Any land parcel, building, part of the building, or anything that is attached to the earth permanently, except standing timber, growing cross or grass, come under the category of Immovable Property as per the Transfer of Property Act, 1882. There are certain rights laid out for the person owning the immovable property such as right to collect rent, right to collect dues, right of ferry, right of way, right of fishery or factory etc.
Promoter is a person who is responsible for promoting a real estate project. Promoter is not only involved in new constructions, but is also responsible for conversions of prevailing buildings, plotting of land, commercial construction, contractor and estate development. He holds the power of attorney from the land owner or developer.
The duties of a Promoter include, but are not limited to:
- Registering the project under RERA
- Creating a web page on the website of RERA to make the required details available to public.
- Creating a web page on the website of RERA to make the required details available to public.
- Maintaining transparency regarding the stage-wise schedule of project completion including provisions for civic infrastructure like water, sanitation, and electricity.
- Obtaining the Completion Certificate and Occupancy Certificate.
- Obtaining the Lease Certificate if the development is happening on a leased land.
- Refunding the amount in case of failures or delay in possessions.
The Developer can be an individual or a limited company responsible for developing the property and then selling it, leasing it, renting it out or reselling it. A Developer could be an owner and contractor of the project or could just be a project owner.
Responsibilities of a Developer include, but are not limited to:
- Ensuring that every project has a clear title.
- Getting all the legal, statutory and regulatory clearances.
- Securing required finances from funding institutions.
- In case of delays, returning the money with interest to the investors.
- Ensuring minimum delays in projects.
- Assuring quality construction and services.
- Updating the customers about the stages of completion.
- Ensuring adherence to the Master Plan that was advertised and the same to be marketed.
Until 2016, investors or buyers often felt cheated as there were no laws governing the real estate industry. To monitor unfair practices and safeguard the buyer, the seller and the agents, and to boost investments in the real estate industry, set of regulations were established and came into use widely post 2016. The Real Estate (Regulation & Development) Act, 2016 is an act instated by the Parliament of India that establishes state-wise regulatory authority (Real Estate Regulatory Authority - RERA) that not only monitor the developments and bestow certain rights and obligations on the buyers, sellers and agents, but also speeds up the process of resolving disputes.
The bill was passed by the Rajya Sabha and Lok Sabha in March 2016. The RERA Act came into force on 1 May 2016 with 61 of 92 sections notified. The remaining provisions came into force on 1 May 2017. The RERA, 2016 has provisions and information for – Preliminary, Registration of Real Estate Project and Real Estate Agents, Function and Duties of Promoter, Rights and Duties of Allottee, The Real Estate Regulatory Authority, Central Advisory Council, The Real Estate Appellate Tribunal, Offences, Penalties and Adjudication, Finance, Accounts, Audit and Reports and Miscellaneous.
To get a detailed view of these provisions, visit the respective state RERA websites. For example MAHA RERA (https://maharerait.mahaonline.gov.in/) is the regulatory authority for the state of Maharashtra.
An Allottee is a person to whom something is allotted. With reference to the Real Estate Regulation and Development Act, 2016 (RERA), it is “a person to whom land parcel, a building or an apartment has been sold, allotted or transferred by a promoter.”
As per the stated bill, a person staying on rent is not an allottee. For a person to acquire an allottee’s status, he or she has to follow the prescribed sales process, which may include some monetary aspects against the transaction cost and registration charges. Allotment papers are pivotal documents and will help you in future in case of any ownership conflict.
An acre is a unit of measurement of land in the United States Customary and British Imperial systems. It equals to 43,560 square feet. One acre gradually came to denote a piece of land of any shape measuring the present 4,840 square yards. It is roughly 16 tennis courts put together.
An area which is designated by an appropriate government or an equivalent competent authority for all future planned developments, under laws laid down by the Town and Country Planning, is referred to as the Planning Area.
It is essential that the planned development is in the designated planning area and the project is registered with the Real Estate Regulatory Authority, 2016. Only after which can the project be marketed and sold to a buyer. It is imperative that the developer intimates the buyer that the registered development falls under the designated planning area.
