India: Real Estate Comparative Guide

1 Legal framework

1.1 What legislation governs real estate in your jurisdiction?

Real estate in India is governed through a combination of central and state laws. The central laws that impact real estate in India are as follows:

• Direct:
• • the Transfer of Property Act, 1882;
  • the Real Estate (Regulation and Development) Act, 2016 (RERA);
  • the Indian Succession Act,1925;
  • the Hindu Succession Act, 1956;
  • Mohammedan Laws;
  • the Registration Act, 1908;
  • the Foreign Exchange Management Act, 1999; and
  • the Foreign Direct Investment Policy (for foreign entities).
• Indirect:
• • the Stamp Act, 1 899;
  • the Right to Fair Compensation and Transparency in Land Acquisition and Rehabilitation and Resettlement Act, 2013;
  • the Easement Act, 1882;
  • the Contract Act, 1872; and
  • the Land Revenue Codes of the respective states.

Several state-specific laws also govern real estate transactions within the domain of the relevant state.

1.2 What special regimes apply to different types of real estate?

Real estate can be classified as follows:

• Residential property: This is classified into two types: new construction and resale. It comprises residences for joint or nuclear families.
• Commercial property: This includes shopping malls, medical enterprises, hotels and offices, among others. The primary function of commercial property is to generate revenue.
• Industrial property: Manufacturing facilities and warehouses are examples of industrial property. It can be used for product research, manufacturing, distribution and storage. By contrast, structures utilised for the delivery of commodities are classified as commercial real estate. Depending on the classification, zoning, construction and sales are handled differently.
• Agricultural property: This is generally owned by individuals (farmers) and is used for agricultural purposes. Agricultural property cannot be used for residential, commercial or industrial purposes without seeking a change of land use from the director of town planning of the relevant state.

The laws applicable to different types of real estate include:

• the RERA;
• the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013;
• the Cooperative Societies Act, 1912;
• the Easements Act, 1882;
• the Prohibition of Benami Property Transactions Act, 1988;
• the Public Premises (Eviction of Unauthorised Occupants) Act, 1971;
• the Special Economic Zones Act, 2005;
• the Societies Registration Act, 1860;
• the Transfer of Property Act, 1882;
• the Waqf Act, 1995;
• the Land Revenue Codes; and
• the Inheritance Law.

2 Ownership

2.1 What types of ownership rights exist in your jurisdiction?

The owners of immovable property have the following rights:

• Leasehold rights: Leasehold rights give the holder an exclusive right and interest to hold, possess and use a property within a lessee-lessor or tenant-landlord relationship, in which the title is shifted from one party to another by means of a lease deed.
• Freehold rights: Freehold rights give the holder an exclusive right and interest to hold, possess and use a property with absolute ownership for perpetuity. The owner can use the land for any lawful purpose, subject to the local laws and regulations.
• Mortgage rights: A mortgage/charge creates an interest on behalf of the lender/mortgagee on the immovable property to secure money advanced or to be advanced by way of loans, for existing or future debt or for the performance of an obligation which gives rise to a pecuniary liability.
• Licence rights: Licence rights allow the licensee to enter, occupy or use a property on a non-exclusive basis. These rights are neither transferable nor inheritable, and only constitute rights in personam.
• Easement rights: In order to facilitate beneficial enjoyment of one's land, these rights allow the owner/occupier to do and continue to do something, or to prevent and continue to prevent something being done, in or on a piece of land which is not its own.
• Development rights: These rights allow developers to make changes to their property by means of construction or development within the limitations of state law. Transferable developmental rights are a subset of developmental rights, under which owners can utilise the developmental potential of a specific piece of land on other land, where this could not be realised on the original land.
• Subsurface rights: These rights relate to the earth below the land and any substances found beneath the land's surface.

2.2 What ownership structures are commonly used in your jurisdiction?

In India, the preferred ownership structure is the freehold right, by which the owner obtains the absolute right, title and interest in the property. The holder of freehold rights retains indefinite ownership of the entire property without any restrictions or hindrances in terms of its possession and use.

