Can you buy property through a general power of attorney (GPA)? – Know these risks

In India, buying property is a critical investment decision, involving not just financial resources but significant legal responsibilities. Many buyers and sellers seek alternative methods for property transactions, especially in Delhi-NCR and other regions, to avoid heavy taxes and compliance requirements. One of these alternatives is through a General Power of Attorney (GPA). While a GPA may appear convenient, it carries several legal complexities and potential risks. Here, we explore what a GPA entails, its uses, the limitations in real estate, and essential points for prospective property buyers.

 

What is a general power of attorney (GPA)?

A General Power of Attorney (GPA) is a legal document that grants an appointed person (or “agent”) the authority to make decisions on behalf of the property owner (or “principal”). Unlike a Special Power of Attorney (SPA), which is limited to specific tasks, a GPA provides broader powers, allowing the agent to handle a wider range of actions. In real estate, a GPA enables the appointed individual to perform tasks such as property management and handling financial transactions. This document is especially useful for individuals who are unable to manage their assets directly, such as Non-Resident Indians (NRIs) or owners who cannot be physically present.

 

Uses of gpa in property transactions

GPA is often used for:

• Managing Property: The agent can handle property-related affairs on behalf of the principal.
• Financial Transactions: The agent is authorized to perform financial tasks as specified in the GPA deed.
• Broad Delegation of Powers: The agent has flexibility in decision-making, limited to what is outlined in the GPA.

It’s worth noting that a GPA is distinct from a Special Power of Attorney (SPA), which is specific to one well-defined task, such as representing someone in a legal case.

 

Why is GPA common in indian real estate?

Transactions through GPA are common in India, particularly in areas where property is still on a leasehold basis or under development authority restrictions. Due to the following advantages, sellers and buyers find GPA transactions attractive:

1. Avoiding Tax and Fees: By transferring property through GPA, parties can avoid stamp duties, registration fees, and other taxes that a standard property sale would incur. For example, sales taxes and capital gains taxes are bypassed, impacting government revenue.
2. Legal Loopholes for Unaccounted Money: The GPA route often facilitates investments by those with undisclosed income, allowing them to purchase property without official sale deeds.
3. Immediate Sale of Restricted Property: Many urban development schemes restrict property sales until a certain period has passed. The GPA method offers a way to bypass these regulations.

 

Legal constraints of GPA in property purchase

According to the Transfer of Property Act, 1882, the sale of immovable property in India valued at more than INR 100 requires a registered document of transfer. A GPA alone does not fulfill this requirement.

However, if the GPA explicitly authorizes the agent to sell the property on behalf of the principal, and this agreement is registered, the GPA holder can facilitate the sale. Even then, the property owner must be present when the property rights are officially transferred. Only a sale deed, duly stamped and registered, is recognized as valid proof of property ownership.

 

Limitations of GPA

1. GPA does not transfer ownership rights

A GPA allows the agent to manage or oversee property-related tasks but does not confer ownership or title rights to the agent. The Supreme Court of India, in the case of Suraj Lamp & Industries Pvt. Ltd. vs. State of Haryana & Anr., clarified that property transactions executed solely through GPA do not convey ownership and cannot be recognized as valid transfers of property titles.

 

2. Legal invalidation of gpa for property sales

The Supreme Court’s ruling emphasized that transferring property through GPA is legally invalid. This decision aimed to curb malpractices such as tax evasion and the circulation of black money in real estate transactions. Consequently, property sales must be executed through duly stamped and registered sale deeds to be legally recognized.

 

3. Risks associated with GPA transactions

• Revocability: The principal retains the right to revoke the GPA at any time. Additionally, the GPA becomes void upon the principal’s death, potentially leaving the agent or any third party without legal standing in property matters.

• Potential for fraud: There have been instances where GPAs were misused to conduct property transactions without the genuine consent of the owner, leading to legal disputes and financial losses.

• Lack of legal recognition: Transactions conducted solely on the basis of a GPA may not be recognized by legal authorities, making it challenging to assert rights over the property or seek legal remedies in case of disputes.

4. Compliance with the transfer of property act, 1882

According to the Transfer of Property Act, 1882, the sale of immovable property valued over ₹100 must be executed through a registered instrument. A GPA does not fulfill this requirement, and relying solely on it for property transactions can lead to legal complications. 

