing Bank, under the supervision of Reserve Bank of India. Scheduled Commercial Banks, Co-operative Banks, were also directed to lend for purchase/construction of houses. In the beginning 1.5% of incremental deposits of commercial banks were earmarked for housing finance sector during the year 1988, which was enhanced to 3% during the year 1999 and subsequent years. The banks were given freedom to exceed this stipulation depending upon their resources. The slow down of economy, slump in the demand for loans from corporate sector goaded banks to aggressively market housing loans. In course of time, banks have overtaken the housing finance companies in the market. The easy availability of finance, the tax benefits extended by the Union Government and increased earning/spending capacity of middle class, mostly wage earners, have fueled the growth of this important sector.

Change of Mindset

Owning a house, previously was the last priority, mostly at the time of retirement from out of the terminal benefits savings as one could rarely find the means of finance for the purchase/construction of house. This mindset is changed. Youngsters in early twenties are earning substantial salaries with increased spending capacity. They prefer to own houses out of borrowed funds which is repayable over a period of time. This helps them to avail of lower interest rates and also tax benefits for longer period.

Eligibility

The repaying capacity is the single determining factor. There must be regular monthly income with enough surplus to meet the monthly repayments. The maximum age limit is 55 years which may be extended to 60 years in deserving special cases. If the applicant is more than 50 years, any of the legal heirs may have to join as co-borrowers. Salaried person should have a confirmed job with at least minimum five years of balance service. Professionals like Advocates, Doctors, Engineers, Chartered Accountants, Company Secretaries etc, should have established income of at least three years. Retired persons / pensioners are generally not entertained to avail the Housing Finance. Further rental income can be added for eligibility for higher loan.

Legal Scrutiny Report and Valuation

It is very important to have legally established ownership of the property to avail of the Housing Finance. The applicant should have all the documents to establish his title to the property. He should verify the documents available with him/or with the seller and perfect the title to the property. Financing Institutions will rely on the legal scrutiny report of their advocates on panel. In view of the severe competition in the field, many institutions are ignoring the importance of the legal scrutiny and title to the property and are giving much importance to the repayment capacity

Apart from perfect title to the property, valuation of the property is also very important based on which the loan component will be determined. Banks have approved valuers on their panel who will value the property and arrive at the market value.

Loan Amount

Many institutions have a maximum ceiling of one crore-per party. The loan depends upon the cost of construction, land purchase cost, stamp duty, registration charges, legal charges and also other additional expenses. The borrowers may have to bring in 10 to 15% of the cost as margin money. There are institutions which finance full cost without insisting on margin money. In addition to these parameters, the income of the applicant, repaying capacity of all the borrowers are considered.

Repayment Schedule

The loan is to be repaid in monthly instalments comprising of interest and principle called equated monthly instalments (EMI). The amount of repayment remains the same during the entire tenure of the loan.

In case of construction, the loan amount is disbursed in instalments depending upon the progress of construction. The regular repayment commences after the completion of construction or after expiry of certain stipulated time. Interest for intervening period from the date of loan to the commencement of equated monthly installment is called pre-EMI. This has to be paid quarterly or monthly.

Though repayments offered vary upto a maximum of 20 years, it is preferable to avail of the period of 10-15 years considering the interest rates, tax benefits and repayment capacity. The repayment period of 5 years attract heavy monthly instalments, which prove to be burdensome; in repayment beyond 15 years, one has to pay heavy interest. There are institutions, which offer repayment period beyond 20 years also.

Certain banks have special schemes under which any surplus amount available may be paid in excess of equated monthly instalment with facility to with draw such amount in case of necessity. The account operates like a current/over draft account. This would be useful for business people. Such schemes are called Home Loan Saving Schemes where by paying off the loan early substantial amount of interest is saved.

Recently, the repayment has become flexible to suit the borrowers. Step up payment is useful to young borrowers where EMI in the beginning is small which increases as the income of the borrower grows. Step down payment is useful for aged borrowers where EMI will be more during the beginning and goes on reducing as the income diminishes.

Interest

At present loans are available at 9 % interest. There are two different types of interest rates floating and fixed.

Floating Rate

Here the rates are not constant, but keep on changing. These are linked to the market conditions. They may increase or decrease. The lending institutions are very reluctant to pass on the benefits of reduced interest rates to borrowers. They adopt different strategy to keep the borrowers paying higher rates. In most of the case the old borrowers pay higher rate than a new borrower for a similar loan.