The other common ownership structure is ownership by way of leasehold rights. Under leasehold rights, the holder acquires ownership of the leasehold property only as per the lease deed tenure. It does not have ownership of the land; this still vests with the registered owner of the land. It is more difficult to obtain mortgages and loans for leasehold property than for freehold property.

In the case of leasehold property, the person to which the property is leased may have to pay a certain amount as rent; this is not the case for the owner of freehold property, as it is the absolute owner of the property. In the case of leasehold property, the transfer is primarily effected through a power of attorney; whereas freehold property is transferred through a registered sale deed or the transfer of certain rights through an instrument with respect to the property.

2.3 Are there any restrictions on real estate ownership in your jurisdiction?

Land ceiling: Certain states in India permit an individual owner or company to own a certain specific maximum area of land that be held as a contiguous piece of land. Anything over and above the prescribed limit cannot be owned by the individual owner or company. Different states have different land ceilings. In calculating the land ceiling, land is classified into different categories (eg, agricultural land, non-agricultural land).

Restrictions on buying land from scheduled caste/scheduled tribe (SC/ST) people: Certain state laws impose a general restriction on the sale, gift or bequest of land by SC/ ST tenants. Any such transfer by way of gift, sale or bequest will be void if the recipient does not belong to an SC/ST community. However, such transfers may be allowed under certain conditions, subject to the approval of the district collector.

State restrictions: In most states, ownership of real estate is restricted in some manner by state law. Non-agriculturalists are not permitted to purchase agricultural land in some states. However, Karnataka recently removed Section 79B from the Karnataka Real Estate (Regulation and Development) Rules, 2017, which only allowed farmers to acquire agricultural land. Furthermore, similar restrictions apply to the purchase of land by non-residents of a state (eg, in Uttarakhand, Himachal Pradesh).

Restrictions on non-resident Indians: As far as the general law is concerned, no one who resides outside India can acquire property rights in India, except where permission has been granted. Non-residents can be classified as follows:

• Indian citizens residing outside India: Indian citizens residing outside India are not allowed to buy agricultural property, plantation property or farmhouses. However, they can purchase other types of immovable property if the payment for such property takes the form of:
• • funds received through normal banking channels by way of inward remittance from anywhere outside India; or
  • funds held by a non-resident Indian in a bank account maintained in India.
• Citizens of Indian origin residing outside the country and foreign entities: A foreign national who works in or runs a business in India and becomes a resident may buy immovable property without permission, except for agricultural land/plantation property/farmhouses.
• The Foreign Exchange Management Act, 1999 provides for foreign national residents in India to acquire immovable property in India. This applies to individuals from all countries, with the exception of Pakistan, Bangladesh, Nepal, Bhutan, Sri Lanka, Afghanistan, China, Iran, Macau, Hong Kong and the Democratic People's Republic of Korea, who require the prior approval of the Reserve Bank of India in order to do so.

2.4 Is ownership of land and buildings constructed thereon legally separable?

Ownership of land and ownership of buildings are two different concepts. In India, the owner of land can transfer land for development to others and, upon development, the developer will have a right to the building constructed on the land.

In CIT v Vimal Chand Golecha (1998) 147 CTR MAD 314, the Rajasthan High Court held that Indian law recognises land and buildings as separate assets, and the law is well settled on this issue. This was reiterated in Park View Enterprises v State Government of Tamil Nadu 1991 (189) ITR 192, establishing that Indian law recognises separate ownership of land buildings.

In Bishan Das v State of Punjab AIR 1961 SC 1570, the Indian Supreme Court also stated as follows:

2.5 What security interests can attach to real estate? How are they prioritised?

Section 2(zf) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 ('SARFAESI Act') defines a 'security interest' as a "right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in Section 31 of SARFAESI Act, 2002".