Can PoA be used for property transfer?

In Suraj Lamp & Industries Pvt Ltd vs. the State of Haryana (2011), the Supreme Court declared PoA invalid for transferring property titles, stating that PoA doesn’t convey ownership rights. While states have largely banned PoA-based transfers, misuse persists. Fraudulent sellers often exploit PoA, luring uninformed buyers with the illusion of ownership rights, circumventing the requirement for formal sale deeds and stamp duty.

Why PoA misuse persists

1. Three-Step Sale Strategy: PoA misuse often follows a pattern:
   • An agreement of sale outlines terms.
   • An irrevocable PoA grants management rights.
   • A will bequeaths the property to the buyer, avoiding formal title transfer.
2. Avoidance of Legal Requirements: PoAs are commonly used to evade taxes, sidestep stamp duty, or manage property in regulated or unauthorized areas, especially where conventional sales are restricted (e.g., government-subsidized housing with lock-in periods). Some property sellers also use PoAs to sell agricultural land without conversion charges.
3. Unauthorized Colony Sales: PoA is sometimes the only way to sell properties in unauthorized colonies or unclaimed properties post-partition, where title documentation is missing. Regularization by the government later legitimizes these properties if proper stamp duty is paid.

 

Risks of buying property through GPA

Here are some of the risks associated with purchasing property through GPA:

1. Lack of Ownership: A GPA does not grant the buyer actual ownership of the property. Even if the agent has the power to manage the property, they cannot legally transfer ownership to a third party without a sale deed.
2. Legal Complications: Since GPA transactions don’t convey legal ownership, buyers can face court disputes or challenges from other potential claimants to the property.
3. Tax Evasion Penalties: Using GPA transactions as a way to avoid taxes can lead to hefty penalties if discovered by tax authorities. The Income Tax Department has stringent rules against property sales that avoid taxes, registration, and other legal compliances.
4. Revocability of GPA: GPA can be revoked at any time by the principal, or it becomes null upon the principal’s death. This can leave the buyer without any rights or claims to the property.
5. Difficulty in Property Registration: Without a sale deed, a GPA transaction cannot be officially registered as a sale with the government, making it impossible for the buyer to obtain clear legal title.

 

Risks for buyers

Buyers of PoA-transacted properties face challenges such as:

• No Mutation Rights: Municipalities may refuse ownership updates based solely on PoA.
• Difficulty in Title Security: Without a registered sale deed, ownership is not legally secured, complicating resale and financing.
• Exposure to Fraud: In cases where the property isn’t registered, others may claim ownership, leading to prolonged legal battles.

 

Possible solutions

Buyers can potentially secure PoA-transacted properties by:

• Full Stamp Duty Payment: Paying stamp duty equivalent to that on a sale deed may ease property registration.
• Irrevocable PoA Conditions: If the agent has a vested interest (like a commission), the PoA may be legally irrevocable unless there’s gross mismanagement.

Despite its risks, PoA remains prevalent, especially in unregulated real estate markets, underscoring the importance of thorough legal scrutiny and alternative secure documentation.

 

Alternatives to GPA for secure property transactions

Given the risks, it is advisable to pursue alternative and legally binding methods for property purchase, such as:

1. Sale Deed Registration: Ensure the property transaction is completed through a legally registered sale deed, which provides valid ownership and avoids future disputes.
2. Special Power of Attorney (SPA): If the buyer requires an agent’s assistance, an SPA can be used for specific tasks related to property transactions, such as representing in registration, without transferring ownership rights.
3. Hire Legal Counsel: Seeking legal advice ensures that the property transaction complies with the law, helping to avoid GPA-related pitfalls.

 

How to register a GPA for property management?

Although a GPA does not serve as a valid instrument for property sale, it can be registered for property management purposes. Here’s a simple process for GPA registration:

1. Prepare the GPA Document: Draft the GPA on appropriate stamp paper, detailing the powers granted to the agent.
2. Visit the Sub-Registrar’s Office: Both the principal and agent should be present at the Sub-Registrar’s Office (SRO).
3. Provide Documentation: Submit the necessary documents, including property ownership proof and identity proofs of both parties.
4. Witness Presence: Bring two witnesses with identification documents for validation.