RECTIFICATION OF PROPERTY DOCUMENT

RECTIFICATION OF PROPERTY DOCUMENT

Documents of immovable property should depict the correct title of the present owner and should be free from mistakes if the owner of the property is to have peaceful possession and enjoyment of such property. However, in spite of great precaution, many of the documents do contain mistakes. Mistakes noticed in a document after registration can be corrected only by execution of a rectification deed and not by tampering with the original documents. However, the mistakes noticed in a documents before registration can be corrected under the signature of the concerned person.

Types of mistakes

It is difficult to specify the exact type of mistakes which a document may contain. There is no uniformity in the types of mistakes in a property document. Some documents may contain mistakes relating to boundaries of the property, measurement of the plot while some other documents may contain mistakes relating to the location, survey numbers, municipal numbers, description and number of floors, names of parties, consideration amount, absence of easementary rights clause etc. In one of the cases, it is noticed after the purchase of the property that the measurement of the site has been wrongly spelt in the sale deed showing East to West 40’ and North to South as 30’ instead of East to West 30’ and North to South 40’ and thereby the sale deed became defective and the purchaser was handicapped to deal with the property as he liked without a rectification deed rectifying the mistake in the measurement. This type of mistakes could be termed as mistakes due to negligence. Before registration, if the parties had compared the measurement and the boundaries of the property the need for execution of rectification deed would not have arisen. This type of mistakes are very common and do occur due to non-verification and comparison of the sale deeds with the records of the revenue authorities or due to ignorance or laxity on the part of the parties to the transaction or the middlemen involved therein. But, whatever be the reason, the mistakes in the sale deeds do require rectification if the purchaser has to enjoy his property without litigation or disturbance and to have a clear marketable title.

Rectification deed

Such mistakes, errors in the deeds require to be corrected by execution of a supplementary document called “rectification deed”. Rectification deed is a document executed between parties for effecting corrections of the mistakes of facts / typographical errors which are committed in the original/principal deed. Rectification of deeds is supported by the various canons of law and is an equitable relief usually granted by Courts of Equity and is based on doctrine of mistake of fact. Once a rectification deed is executed, it shall have to be read as part of the original sale deed and copies of the extracts of the revenue records indicating the fact of execution of rectification deed are to be obtained and preserved along with the sale deed and the rectification deed.

Pre-requisites

In order to execute a deed of rectification, there must be bonafide mistake whereby the original deed does not reflect the true intention of parties to the said deed. More importantly the mistake should pertain to the facts and not for application or interpretation of law. However, there is an exception to this rule. The mistake of foreign law is considered as mistake of fact. Section 21 of Indian Contract Act is relevant in regard to this.

When the parties to deed agree to modify, add or delete any terms referred to in any original deed executed by them on a prior date, to bring out their true intentions, it is necessary to reduce such correction into a duly executed document and to pay the requisite stamp duty in order to get the same registered with the concerned authority.

Absence of mutual consent

Rectification Deeds are executed by mutual consent of the parties to the Main Deed and all such parties to the original deed should jointly execute the rectification deed. However, a problem may arise where such mutual consent is not possible. In such cases, the recourse open is to file a suit before a competent court under section 26 of Specific Relief Act 1963. This section provides for relief to parties where the real intention of the party is not properly reflected in the documents executed because of a bonafide mistake of fact or fraud. In such a case, either the party or his representative may institute a suit to have the said deed rectified. If the court is satisfied that the deed does not express the real intention of the parties, it may direct rectification of the instrument. In such cases the original deed may be first rectified and then the parties claiming rectification should seek sanction of the court to such rectification in his pleading and if the court so thinks fit, the same may be specially enforced. This relief will be granted only if it has been specially claimed in the pleadings. However, if the said relief has not been specifically claimed, the court at any stage of proceedings at its own discretion may allow the party to amend its pleadings to incorporate the said relief. This relief is entirely discretionary and when granted will not prejudice the rights acquired by a third party in good faith for value.

IMPORTANCE OF SIGNATURE IN THE SALE DEED

IMPORTANCE OF SIGNATURE IN THE SALE DEED

Testimonium is the concluding part of the Deed. This clause is incorporated in order to authenticate the execution of the instrument. It is in this part of the instrument, the parties having interest over the schedule property sign the deed, confirming their consent for the conveyance of the same apart from the parties to the deed.

In case of Companies registered under the Companies Act, 1956, the following clause is incorporated:

”In Witness Whereof, the Parties have hereto set their hands and seal the day and year first above written".

The word "Seal" is incorporated only if the parties to the deed are a Company.

In case where the parties are individuals, it is written in the following manner:

"In Witness whereof the Parties hereunto have set their hands/signatures on this Deed on the day and year first mentioned above".