The different types of security interests are as follows:

• Mortgage: Under Section 58 of the Transfer of Property Act, 1882, a 'mortgage' is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of:
• • a loan;
  • an existing or future debt; or
  • the performance of an obligation which may give rise to a pecuniary liability.
• Charge: Under Section 2(16) of the Companies Act, 2013, a 'charge' is an interest or lien created on the property or assets of a company or any of its undertakings or both as security. It includes a mortgage.
• Lien: This is a legal claim with respect to immovable property which permits the holder of the lien to enforce its rights upon non-fulfilment of the debt.
• Assignment: An 'assignment' is a transfer of contractual rights or liability by a party to the contract to a third party which is not a party to the contract.

3 Registration

3.1 What body administers the land register in your jurisdiction?

Registries are within the jurisdiction of the state governments and fall under the Concurrent List in Schedule VII of the Constitution of India. Thus, laws on these matters can be made by both the central government and the state governments. Registries are guided by and operate under the laws, rules and regulations of the parent state where the property is situated. The Registration Act, 1908 is a central law which provides, under Section 28, that for the purposes of registration, all necessary documents must be submitted to the office of the sub-registrar within whose sub-district the whole or some portion of the property to which the documents (sale deeds) relate is situated. Consequently, there are several registration offices in each state: each district usually has one and the territorial jurisdiction of different registries cannot overlap. Certain compulsorily registrable instruments involving the transfer of proprietary rights in immovable property must be registered by the registry with territorial jurisdiction over the relevant property. Thus, it is the office of the sub-registrar within the respective district that maintains the land registers for property located in that subdistrict.

3.2 Is registration of real estate rights, transactions and encumbrances mandatory? What are the consequences of failure to register?

Yes, real estate rights, transactions and encumbrances must be registered under Indian law. An encumbrance certificate is a certificate of assurance that the property in question is free from any legal or monetary liability such as a mortgage or an uncleared loan. Registration of any real estate right is effected under the Registration Act, 1908. If any interest or right is transferred and the value of the transaction exceeds INR 100, registration of the transaction is mandatory. If a document is not registered, it is not admissible in court as valid evidence and does not constitute proof of any right or interest created.

3.3 What are the formal and documentary requirements for registration?

Registration under the Registration Act requires the submission of the following documents to the sub-registrar within four months of the date of execution of the document:

• the document for which registration is sought (in duplicate);
• photo IDs (ie, the Aadhaar and Permanent Account Number cards of the seller and buyer);
• the signatures of two witnesses along with their photo IDs; and
• an income tax certificate under Section 34A of the Income Tax Act.

3.4 What is the process for registration?

As per Section 23 of the Registration Act, all documents except for wills (for which registration is optional) must be registered within four months of the date of registration.

If a document relates to immovable property, it must be registered at the place where the property is located as per Section 28 of the act. In all other cases, the document can be registered where it was executed or at the office of the sub-registrar at the place where the parties wish to register the document (Section 28). Under Section 80 of the act, a fee must be paid, which is determined under the respective state laws. Section 32 of the act provides that the following persons are entitled to register the document:

• the seller and buyer of the property;
• anyone executing or claiming under the document or, in the case of a copy of a decree or order, claiming under the decree or order;
• the representative or assignee of such a person; or
• the agent of such a person, or of its representative or assignee, duly authorised by power of attorney.

3.5 Is registered information publicly accessible?

Yes, registered information is publicly accessible, except in case of a transfer of property by way of registered wills or special power of attorney.

The main purpose of registration is to record the vesting or transfer of proprietary rights in immovable property from one person to another. Registration also makes the documents pertaining to the land in question available to the public at large and hence constitutes public notice of the creation or transfer of certain rights in the land. This is where the doctrines of caveat emptor and constructive notice come into play. If the instrument is registered, this means that the documents will be available to the public for perusal.

The registered documents can be accessed electronically as from the date on which they were first digitalised in the given registry or revenue office.

Under Section 16(3) of the Registration Act, every registering officer is provided with a fireproof box for the safe custody of all records connected with the registration of documents in the relevant district.

