How to do due diligence for land purchase

Purchasing a land plot, requires certain additional precautions to be taken, as compared to purchasing a built house. Here’s a list of things that land buyers need to check, before finalising a deal

While every individual dreams of owning a property once in his/her lifetime, many people still prefer to buy or invest directly in land. Land accounts for the major cost component of any real estate purchase and has a far higher rate of return than other property types. It also gives the buyer the freedom of choice, in terms of design, layout, floor plan, etc. However, one must do thorough due diligence, while purchasing land.

 

Title due diligence for land purchase

One of the most important aspects, before purchasing a land parcel, is to check if the title is clear and marketable. This means that you need to confirm, whether the person selling the property is its owner and holds all the necessary rights to transfer the ownership of the property to you. It is always advisable to approach a lawyer/ advocate to get the title documents like sale deed and property tax receipts scrutinised and to obtain a certificate, confirming the title of the vendor. Normally, it is advisable to trace the title for the previous 30 years, keeping in mind the complexities of land documents and the limitations involved in claiming property rights.

 

Searches at the sub-registrar’s offices

This search reflects the transactions (change of ownership through deeds) and encumbrances (legal dues) with respect to the land proposed to be acquired. Each state has a different methodology, to carry out searches at the offices of the sub-registrar (deed-registering authority). For example, in Bengaluru, the sub-registrar issues the encumbrance certificate (search report) whereas in Maharashtra, an advocate or person experienced in carrying out manual search in the sub-registrar offices issues the report. One has to check with the concerned authorities for the legal documents, before going ahead with the property deal.

 

Public notice for land purchase

Before purchasing any property, it is always advisable to place a public notice in local newspapers (preferably in English and as well as in the local language daily newspapers), inviting any claim over the land proposed to be purchased. This will help to know if there are any claims or third-party rights over the land.

 

Power of attorney

Many times, land is sold through a person holding a power of attorney (POA) on behalf of the owner. This POA should be closely examined, to ensure that it is the same property that is being sold. There are times when it may be necessary to sign certain documents within a short period of time and delaying the same, may usually cost you. For such situations to be avoided, you can authorise someone else to sign on your behalf, to make things easier.

See also: Investing in land: The pros and cons

 

Verification of original documents for land purchase

Prior to concluding the sale transaction, it is advisable to verify if the original title documents with respect to the land transaction are in place. This is to ensure that the seller has not created any third-party rights / charge and parted with the originals. These original documents should be collected, during the conclusion of the sale transaction.

 

Approvals and permissions for land purchase

If the property / land forming part of the sale transaction already has structures or buildings, it is advisable to verify whether the approved plans, necessary permissions and NOCs are in place. Factors such as heritage rules, set-back for road widening, which will apply to definite buildings, should also be considered.

 

Taxes and khatha in land purchase

Before purchasing a land, the buyer should ensure that the property taxes are paid up to the date of the transfer and original receipts for such payments are produced for verification. It is also necessary to ensure that the khatha (revenue recording denoting the name of the owner) is available in the name of the vendor.

 

Local laws for land purchase

The purchaser of the land should ensure that the local laws / rules do not impose any restrictions on buying land. For example, in Karnataka, a non-agriculturalist (who does not own agricultural land), companies, firms and persons with an income over Rs 25,00,000, cannot purchase agricultural land. However, such restrictions are relaxed in few other states. Hence, it is important to take advice from a local lawyer, before purchasing land.

 

Tenure of land

The tenure of the land should also be considered, while purchasing land. If the land is under lease and the excess tenure of lease is short and if there is no provision for renewal on the same old rent, the additional rent may be payable by the purchaser of the land. There is also a high possibility that there may be no renewal clause for the property.

 

Pledged land

The seller might have taken a loan from a bank, by pledging or mortgaging their land. The buyer should ensure that the seller has paid back all the amounts due on the land. A release certificate from the bank is essential, to determine that the land is free from all debts.

 

Measurement of the land

Buyers are advised to measure the land, before registering it in their name. To ensure that the measurements of the plot and its borders are accurate, the buyer should take the help of a recognised surveyor. You can also compare for accuracy, by acquiring the survey sketch of the land from the survey department.

 

Floor space index (FSI)

FSI indicates how much construction can be done on a piece of land. FSI is determined by the state’s town and country planning department. It also depends on the location of the plot. You should check with the seller or the property owner, regarding the amount of FSI allowable on the land.

Also, it is very important to involve a property lawyer, for the verification of the documents and the legality of the project.

(The writer is MD, Century Real Estate)

 

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