Broadly, the types of Planning Areas can be defined by the type of land such as agricultural, non-agricultural, railway land or the planning zone such as residential, commercial, plotting, mix use etc.
In order to start any real estate project, an approval from the competent authorities is required. All the details of the project are submitted to the governing authority in the form of blue prints, which include site plan, service plan, parking and circulation plan, building plan, layout and zoning plan, landscape plan, structural design plan and if applicable, permissions such as environment permission. Post approval, these collectively are known as Sanctioned Plan.
The promoter has to adhere to the Sanction Plan. The authorities have the right to penalize the developer or give orders to demolish the property in case of any non-compliance. Sanction plans were introduced to keep a tab on unorganized and illegal construction or renovation. Post the RERA Act, 2016, the promoters can alter the original layouts and sanctioned plans as per their requirements in an under construction property only after informing the buyers and taking necessary approvals from them.
Carpet Area represents the entire internal usable floor area of a property, excluding the terrace, balcony, utility area, duct, area covered by walls and any other space that demarcates the usable area of the property.
The Built-up Area is the total area of the property that includes the complete usable area i.e. the carpet area, wall thickness, balcony, terrace, ducts and utility area. It is usually 10 – 15% more than the Carpet Area.
Common Area is the area inside a developed property that is owned and used by all homeowners by paying a maintenance charge. All the owners have equal rights to collectively own these areas. Such areas often exist in residential or housing societies, gated communities, condominiums and malls. Common areas include corridors, lobbies, elevators, parking lots, landscape areas, recreational areas, stairways, club house etc.
FSI or FAR
Floor Space Index (FSI) or Floor Area Ratio (FAR) gives the maximum permissible construction that can happen on a land. If a developer wishes to build over and above the permissible area of construction, the authorities can give permission to do so for an additional fee called as the ‘FSI fees’. The additional FSI is called as ‘Premium FSI’ and the developer can use it to provide additional facilities like private terraces, flower bed, garden etc.
Increase in FSI will also impact the home buyers. More FSI means the common amenities like club house, pool, lifts, water, electricity etc. will be shared by more people particularly in the high density buildings. This will eventually lead to an increase of the maintenance cost which is paid by the buyer.
Building Bye Laws
For the development to take place in a controlled and organized manner, certain set of rules have been laid down by the Town & Country Planning Organization from the Ministry Of Urban Development. These laws regulate coverage, height, architectural design and also incorporate provisions of structural safety, fire safety, sanitation facility for visitors, conservation of heritage structures and barrier-free public buildings. All these aspects play a pivotal role to protect buildings against natural disasters such as earthquakes and hazards such as fire as well as structural failures. The Building Bye Laws vary from State to State and are also governed by the nearby prominent places. For instance, the area around the airport, within a certain radius, will mandate a height restriction.
For the builder to begin any construction, a certificate from the local municipal authority is required. Once the developer has met the legal requirements and obtained relevant sanction plans for the building, a Commencement Certificate is issued.
It is advised that a home buyer should not invest in a property if the developer is unable to produce a valid Commencement Certificate for it. One must also check the floor being mentioned in the Commencement Certificate, which he wishes to buy a property or home on. If not checked, one can run the risk of being an owner of an illegal property and may face monetary loses in the form of payment of necessary fines.
For a property to be occupied by the buyer, an Occupancy Certificate or OC is a must. This is issued by the local government authorities. The OC states that the property has been created as per the norms and plans that were approved by the respective government authorities. The certificate is like a verification document of the property stating that the building is well equipped with basic civic needs like water supply, sanitation and electricity. A buyer has the right to ask for an Occupancy Certificate from the developer.
In simple terms, the inability of a developer to obtain an OC indicates that the property has not been constructed as per the stated norms and that the property is unsafe to be occupied.
Agreement to Sell
The term ‘Agreement to Sell’ is commonly referred to as ‘Sales Agreement’ or ‘Purchase Agreement’ in the real estate sector. The intention of a developer to sell the property in exchange of money is known as ‘Agreement to Sell’. This is an enforceable contract in which the terms and conditions of the sale are verbalized. This agreement safeguards both the developer and the buyer, offering them risk protection in case of any intentional or unintentional consequences. These terms and conditions are mentioned in a legal document so that none of parties involved can create any conflict. This document outlining the terms of transaction is the Purchase and Sale Agreement.