4 Commercial leases

4.1 What types of commercial leases exist in your jurisdiction?

A commercial lease grants a tenant rights to a commercial property. It is a legally binding agreement between a landlord (often the owner of the property) and a business tenant, which outlines the terms and conditions that the parties must follow. Commercial real estate brokers may also negotiate the terms of a lease on behalf of a property owner. Within the lease, the 'lessee' is the landlord, while the 'lessor' is the tenant.

The following types of commercial leases are found in India:

• Gross lease: This is also known as a full-service lease. Under the lease, the landlord must cover all property-related expenses out of the rent paid by the tenant.
• Net lease: Under a net lease, tenants not only must pay for the space they are occupying, but are also contractually bound to pay some or all of the taxes, insurance fees and maintenance expenses for the property, in addition to the basic rent.
• Percentage lease: Percentage leases require tenants to pay a base rent in addition to a percentage of gross business sales (once sales pass a certain threshold) – landlords often set this at 7%. One upside of percentage leases is that they typically offer lower base rents than standard leases, since the tenant is agreeing to pay a percentage of its sales.

4.2 Are the terms of a commercial lease regulated or freely negotiable? What do they typically cover (eg, duration; security deposit; rent; sub-letting; termination)?

There are no prescribed rules in this regard. However, certain terms – such as those relating to the security deposit, rent, sub-letting and termination – are non-negotiable in practice, as the developer has the edge and drafts the commercial lease. Other vital clauses include the following:

• recitals;
• definitions;
• conditions precedent;
• the duration/term of the lease, any lock-in period and an exceptions clause;
• rent, rent increases and the rent commencement date;
• an interest-free refundable security deposit and/or bank guarantees;
• additions/alterations to the premises;
• the obligations of the lessor;
• representations and warranties;
• common area maintenance and other utilities;
• repairs;
• termination of the lease and its consequences;
• a lease renewal clause – once a lease has been terminated, it can be renewed depending on the terms and conditions or following a rent increase as per the mutual understanding between the parties;
• force majeure;
• assignment and sub-lease; and
• notices and dispute resolution clauses.

4.3 What are the formal and documentary requirements for conclusion of a commercial lease?

The following documents must be provided:

• the title document;
• mutation records;
• an Aadhar Card or any government-issued proof of ID;
• power of attorney (if the ID of someone else is presented for registration);
• evidence of the nature of the establishment;
• updated property tax receipts and no-objection certificates;
• the photo IDs of both the lessor and the lessee;
• a lease agreement printed on stamp paper of the requisite value;
• a board resolution in favour of the authorised representative of the lessor and the lessee;
• the photo IDs of authorised representatives; and
• the photo IDs of attesting witnesses.

4.4 What is the process for concluding a commercial lease?

• The parties enter into an agreement to lease and applicable clauses are negotiated.
• Due diligence on the commercial lease is conducted.
• The commercial lease deed draft is circulated to all parties, including the guarantor, if any. Given the length of the contract, each party should be given the opportunity to read the agreement and may require some time to do so.
• Upon the conclusion of due diligence, the parties have a right to take a call with regard to the rejection or renegotiation of the terms of commercial lease deed.
• Upon finalisation of the negotiations, the commercial lease deed is finalised and is printed on non-judicial stamp paper or e-stamp paper from the local authorised stamp vendor where the property is situated. The stamp paper's value will be determined by the relevant sub-registrar's office, depending on the valuation/rent/consideration, and any security deposit will be advanced.
• After printing the document on stamp paper or e-stamp paper, both parties sign the lease deed. Once it is signed, and if the term exceeds 11 months, the commercial rental agreement must be registered. For the purposes of registration, both the lessor and lessee must visit the sub-registrar's office at the place where the property is situated.

4.5 What are the respective obligations and liabilities of landlord and tenant under a commercial lease, and what are the consequences of any breach?

