How to sell an unregistered property?

Selling a property before registration is possible but is very risky. Issues like litigation, financial incompetence etc. are reasons why this shortcut of selling a property without registration becomes a choice for some people. In this guide, we discuss on what are the other options that one can explore.

The legal way to sell a property and transfer the ownership is a lengthy, tedious and exhausting procedure. This is done  because a property is an expensive asset and any mistake in the process may result in monetary loss, legal disputes etc.

What are the legal implications of selling a property before registration?

If you are selling a property without registration, you have to deal with two Acts namely The Transfer of Property Act, 1882 and The Registration Act, 1908.

The Transfer of Property Act, 1882: It deals with immovable property ownership and also transfer of property between two parties. Under this, the property transfer need not be only through purchase or sale of property but can also be through gift, inheritance, lease, mortgage, exchange etc. According to this Act, an immovable property cannot be sold without registration. It highlights that if the property is not registered in your name then you don’t have any ownership rights over the property thus, stopping you from selling it.

The Registration Act: This includes procedures for property registration. Under this, documents that are related to ownership of property must be submitted during property registration. Under this Act, all immovable properties that is valued over Rs 100 should be registered. Hence, selling an immovable property without registration is not allowed under this Act.

Exceptions when the property can be sold without registration 

In case, the buyer has paid the entire money for the property, has taken possession of the property and has adhered to all terms of the agreement, then under Section 53A of the Transfer of Property Act, the buyer can’t be evicted from the property by the seller. Note that this doesn’t give the buyer any protection towards ownership of property.

See also: Should you buy an unregistered property?

Ways that commonly people use to sell a property without registration

While we reiterate the importance of registration of property before its sale, mentioned below is how people choose to sell their unregistered property if it’s still in builder’s name.

• If the property is registered in the builder’s name (mostly happens with under-construction property), then you will have to get into a three-party agreement with the builder and the buyer.
• If the builder agrees, changes can be made to the agreement and proceed. The builder may charge some processing fee from you so that the buyer can register the property in his name. This way you can sell the property without registering it. In this case, you act as a witness with no actual right on the property.
• Ensure that the new sale deed includes agreement of sale and payment information.
• This method is risky because sometimes the builder can bypass you and make a two-way agreement with the new buyer.

As a precautionary step, you may consult with the builder while signing agreement of sale that what his stance would be in case of you wanting to sell the unregistered property.

How to sell affordable housing that is unregistered?

In case you have invested in an affordable housing project that is still registered in the builder’s name, the builder can charge an advertising fee of Rs 25,000 along with processing fee to change the builder-buyer agreement.

Why is registration of property important? 

Legal ownership of a property is ascertained by way of property registration. Under Section 17 of The Registration Act, 1908, all immovable property documents should be registered except a few.

Selling a property before registration is a risky process and it is always recommended to get it registered before proceeding with the sale. This money has to be paid by the home-buyer in case the property was purchased. If the property has been gifted, then registration charges will be paid by the donor.

Steps to register a property

1. Ensure that all terms mentioned in the agreement to sale deed is fulfilled, including down payment.
2. All dues related with the property should be cleared including loans, property tax, society maintenance due etc.
3. Once the down payment is paid and agreement of sale is signed, next step is to calculate the stamp duty. This varies across states and in some states between genders too. Stamp duty is 3-10% of the value of the property. The stamp duty is calculated on the basis of the circle rate or ready reckoner rate or guidance value or the DLC rate that it is referred to in that part of the country.
4. The stamp duty can be paid by buying non-judicial stamp papers from registered vendors on which the sale deed has to be printed. It can also be paid at franking centres where the sale deed will be printed on plain paper that will get stamped. Also, option of e-stamp can be explored with the SHCIL.
5. Once done, the sale deed has to be drafted that will include buyer, seller and property information.
6. Properties are registered under the state government and every state has its own formalities and charges. Visit the SRO under whose jurisdiction the property falls. A registration fee of around 1% of the property value has to be generally paid. The final registration has to be in the sub-registrar office (SRO) where the two parties (seller and buyer) along with two witnesses should be present.
7. Once registered, collect the registered document. In case the buyer has taken a home loan, then the money lender (bank or NBFC) will take the registered document.

Housing.com POV

While the legal transfer of property ownership is a long process, it is still a safe option as sale of property without registration is risky. If still you would want to explore this way, it is recommended take legal help so that your property doesn’t land up in some litigation. Also, like it is risky to sell unregistered property, it is risky to buy unregistered property also. The buyer may be in for a surprise if the property ownership is contested. Also, he may have problems in future if he wants to engage in sale of property. Additionally, banks and NBFCs generally don’t offer home loan for properties without clear documents and even if they do so, the interest rate is very steep. Thus, in big ticket items like buying and selling of property, it is recommended to follow the legal rules.

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