While a GPA holder can manage the property, they do not have the authority to sell it.

 

Steps for buyers to verify the legal status of properties

Purchasing property in India requires meticulous attention to legal details to ensure a secure and legitimate transaction. To avoid the pitfalls associated with General Power of Attorney (GPA)-based transactions and to verify the property’s legal status, consider the following actionable steps:

1. Verify the title deed

• Purpose: Confirms the seller’s legal ownership and their right to sell the property.
• Action: Examine the original title deed to ensure it is in the seller’s name and free from disputes or encumbrances. A clear title deed indicates that the property can be legally transferred.

2. Obtain the encumbrance certificate (EC)

• Purpose: Ensures the property is free from legal liabilities, such as loans or mortgages.
• Action: Request an EC from the sub-registrar’s office, covering at least the past 30 years, to confirm no outstanding encumbrances.

3. Review the sale deed

• Purpose: Serves as legal proof of the property’s sale and transfer of ownership.
• Action: Ensure the sale deed is duly stamped and registered, detailing all terms and conditions of the sale. This document is crucial for establishing your ownership rights.

4. Check for approved building plan and completion certificate

• Purpose: Verifies that the property’s construction complies with local regulations and has been approved by the appropriate authorities.
• Action: Obtain copies of the sanctioned building plan and the completion certificate to ensure the property adheres to legal building norms.

5. Inspect property tax receipts

• Purpose: Confirms that all property taxes have been paid by the seller, indicating no outstanding dues.
• Action: Review the latest property tax receipts to ensure there are no pending payments that could become your liability.

6. Verify occupancy certificate (OC)

• Purpose: Indicates that the property is ready for occupancy and has been constructed according to approved plans.
• Action: Ensure the seller provides the OC, which is essential for the legal occupation of the property.

7. Confirm no objection certificates (NOCs)

• Purpose: Ensures that various departments (e.g., fire safety, environmental) have no objections to the property’s construction and use.
• Action: Request NOCs from the seller to confirm compliance with all necessary regulations.

8. Avoid properties sold via GPA

• Purpose: GPA does not confer ownership rights and can lead to legal complications.
• Action: Insist on a registered sale deed rather than relying on a GPA to ensure a legitimate transfer of property ownership.

9. Conduct a physical survey

• Purpose: Ensures that the property’s physical dimensions and boundaries match the legal descriptions.

Action: Hire a licensed surveyor to verify the property’s measurements and boundaries.

 

 

Housing.com POV

While a General Power of Attorney (GPA) may appear convenient for property transactions in India, it is fraught with legal risks and limitations. The Supreme Court has clarified that a GPA cannot transfer property ownership, and any transaction involving immovable property requires a registered sale deed to be valid. Buyers should proceed cautiously and consult legal professionals before engaging in any GPA-based property transactions. Using legally valid sale deeds and registered documentation ensures the safest and most secure way to invest in Indian real estate.

 

FAQs

Can property ownership be legally transferred through a General Power of Attorney (GPA)?

No, a GPA does not provide legal ownership rights. The Supreme Court of India ruled that a GPA is not a valid instrument to transfer property ownership. A registered sale deed is required to transfer the title lawfully.

What are the risks of buying property through a GPA?

Buyers face several risks, including lack of ownership title, potential fraud, difficulty obtaining bank financing, and challenges with future resale. Without a registered sale deed, the property title remains with the original owner, making mutation in municipal records impossible.

Why is the General Power of Attorney still used in property sales?

While it’s not legally valid for transferring ownership, GPA is still used in unauthorised colonies, unregistered properties, and situations where stamp duty is avoided. Some use it to manage property affairs, but this can expose buyers to fraud and legal complications.

What is the difference between General Power of Attorney (GPA) and Special Power of Attorney (SPA) in real estate?

A GPA grants broad authority for various actions, including property management, while an SPA is limited to specific tasks, like selling a particular property. Neither, however, can legally transfer property ownership as per court rulings.

What should someone do if they’ve bought property through a GPA?

Buyers who purchased property via GPA should seek to formalise the transfer through a registered sale deed. This might involve paying stamp duty or pursuing legal validation, particularly when regularisation or registration is required for ownership verification.