Guide to buying a resale property with multiple owners

Homebuyers who plan to purchase a resale property may need to conduct thorough legal checks, as such properties have had different owners in the past. More importantly, if the resale property has multiple owners, the process becomes even more complex. In India, legal issues arising from joint property ownership are quite common. Mostly, such issues involve property inheritance disputes among legal heirs and conflicts among owners of jointly owned properties. In this guide, we discuss the key things buyers must check when buying a resale property with multiple owners.

Understanding properties with multiple owners

A house or bungalow can be owned by more than one person, and there is no limit on how many people can jointly own a property under the law. In India, joint ownership of a house has been given great importance, often associated with family legacy and tradition. Moreover, jointly owning a house can offer many benefits, especially the financial advantage of sharing the ownership costs, the home loan, and the tax burden.

Joint ownership or co-ownership of a property is an arrangement in which multiple parties have ownership of the property with defined shares, rights, and responsibilities. Joint ownership is classified into different types, and a buyer investing in a resale home with multiple owners must obtain clarity on the type of joint ownership.

Multiple ownership of a property may arise from different scenarios:

• Inheritance of property by siblings or legal heirs (co-parceners)
• Properties jointly purchased with spouse, friends or business partners
• Ownership through family settlements, partition deeds or gift deeds

Typically, there is a written agreement specifying each co-owner’s share in the property, and the sale is conducted in accordance with it. More importantly, the consent of all owners is mandatory for the sale to be valid.

Document checklist for resale homebuyers

When buying a resale flat or a house, the buyer must verify a comprehensive set of documents, which include:

• Sale deed: It is a proof of the sale and transfer of ownership from the seller (or developer) to the buyer.
• Mother deed: It contains the complete ownership history and proves if the current owner has a clear title to the property.
• Sale and purchase agreement: This document specifies the terms of the sale, such as property type, price, payment schedules and possession date
• Society NOC: An NOC from the housing society may be required.
• Possession letter: Resale homebuyers must request this document, issued by the developer to the first owner, for verification purposes.
• Occupancy/completion certificate: This document proves that the structure has been built as per approved plans and is legally fit for occupation.
• Encumbrance certificate: This document, issued by the sub-registrar’s office, certifies that the property is free from any disputes, liens or other legal claims.
• Mutation certificate: A property mutation certificate is issued when there is a change in property ownership and the change is updated in official records.
• Building Approval Plan: This document is required to certify that the house construction complied with relevant approvals from authorities and adhered to local regulations.
• Documents in case of mortgaged property: If the resale property has an ongoing loan, the seller must give an undertaking to the bank that they have agreed to give property documents to the buyer upon the home loan foreclosure.
• RERA registration details (if applicable): Buyers must check for the project’s RERA details on the state’s official RERA website.
• Property tax receipts and utility bills: Buyers must request these documents to verify whether the seller has cleared all dues.

In case of multiple owners, the buyers must verify documents specific to inheritance and succession, partition or family settlement, as applicable. Some key documents to check for these scenarios include:

• Relinquishment deed: This document is signed by the co-owners if the property was acquired through inheritance and is intended to relinquish title or rights to the property. The deed is used only between legal successors of properties, unlike other types of property transfer.
• Release deed: This document, typically signed by the owner and the lender, waives any rights or interests in the property. It is applicable only when there is some kind of consideration.
• Family settlement deed: A settlement deed is signed to resolve disputes over inherited or ancestral property and to transfer property in cases of divorce or other reasons. The document is used when one party wishes to transfer their interest, in whole or in part, to another party.
• Power of Attorney: Sometimes, sellers, such as NRIs, may appoint another person to execute the property transaction. Documents such as General Power of Attorney (GPA), which entail wide-ranging powers such as managing leases and bank accounts, and SPA (Special Power of Attorney) for specific tasks such as property sale, must be checked by the buyer as applicable.

Hiring an experienced lawyer to vet the property documents helps minimise problems and legal risks. For a resale property with multiple owners, the ownership details should be reflected in the relevant documents, and any gaps may indicate potential legal risk for the buyer. Moreover, legal instruments such as release deeds should be registered, as unregistered documents can pose risks.

Consent of all co-owners

Legal due diligence in case of a resale property with multiple owners goes beyond checking the paperwork. Since each owner has a share in the property, their consent is required before proceeding with the transaction.

A property sale can take place only if all co-owners agree to the terms and conditions of the sale, and there is clarity on the distribution of the sale proceeds. Consent is mandatory, especially if the individual’s share of the property is not specified. Otherwise, one of the co-owners has the right to sell their share in the property without the consent of the others.

All co-owners must agree on the price at which the property will be sold and the costs associated with the sale. The sale proceeds will be distributed based on the percentage of the property each co-owner owns, as specified in the sale deed executed with the new buyer.

After all these checks, the sale agreement should be drafted and signed by all the parties. Typically, the token money from the buyer is also divided among the co-owners according to their defined shares.

Property valuation and other financial considerations

Multiple ownership can affect property valuation and other financial aspects for the buyer. Getting a professional property valuation can help a buyer estimate the property’s market value and put them in a better position during negotiations.

If the buyer has applied for a home loan, they must note that lenders require signatures of all owners on the sale documents. Furthermore, banks may conduct additional checks for inherited properties.

Further, a tax deducted at source (TDS) applies to the sale transaction and must be deposited with the income tax department by the buyer. The tax deduction for a jointly owned property is calculated proportionately based on each co-owner’s share. As per Section 194 1A of the Income Tax Act, joint owners need not pay TDS if the share of each co-owner is less than Rs 50 lakh. If one co-owner sells their share of the property, they must pay their TDS on the sale proceeds.

Housing.com POV

Resale homes prove to be a good investment for many homebuyers. If there are multiple owners, buyers need to be more cautious and do thorough due diligence on their part. They should verify the ownership and get clarity on the ownership shares of each co-owner. They must prepare to handle issues arising during the transaction, such as claims from minor or other legal heirs, invalid POAs or other documents, pending court cases, and disputes between co-owners. These can significantly delay the sale process. An experienced property lawyer can help buyers handle these scenarios and make appropriate decisions.

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