The obligations and liabilities of the landlord are as follows:

• Maintenance: According to Section 108(f) of the Transfer of Property Act, 1882, one of the most important duties and obligations of the landlord is to maintain and repair the building and ensure that the tenant always has essentials such as running water and electricity. If repairs are undertaken by the lessee, it has the right to deduct those expenses from the rent fees. The landlord must also:
• • maintain the common areas;
  • keep up to date with repairs; and
  • comply with all health and building codes.
• Delivery of possession: According to Section 108(b) of the Transfer of Property Act, 1882, once the tenant has signed the lease agreement, it is the landlord's obligation to deliver possession of the unit or office space. If the tenant moves into the unit or office space after entering into the agreement and finds that the unit is not vacant, it may take legal action against the landlord for the same.
• Safety: The landlord must ensure the safety of the tenant. It has a duty:
• • to maintain and inspect the leased property; and
  • to provide free access to the commercial leased property to the tenant and ensure a safe environment within the leased property.
• Indemnification: The landlord must indemnify the tenant from any third-party claims with regard to the commercial lease property.
• Taxes: The landlord must ensure timely payment of property taxes, government charges, cess, utility bills and goods and services tax.
• Third-party rights: Prior to establishing third-party rights, the landlord must seek approval from the tenant.

The obligations and liabilities of the tenant are as follows:

• Rent: The first and foremost duty of a tenant is to pay rent on time. 'Rent' is defined under Section 105 of the Transfer of Property Act, 1882 as money, shares, services or anything else due to be rendered. The amount of rent is specified in the lease agreement. If the tenant defaults on the rent payments, the landlord may deduct the relevant amount from the security deposit and take legal action in case of regular default.
• Refrain from using the property for illegal purposes: The tenant has a duty to avoid the illegal use of the leased property. The tenant must be honest about its intentions for using the premises. For example, if a tenant enters into a lease agreement stating that it will use the property as office space, but in fact uses the property for some other illegal purpose, the landlord has the right to terminate the lease.
• Allow the landlord to enter the premises: As the landlord is responsible for the premises, it retains all rights to the property. However, the landlord cannot enter the tenant's office space without prior notice.
• Sub-letting: The tenant cannot sub-let the commercial lease property, unless this is permitted under the lease deed and/or prior approval has been obtained from the landlord.
• Third-party rights and interests: The tenant cannot create any third-party rights or interests including encumbrances, liens or mortgages on the commercial lease property.
• Permanent structural changes: The tenant cannot make any permanent structural changes to the property without the prior approval of the landlord.
• Approvals: The tenant must obtain all necessary approvals to carry on its business from the commercial lease property.

In case of a breach by the landlord, in terms of non-payment or untimely payment of statutory dues (eg, property tax) or failure to maintain the property as represented, the tenant has the option to:

• issue notice with a view to seeking rectification of the default;
• terminate the lease deed; and
• seek the return of any advance paid or security deposit.

The consequences of a breach by the tenant are as follows:

• Non-payment of rent: Failure to pay rent is the most common material breach committed by tenants. In such case, a commercial landlord can:
• • terminate the lease deed;
  • adjust the advance paid and the security deposit as per the terms of the agreement and settle the accounts; and
  • seek eviction of the tenant/issue a notice for eviction.
• Vacation of the property before the lease expires: A tenant is commonly considered to have breached the lease if it moves out before the lease has expired. A tenant must generally comply with the notice period; non-compliance in itself constitutes a breach. Generally, if a tenant wishes to vacate the property earlier than agreed in the lease, it must obtain the written approval of the landlord; failing which it must pay rent for the entire duration of the lease.
• Failure to fulfil other obligations of the lease: In addition to paying rent, tenants are usually responsible for fulfilling obligations such as:
• • maintaining insurance for fitouts in the premises; and
  • using the premises only for the purpose set out in the lease.
• If the tenant fails to meet its obligations under the lease, this is considered a breach and therefore the landlord will be entitled to terminate the lease accordingly.
• Commission of an act that is prohibited by lease or the law: A tenant can also be considered in breach of the lease if it commits an act that is expressly prohibited by the lease or by law. If the breach is considered material, the landlord can take legal action to remedy the problem or to terminate the lease. If the breach is considered illegal, the police may close down the operation and bring criminal charges against the tenant.

