Due Diligence of Property

Due Diligence of Property

To identify and evaluate all types of risks involved in investment in property.

To rule out or minimize these risks.

Process:

Documents necessary for title Verification:

• Mother Deed.
• Current Ownership Document (Sale Deed/Partition Deed/ Gift Deed through which it was acquired).
• Revenue Records.
• Encumbrance Certification up to Date.
• Latest Tax Receipt.
• Building Plan Approval / Layout permission.

What records are searched:

Records searched:

• The records maintained at Sub Registrar’s office.
• With Patwari (mutation and Jamabandi).
• Records maintained by Revenue Department.

Kinds of search:

Two kinds of title search reports are there

• Full Search
  

  The title of the property is searched for a period of 30 years.

• Limited Search
  

  The title of the property is searched for a period of few years (less than 15 ).

Restriction on ownership:

The owner must be capable of transferring ownership. The buyer has to ensure that there is no restriction to the power of alienation of the owner. The limitation can be there:

• If the owner is a minor or a person of unsound mind. Such a person can sell through guardian or a person so authorized.
• The owner is not having an absolute right in the property.
• The owner is a lessee or a tenant.
• Statue does not permit sale of the property.

Areas of risk:

• Frauds
• Unauthorised construction
• Disputed property
• Encumbrances (mortgage, charges, lien, litigation)
• Easement Rights
• Acquisition process

Mitigation:

Frauds
Risks Loss Litigation	Mitigation Conducting thorough ownership screening Screening vendors correctly

Unauthorised Construction, Incomplete Work
Risks Imprisonment to person done illegal construction Demolition of unauthorized structure (impact on goodwill, reputation of occupier)	Mitigation Checking carefully the sanctioned plans Certificate from architects

Disputed Property
Risks Imprisonment to person doing construction Demolition of unauthorized structure (impact on goodwill, reputation)	Mitigation Checking carefully the sanctioned plans Certificate from architects
Facts: Property dispute numbers in India are quite overwhelming. 66% of the cases pending in various civil courts of India are related to property disputes. Of all the cases that India’s apex court deals with, 33% are also related to the same subject.

Encumbrances
Risks Cannot be used for the purpose Further transfer, division, amalgamation may be impacted	Mitigation Expert advice Search and investigation into title, history and litigation of property

Easement Rights
Risks Limitation on free use Obligation to allow others having easement rights to enjoy their rights over property	Mitigation Declaration and Indemnity Early exit rights

Acquisition Process
Risks No control Continuity of business at particular location impacted	Mitigation Investigation Exit provisions

Plan:

• DUE DILIGENCE: Thorough due diligence
• ONE PAGER: One page risk and recommendations
• DECISION: Collective decision, risk management matrix, insurance
• REVIEW: Periodic review of policy
• REVISION: Revision in matrix with learnings

Summary:

A well planned process with right choice of partners, strong due diligence, no deviations, objective recommendations based on risk matrix, collective decision and insurance is a key to mitigate risks involved in property related transactions.