Real Estate Agent
A person working under a licensed broker responsible for real estate dealings is known as a Real Estate Agent. An agent can represent a seller or a buyer of the property. Sales negotiations, managing the documentation required and closure of the real estate transactions is the primary role of a real estate agent. It is advisable that a buyer or the seller go through a licensed broker for the property dealings for a written definition of an individual state's laws of agency. Many States require written disclosures to be signed by all parties outlining the duties and obligations.
Whenever we are buying something that has a big ticket size, the flexibility of paying that price in parts comes into picture. Terms like Advance Amount or Token Amount represent the money paid as a guarantee to confirm the purchase or booking of any product or property. It works the same in the real estate domain too. A buyer pays certain amount of money while striking a deal for the real estate property, which is known as the advance Payment. This advance payment safeguards the interest of the buyer who intends to purchase the property.
While buying a property, many other ancillary costs involving the legal documents related to the transfer of an asset to the rightful owner also arise. It is always advisable to the buyer to discuss the payment terms in detail with the seller. In no scenario, should the buyer give more than 10% of the total transaction value while signing the agreement for sale. By doing this the buyer safeguards him from any kind of financial risk. One should always avoid paying the entire amount upfront.
This essentially means a fixed schedule of repayment of debts over a specified duration. This schedule covers details of recurring loan payments with the principle and interest charged bifurcated in EMIs, till the entire loan is re-payed.
A property is given an Absolute Title or Clear Title, when the owner has complete authority and ownership of the land or building without any possibility of someone else claiming any rights on it. The property has to be free of any previous liens (if the previous debts are not paid off, a person has the authority to keep someone else’ property), attachments, or encumbrances. One will only be able to mortgage, lease out or sell a property if it has a clear title.
This insurance provides protection against any liens that could be placed against a property. Before issuing this insurance, a thorough check of public records is done to confirm the complete ownership of the property i.e. title insurance will only be issued if the property has an absolute title.
Breach of Contract
The buying and selling of property will always have some terms attached that are penned down in a legal document. Breach of Contract is any violation of the terms mentioned in it.
The breach could be of two types namely:
- Material Breach:
When the actions of or the failure to act in time by the breaching party result in not getting the desired outcome that the non-breaching party had negotiated for it is called as a Material Breach.
- Non-material Breach:
When the breaching party violates minor norms or certain tangible conditions mentioned in the contract. In this type of a breach, the non-breaching party is eligible for compensation after generating valid proofs supporting the damage caused by the breach.
It is important to understand the potential of the land or property as real estate appraisals do not happen frequently. There are various factors influencing the rate of a land or property, with location being one of the major aspects governing the valuation. For example, if the property is located in an area which is booming, the value of the development is likely to proportionally increase in value. Other factors influencing the valuation are upgrades and improvements to the land or property. This process of evaluating the property basis various factors and developing estimation about it is called Valuation.
A Credit Score is a statistical three-digit number that evaluates a consumer’s credit worthiness. Potential lenders, such as banks and creditors, use Credit Scores to evaluate the probability that an individual with repay his/her debts. The Credit Score is calculated between 300-900 and the credibility or status is most commonly explained as below:
740-799: Very good
While the individual lenders can have their own specific parameters, the most commonly considered factors for the calculation of Credit Score of an individual are:
- History of Repayment
- Utilization of Credit
- Number of Inquiries for Credit
- Number of Loans Availed and Applied for
- Credit Mix
It is important to remember that higher scores mean that an individual has shown responsible credit behaviour in the past, which is a good sign for potential lenders as it gives them more confidence when evaluating a request for credit. There are different Credit Score calculating models and the ones mostly used by potential lenders are by CIBIL TransUnion, Experian, CRIF High Mark and Equifax.
As the name signifies, a Freehold Property is one where the owner owns the building and the land that it is built on outright, that is in perpetuity. The owner of a Freehold Property can use the land in question for any purpose, in accordance with the local regulations. When a Freehold Property is sold, consent from the State is not required and the paperwork is also negligible, thus, the property in question becomes more expensive than leasehold property.