4.6 How are rent variations typically effected throughout the term of the lease?

No answer submitted for this question.

4.7 What taxes are levied on rental income?

Goods and services tax is levied on rental income at the rate of 18% on the taxable value if the annual rental income is INR 2 million or more.

The relevant taxes are set out in the Income Tax Act, 1961. However, a person will not pay tax on rental income if the gross annual value of a property is below INR 250,000.

4.8 Can a commercial lease be triple net?

A triple net lease is a sub-class of a net lease and is a commercial real estate lease under which the tenant pays not only for the occupied space, but also for all or a portion of the normal costs. These expenses typically relate to the property's operation or maintenance, such as taxes, property insurance, property management fees and utility payments.

Triple net leases are best suited to commercial property, as they ensure long-term occupancy. Most triple net lease agreements offer long-term tenant occupancy starting from upwards of 20 years. They are a low-risk investment, since the tenant is responsible for most of the costs that arise in relation to the property; and they allow for a consistent income stream for an investor and enable it to build equity. Tenants under triple net leases also gain the added benefit of developing a recognisable, long-lasting location for their business. Furthermore, under a triple net lease agreement, the tenant must pay the property taxes, which it can include in its business expenses and thus seek tax relief accordingly.

4.9 How are landlord and tenant disputes typically resolved?

Typically, disputes between landlords and tenants involve issues such as:

• return or forfeiture of the security deposit;
• damage caused to the premises or fittings, or misuse thereof;
• premature termination of the rent agreement;
• delayed payment of rent; or
• unpaid dues and utility bills.

Arbitration: In Vidya Drolia v Durga Trading Corporation (2021) 2 SCC 1, the Supreme Court held that landlord-tenant disputes under the Transfer of Property Act can be resolved through arbitration instead of time-consuming and expensive litigation, except when they are covered by the specific forum created by the rent control laws (see below). For such disputes to be resolved through arbitration, the rent agreement must include an arbitration clause; the decision on whether to include such a clause in the agreement thus rests with the parties themselves. In Himangni Enterprises v Kamaljeet Singh Ahluwalia (2017) 2 RCR (Rent) 517, the Supreme Court bench had ruled that where the Transfer of Property Act applies, landlord-tenant disputes are not arbitrable.

Rent courts: The Model Tenancy Act, 2021, approved by the Ministry of Housing and Urban Affairs, aims to regulate and bring greater transparency to the Indian rental housing sector. The act establishes the rent courts as the primary forum for hearing and resolving all rental disputes between tenants and owners. The act empowers all union territory and state administrations in the country to establish as many rent courts as they feel are necessary in their respective geographical areas. If a rent court already exists in a union territory/state under another law, it can be classified as a rent court under the Model Tenancy Act. In the absence of such a court in a given location, any other court created under any other law may be designated as a rent court under the Tenancy Act.

Civil recovery suits: Non-payment of rent can also lead to civil recovery suits before the competent courts.

Lease rents as operational debt: The National Company Law Appellate Tribunal recently ruled in Jaipur Trade Expocentre Private Limited v Metro Jet Airways Private Limited Company AT (Ins) 423 of 2021 that a lease rental qualifies as an operational debt under the Insolvency and Bankruptcy Code, 2016.

4.10 What types of guarantees are market practice and required by landlords to secure the tenant's obligations

• Full/absolute guarantee: Under this agreement, the guarantor is solely liable for the tenant's obligations. Future adjustments and renewals are also included.
• Restricted/limited guarantee: This agreement limits the guarantor's liability if the tenant fails to meet its obligations. The agreement states that all parties agree on a set maximum liability amount to be paid by the guarantor.
• Limited personal guarantee: The guarantor will be obliged to pay rent and other obligations of the tenant under a limited personal guarantee. This is entered into when the tenant has possession of the rented premises, but only if certain requirements are met. The guarantor's liability ends with the tenant's surrender date.