While drafting an instrument, it is the usual practice that the date is mentioned in the beginning of the Deed. However, the same can be incorporated in the Testimonium clause, if it is not incorporated earlier. Where the document is written in the first person like Power of Attorney or Will, the date is mentioned in the Testimonium clause.

Execution of Signatures

After the Testimonium clause, the parties to the deed should affix their signatures. Number of signatures varies from one document to the other. In case of an agreement, it is necessary that both the parties to the deed should sign, while in case of sale deed, it is sufficient if Vendor/seller alone signs. Any person having certain right or interest on the property has to sign as Consenting Witness or Confirming Witness. Again, if either of the parties executing the deed has been represented by GPA Holder, then it is very important that the GPA Holder should sign the instrument representing the principal and not in his individual capacity. On the other hand, if it is a guardian on behalf of the minor, then that fact has to be mentioned below signature. Executant shall affix his signature at the end of every page of the instrument.

Illiterate person:

It is a well established convention that if the Executant is an illiterate, thumb impression in ink is accepted at the time of execution of the instrument. Thus, in case of illiterate males, left hand thumb impression in ink is affixed in place of his name and in case of illiterate female, right hand thumb impression in ink is affixed in place of her name. However, name of the executant has to be written either next or below the Left Thumb impression or Right Thumb impression.

In case of deed executed by an illiterate person, abundant caution has to be taken before execution of the same. It is very important that the contents and covenants incorporated in the deed has to be read out and interpreted and explained clearly in the local language well known to the Executant and incorporate the same at the end of the deed. This practice is also followed if the Executant is blind or even a Pardhanashin lady.

Thumb impression by educated person:

There are instances where the Executant who is educated and knows how to sign, uses thumb impression or mark instead of affixing the signature. In such case, the Registering Officer should object for the same and insist the Executant to sign since thumb impression is permitted only in case of illiterate person or those who do not know how to sign or not possible to sign.

Corporate Body:

If the Executant is a corporate body, the document can be signed by an Authorized Company Director or Authorized Company Secretary. However, it is mandatory that the person executing the document on behalf of the company has to be duly authorized by the Board of Directors by passing necessary resolutions. If there is no such resolution passed by the Board of Directors, the person executing the instrument on behalf of the company will not derive any legal authority to execute the same. The execution of such documents shall be governed by the rules and regulations envisaged under the Indian Companies Act 1956.

Un-incorporate Bodies:

In case of Societies registered under the Societies Registration Act, 1860, Clubs and Associations, documents can be executed by a person or persons of the society, duly authorized by the management only after passing a suitable resolution. However, the procedure involved for execution of the documents is governed by the rules, regulations and Bye-laws of the Society.

Partnership firm:

In case of partnership firm, registered under the Indian Partnership Act, one partner alone shall not be allowed to sign on behalf of all the remaining partners. In such case, it is necessary that the remaining partners authorize any one partner to sign on behalf of the partnership firm and also remaining partners. The reason being that, unlike a Company, partnership firm does not have a separate legal entity and hence a partner can neither sell nor mortgage any immovable property standing in the name of the Partnership firm without the written consent of the remaining partners. A partner can be authorized to sign on behalf of the partnership firm and also the remaining partners either incorporating the name of the person authorized to sign on their behalf in the Partnership deed itself or executed a Registered Special Power of Attorney to that effect. In either way, a partner duly authorized can execute the document representing the partnership firm.

Attestation:

Attestation means signature of two or more witnesses, each of whom has seen the executant affixing his signature or marking on the instrument or some other person signing the instrument under the instructions and direction of the Executant. However, it is not necessary that more than one of such witness shall be present at the same time. There is no particular format adopted for attestation. It is generally at the left hand side of the Deed, a heading "Witnesses" is mentioned and two witnesses should sign below the caption.

Valid Attestation:

There are three pre-requisites for valid attestation, as mentioned below:

1. There must be two or more attesting witnesses.
2. Each of them must have seen the Executant signing or affixing the mark on the document.
3. Each of the two attesting witnesses must have signed the document in the present of the Executant.

Necessity of Attestation:

Except few of the documents such as Mortgage and Will, remaining documents does not require compulsory attestation. However, it is advisable to incorporate Testimonium clause, requiring the signature of witnesses to the document in order to testify the execution of the documents if the same is denied by the Executant.

Hence, before executing a deed, it is very important to scrutinize the capacity of the Executant, as to whether the Executant is signing the deed as an individual or if representing partnership firm or a corporate body or any other bodies, necessary authorization has been obtained before signing the document. If there is any ambiguity pertaining to the capacity of the Executant, the execution of the instrument itself will nullify the legal sanctity.

