Due Diligence in Real Estate | EIPL Infra

When you plan to invest in real estate or anywhere else, you have to perform a few exercises to avoid harm or a major loss to yourself which might happen due to the deal. You need to go through an investigation to confirm a few facts or details of the property under consideration. This is due diligence which saves you from financial loss. 

Due Diligence in real estate means that you do some research about the property you are interested in and get to know a few facts and details about it. It is a research to find out if the said property has any pitfalls which can bring financial loss to you. The legal due diligence ensures that the seller has all the rights to sell that property and it is free from any encumbrances on the title.

The following are the key elements that need to be verified for due diligence. 

2.1. Legal Capacity Of The Present Owner

The seller or the predecessor title holder should not be a minor or a person with unsound mind. If the seller has an unsound mind then only a person appointed as a guardian by a competent court under the Mental Health Act, 1987, can sell that property on behalf of the owner. In case the present owner is a minor, then the property can neither be purchased nor taken on lease without the permission of the competent authorities. The current owner’s right over the property should also be clear. In case of having joint owners for a property, an NOC has to be obtained from the co-owners. If the property is from a Hindu Undivided Family, then you will have to check the family tree and verify facts accordingly. If the property belongs to a partnership firm, society or trust, you have to check the copy of the partnership deed.

2.2. Check on Taxes and Other Documents

One needs to check on the taxes if they have been paid by the seller till he holds the property. 

All the legal documents should be in place. If you are buying a constructed property, like an apartment or a flat, then do check the Occupation and Completion certificate which is given to a building by the municipal authority after verification of all supporting documents. Sale Deed has also to be checked to confirm that the property is not mortgaged. The Sale Deed has to be in the name of the present seller. In the absence of the owner, a Power of Attorney is also used. You should check the authenticity of this document.   It should be notarised before the Indian Consulate and then attested by the sub-registrar. Other documents like Allotment letter and possession letter, Land records and mutation entries and Khata extract and certificate have also to be checked for Due Diligence. Encumbrances over the property and legality of the construction also need to be verified.

It is necessary to know the issues such as title, permitted use, legality of construction, encumbrances and easements which have the ability to impact the very nature of the property and affect your transaction; naturally the end result will be a huge financial loss to the buyer. Due Diligence helps to verify the ownership of title over the property and the encumbrances over the property, if any. It also helps to protect you against pre-existing claims over that property. Such issues can affect the new owner even after the property is transferred. Due Diligence of real estate confirms all facts relating to a property’s history, title, etc. It is a fact that a title means right in the property. These documents should include all the required papers, a sanctioned plan layout certified by the officer of the land records. Therefore, Due Diligence is the first and foremost step to be performed if you have decided to invest in a property or purchase an asset in real estate sector. With Due Diligence, you acquire a crystal clear vision of the property.

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