Such a property can be inherited by the legal guardian and there are no restrictions on the owner to further transfer the property. In case of transfer, a Sale Deed will be required.
The term Bare Shell is used to refer to a property after completion of construction activities and installation of basic services. A Bare Shell property includes basic flooring – mosaic, cement or tiled and plastered walls along with the water outlet and electricity in-let facilities. In some cases, the bathrooms and kitchen will be in usable condition too.
In the case of a commercial set-up, the builder may also install water sprinklers and have air-handling units and fire safety equipment in place. Some builders prefer to offer buyers Bare Shell properties as most of them like their homes to be a reflection of their own unique style.
Force Majeure is a clause that is mentioned in the contract between a builder and a buyer. It is recognized under the Indian Contract Act, 1872 and provides a party more time to perform any obligations in events that are beyond one’s control. It is a French term which when translated means an inevitable accident or ‘Act of God’ in legal parlance. Some of the events that come under this category are unforeseen events caused by nature or human actions such as a tsunami, an earthquake, a war, a terrorist attack or an armed conflict. In a given situation, a disaster can be considered as Force Majeure if it is based on the following criteria:
- The event is unforeseen
- It is beyond one’s control
- It prevents completion of the clause/clauses in the contract
- The clause ‘Force Majeure’ is included in the contract when prepared
The COVID 19 pandemic was declared as a Force Majeure event by the Finance Minister for the Real Estate sector. The decision was welcomed with open arms by builders. Section 6 of the RERA Act 2016, has envisaged the Force Majeure condition and further states that the registration granted may be extended by the Authority in the event that an application is made by the builder in that regard due to Force Majeure.
Considered a very important document when buying a property in India, an Allotment Letter is issued by a builder or the housing authority after receiving the booking amount from the buyer. This letter is vital in availing a loan from a bank or financial institution as it mentions the amount of money to be paid to the builder/housing society. The amount that is remaining, after paying the booking amount, can be financed by the bank as mentioned on the Allotment Letter. The bank or financial institution finances the amount based on this document.
The following details are furnished in the Allotment Letter:
- Payment made
- Terms of Construction
- Schedule of Construction
- Final amount to be paid to builder
- Delivery date and the builder’s liability in case of a delay
The new order passed by the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) states that the Allotment Letter issued by the builder is sufficient proof of investment to avail tax deductions on Long-Term Capital Gains (LTCG), in the event that a property is sold.
Per Square Foot Rate
Per Square Foot Rate or Price Per Square Foot is a common metric used in Real Estate. The formula to calculate the Per Square Foot Rate is simple; it can be done by dividing the Total Cost of the house by the area of the Property. Builders often quote the Per Square Foot Rate while selling a property.
The term Clearance Area in Construction is used to refer to an area that is to be cleared of all buildings. The permission to go ahead with the same is usually promulgated by way of Government Declaration and is usually followed by acquisition of land and clearance of the area.
Gross External Area (GEA)
Gross External Area or Gross Floor Area is a term that is used to define the total area of a building measured all the way out to the external face of the external walls. The areas included under this category often include the roof, terrace, air shafts, roof hangings, utility connections etc.
A firm that acts as an intermediary between a Builder and a Buyer is known as a Broker. In this context the main responsibility of the broker is to communicate with both the parties and to negotiate and come to an understanding on an acceptable price for the property sold or purchased. In such a scenario, the broker, an individual entity or the firm that he/she represents will collect a portion of the amount discussed and agreed upon. This amount, also known as brokerage or commission, may be collected from both parties, or only from the seller or buyer.
There are different contexts in which the term Lock-in Period is applicable. It could refer to the period in which the Real Estate Developer is not allowed to exit a project, the term during which the borrower cannot fully repay the loan without a penalty being imposed or the span during which a Bank or Financial Institution is not allowed to change the mortgage interest loans.
The Government has declared that the restriction of a Lock-in Period of 3 years is not applicable to Foreign Direct Investment (FDI) in construction, in which the project or trunk infrastructure is not completed and is also not applicable to Hotels, Resorts, Educational Institutions, Hospitals and Special Economic Zones (SEZ’s).