ALL YOU NEED TO KNOW ABOUT A SALE DEED

ALL YOU NEED TO KNOW ABOUT A SALE DEED

Sale Deed is also known as conveyance deed. This is the document by which the seller transfers his right to the purchaser, who, in turn, acquires an absolute ownership of the property. This document is executed subsequent to the execution of the sale agreement and after compliance of various terms and conditions detailed in the sale agreement.

Before execution of the sale deed the title of the seller is to be established beyond doubt. Copies of the documents of title must be scrutinized by an advocate well versed and experienced in property dealings.

If there is any encumbrance on the property, such encumbrance is to be cleared by the seller at his cost.

All statutory payments like property tax, water and power charges and any other payments due on the property should be cleared before execution of the Sale Deed. Any previous charges or mortgage should be cleared before execution of the Sale Deed.

Clearances, and permissions which are required to be obtained by the seller should be obtained prior to execution of the sale deed.

Latest encumbrance certificate of the property, subsequent to the date of the sale agreement up to the proximate date of sale deed should be obtained and such certificate should be of nil encumbrance.

All the persons having interest in the property should be made parties to the deed. Particular attention needs to be paid in case of purchase of properties from a Limited Company, Partnership Firm, Hindu Undivided Family, Trust, Power of Attorney Holder and Minor.

Draft Sale Deed

A draft Sale Deed, containing full details of the parties, advance amount paid, mode of balance amount payable, receipt of the balance amount by the seller, handing over the original documents of the property, handing over the possession of the property, handing over the authorization letter to transfer power and water meters, signing of the application for transfer of Khatha, title of the seller of the property, indemnifying the purchaser in case of defect in the title, easement rights, will be prepared by the purchaser’s advocate. Such draft Sale Deed should be captioned as draft Sale Deed and shall be signed by the purchaser’s advocate.

A copy of the draft Sale Deed will be given to the seller for his approval. The seller and his advocate will verify the draft sale deed and approve it or may suggest suitable deletions, additions or amendments. The purpose is to bring forth the correct intention of the parties to the Sale Deed.

On approval of the draft Sale Deed, the same has to be prepared on a quality or a document paper. In Karnataka it may be prepared on good quality paper like bond paper or green paper and the stamp duty may be paid by way of demand draft or pay order or cash. The exact amount of stamp duty should be ascertained from the Sub Registrar office. Purchaser is liable to pay the Stamp duty as per value stated in the documents or as per the Sub- Registrar office value whichever is higher.

Execution

After the Sale Deed is prepared all the parties to the deed shall execute it by affixing full signature. Each page should be signed by all the sellers. Any overwriting, cancellations, erasures and additions have to be authenticated by full signature of the parties.

Execution of the Sale Deed requires to be witnessed by two witnesses. The witnesses shall give their full particulars and addresses.

Sale Deed of immovable property of value more than Rupees one hundred needs compulsory registration. The duly executed sale deed should be presented at the jurisdictional sub-registrar office. All the parties, including the confirmation witnesses shall be present at the time of registration and admit the execution. Purchaser also has to be presented for the execution of the documents at the Sub Registrar’s office. In case the purchaser is not in position to be present before Sub Registrar, he can give Power of Attorney to any of his persons to sign and present the documents on his behalf. In case the seller signs the Sale Deed, it is compulsory that only the registered Power of Attorney holder can represent him to present the documents before the Sub-Registrar.

Registration

In Karnataka, the Sub-Registrars office, take the photos of purchaser, vendors, witness and also their thumb impressions and print the same on the Sale Deed.

The vendor has to produce all the original documents pertaining to the property to the purchaser. If the property is divided into one or more portions, the seller has to give certified copy or Xerox copy of the documents to the purchaser and has to give declaration to that effect. Generally, the larger portion holder should get the original documents.

There is a time limit for presenting the documents for registration. The time limit is four months from the date of execution. Thereafter a grace period of another four months is allowed on payment of penalty. The maximum penalty is ten times of registration charges.

At times, the registering authorities may dispute the stamp duty paid. In such cases, the purchaser has an option of paying the additional stamp duty by way of cash or pay order. The purchaser may contest it in which case the Sub Registrar will keep registration pending and send it to the Registrar of Under Valuation to arrive at the proper Stamp Duty.

Parties have to quote their Income Tax Permanent Account Number in case the transactions are done in cash for the property which values more than Rs 5,00,000. Parties, who have not yet been allotted Permanent Account Number, will have to file Form No.60 or Form No. 61 in case of Agriculturists. The purchaser’s advocate has to take all the precautions while preparing the Sale Deed. It is a most important document and decides the fate of the purchaser. The purchaser has to preserve the Sale Deed very safely.