5 Real estate transactions

5.1 What form do real estate transactions typically take in your jurisdiction?

Real estate transactions involve the exchange of residential or commercial property between two or more parties. Common forms of real estate transactions include:

• self-financing;
• loans; and
• tripartite agreements.

5.2 Which players are typically involved in a real estate transaction in your jurisdiction?

The parties involved in a real estate transaction are:

• the buyer and the buyer's agent;
• the seller and the seller's agent;
• the buyer's bank and the seller's bank
• the lawyers of the buyer and the seller.

5.3 Is the seller bound by a duty to disclose? What representations and warranties will it typically make?

Section 55 of the Transfer of Property Act, 1882 imposes a duty on the seller to reveal or disclose all material defects with respect to both the property and the seller's title. This duty applies where the seller is aware of the defect and the buyer is not.

Some of the other representations and warranties that a seller is bound to make are as follows:

• The property is fully owned by the seller; and the seller has not performed any acts to dilute, prejudice or lessen its title in the property and has the absolute right and authority to sell it;
• No action has been instituted by any authority with respect to the property on account of a violation of building or land use regulations, or breach of any rules, bylaws, sanctions or authorisations;
• The property is free from all encumbrances, including charges, liens, mortgages and imputations;
• No litigation involving the property is ongoing; and
• The structure is insured against all damages; and the seller has provided all fire safety certificates and, until finalisation of the sale, has continued the maintenance and upkeep of the property.

5.4 What due diligence is typically conducted in a real estate transaction?

Due diligence is probably the most important aspect of a real estate transaction, following a broad understanding of the commercials (lease rent value). This process can affect not only the commercials, but also the feasibility of the transaction itself. While the value of the transaction does play an important role, it is also critical to ensure that sufficient time and resources are made available to facilitate comprehensive due diligence of the property. Issues such as title, permitted use, legality of construction, encumbrances and easements can affect the nature of the property and its suitability to the commercial needs of the transaction.

Due diligence is mainly conducted to verify the ownership of title to the property and any encumbrances over the property, so as to protect against pre-existing claims over the property. Such claims either could affect the transferor's ability to transfer the property or could attach themselves to the property even after it has been transferred.

The primary objective of due diligence is therefore to gather information. The extent and type of due diligence to be undertaken by the purchaser's lawyer will depend on:

• the risk profile and business objectives of the purchaser and lessee;
• the type of real asset involved;
• the nature of the real estate transaction (ie, whether it is a purchase, long-term lease, short-term lease, mortgage or financing);
• the timeframe for completion of the transaction; and
• whether the purchaser is looking at obtaining third-party financing either pre-transaction or post-transaction.

The purpose of due diligence in a real estate transaction includes the following:

• checking title and ownership with regard to the property;
• checking the flow of ownership with regard to the property for the last 31 years;
• checking for any encumbrances, charges, liens or mortgages on the property;
• checking the physical status/possession of the property;
• checking the applicable land laws on the property;
• checking for any litigation involving the property;
• checking for any change of land use permissions;
• checking for any sanction plans and approvals with regard to the building;
• checking for consent to establish and consent to operate;
• checking environmental clearances and permits;
• checking occupation and competition certificates; and
• checking details with respect to registrations under the Real Estate (Regulation and Development) Act, 2016.

Depending on the nature of the transaction, the property involved and the objective of the participants, due diligence can be divided into two broad categories:

• Full search: A full search is usually done when giving a title certificate of the property and covers a period of 31 years.
• Limited search: A limited search is generally conducted in transactions where the property is taken on lease for a short term (usually under nine years). In such instances, the period for which the preceding ownership of the property is traced is generally restricted to 15 years (or less) from the date on which the current owner of the property came to acquire the property. Unlike in a full search, in a limited search, the search relating to the history of the property may be limited to restricted aspects such as:
• • recent title history;
  • encumbrances on the property; and
  • disputes relating to the property.

