When it's handed down to you...

Buying aresale property?Debashish Hota tells you how to safeguard your interests in the process

Home buying is a crucial decision that involves considering a lot of factors – location, square footage, price, amenities etc. It is also a decision for which a buyer consults multiple people - family and friends.

Generally, buyers have a tendency to purchase flats in under-construction projects. The reasons for this are many – better price, wide choice of apartments, no immediate financial burden etc. However, in under-construction projects, there is a risk of the project not being completed on time, and hence, the buyer goes through a lot of anxiety (and sometimes loses money in the process). Also, post the Goods & Services Tax (GST) implementation, apartments in an under-construction project attract a 12% GST. This has pushed up the price of under-construction flats.

In such a scenario, buyers have started actively considering purchases of resale flats. Now, you may be wondering what a resale flat is. It is an apartment or property that is already owned by someone else (not the builder), has received its Occupancy Certificate (thus is complete in all aspects) and is in a project where people have been living already for a few years. It offers the advantage of being ready to move in, having all amenities around the apartment and no uncertainty related to completion dates. There is also the financial advantage of not having to pay rent and not having to pay GST.

However, when buying a resale apartment, a buyer needs to safeguard himself or herself by getting all documentation right. One such crucial document is the sale agreement. While a lot of buyers go ahead and execute a sale agreement, they need to consider some issues and workarounds when approaching it.

The basics

But first, what is a sale agreement? Why is it necessary? ‘Agreement for sale’ or ‘Sale agreement’ contains the mutually agreed upon ‘terms & conditions between seller (vendor) and buyer (purchaser) for the sale of the property’. This agreement governs the whole property transaction and it stays valid until the property is registered or unless otherwise mentioned.

It is, of course, assumed here, that the buyer has already ascertained the legality of the property through a comprehensive due-diligence (property verification and title search) process. A good property advocate is necessary for this step. It is a legally binding agreement and helps in building complete trust between the parties to accomplish an ownership transfer without any hassle.

Stamp duties

Do the stamp duties need to be paid more than once? Stamp duty needs to be paid either at the time of sale agreement registration or at the time of sale deed registration (a sale deed is a document that actually transfers ownership to the buyer). If these duties are already paid when registering sale agreement, there is no need to pay the same again.

What if the transaction doesn’t reach the sale deed stage for any reason? Will the buyer get back stamp duties paid? Sometimes, even after executing a sale agreement, the sale deed does not get executed. The buyer may change his mind, seller may change his mind, either person may get a better deal, bank loan may be rejected – there can be so many reasons for this to happen. What then does the buyer do in such a case? He has already paid the stamp duty! Is there any way of recovering this amount?

What then does the buyer do in such a case? He has already paid the stamp duty! Is there any way of recovering this amount? Yes – the buyer can recover the stamp duty and registration charges paid. For this, he would need to cancel the agreement (application needs to be submitted to the sub-registrar) and after this is done, approach the sub-registrar office for a refund. The refund process might take a couple of months.

Immunity

Is there some way in which buyers can safeguard themselves without having to execute a sale agreement? The purpose of a sale agreement is simple – it lays down the conditions under which the sale is to be executed. It also safeguards both the buyer and the seller in the event either backs out of the transaction. This same safeguard can be availed through a memorandum of understanding (MOU) signed between the two parties.

The MOU should list all conditions of the sale and get printed on a Rs 500 stamp paper. The advantage of this MOU is that one does not need to pay the entire stamp duty when executing this MOU.

Why not simply sign a MOU and then a sale deed? Why does one need to sign a sale agreement in the first place? When the buyer avails of a bank loan to buy the property, some banks insist on the sale agreement being executed. Since this is a bank mandate, the buyer has little choice but to proceed with it. However, in case the bank does not mandate this, an MOU offers the safety that the sale agreement offers without the necessity of paying duties upfront.

In short

Perform a thorough title search/property verification through an expert property advocate. Ensure that all details of the transaction are covered – either in a sale agreement or a MOU.

If there is a bank loan involved, a sale agreement is mandatory in most cases (depending on the bank). Sale agreements need to be registered by paying all duties and charges.

If there is no loan involved, a MOU that captures all transaction details accurately and comprehensively will serve the purpose.

(The author is co-founder & COO, Zippserv)