5.5 What are the formal and documentary requirements for conclusion of a real estate transaction?

The following documentation is required:

• leases and licences;
• deeds of conveyance/sale deeds; and
• development agreements.

5.6 What is the process for concluding a real estate transaction? How long does this take? What costs are incurred?

The process for concluding a real estate transaction in India is as follows.

• The property is identified.
• A law firm is appointed to determine title to the identified property and to draft, negotiate and finalise the agreement to lease and the lease deed.
• The parties enter into an agreement to sell/lease prior to the lessee conducting due diligence on the identified property.
• The law firm verifies the title to ensure that due diligence is conducted – mainly to verify the ownership of title over the property and check for:
• • any encumbrances over the property;
  • the right to use the property;
  • the nature of the property – whether commercial, industrial, residential or agricultural;
  • whether a land ceiling applies; and
  • whether any litigation concerning the property is ongoing.
• If the purchaser/lessee wishes to obtain a loan, an application must be made with the relevant bank and all necessary documents – including the financials of the applicant – must be verified by the bank. The lender may require the purchaser to submit the due diligence report on the property or may conduct its own due diligence.
• The terms of the sale deed/lease deed are finalised.
• The sale deed/lease deed is executed before the office of the sub-registrar following payment of stamp duty and registration fees by the purchaser/lessee. The amount of stamp duty payable varies from state to state and is based on the agreed sale price.
• Possession of the property is handed over to the purchaser/lessee simultaneously with execution of the documents.
• In case of a sale deed, the property must be recorded in the revenue/municipal records against the name of the purchaser. This process is called mutation. It will assist the relevant revenue/municipal authorities in levying property tax.

Timelines: The process from identification of the property to closure of the transaction can take anywhere between two and three months.

Costs: The costs that are likely to be incurred include:

• registration fees;
• stamp duty;
• the costs incurred in obtaining certified copies of revenue records;
• law firm fees;
• notarisation charges for the requisite documents; and
• leviable fees for recording the purchaser's name with the relevant revenue/municipal authorities.

5.7 What are the respective obligations and liabilities of buyer and seller, and what are the consequences of any breach?

The duties and obligations and liabilities of the seller are as follows:

• Disclosing material defects in the property or title: Section 55 of the Transfer of Property Act, 1882 imposes a duty on the seller to reveal or disclose all material defects with respect to both the property and the seller's title. This duty applies where the seller is aware of the defect and the buyer is not. The defect must also be of such a nature that, despite practising due diligence, a prudent person would be unable to discover the problem in the property or title. If the seller deliberately neglects this duty, this will amount to fraud or omission on its part.
• A 'material defect' is a factor that can affect the buyer's decision on whether to buy a certain property it. Material defects can include:
• • something which interferes with or obstructs enjoyment of the property;
  • a defect in the title;
  • street alignment, lack of right of way or non-existence of independent passage to the property; or
  • a public right of way which could not be discovered on first inspection of the property.
• It is the seller's duty to convey good title to the buyer. However, the burden of proving that there has been non-disclosure with respect to a defect in the title lies with the buyer.
• In some cases, there may be a defect in both the property and the title – for example, where the property which is the subject matter of the transfer has been illegally built on government land. Consequently, the seller may receive notice to demolish the illegally built property. For example, in Haryana Financial Corporation v Rajesh Gupta the seller (A) wanted to sell a factory by way of auction. The buyer (B) deposited a certain amount with A, on condition that A ensured that there was an independent passage or right of access to the unit. The tacit understanding on this condition was established through frequent communication between the parties. However, the passage was in fact, insufficiently wide to meet B's requirements. Ultimately, A was unable to arrange for adequate passage to the unit. Therefore, B refused to pay the pending amount for the property. In response, A regarded the amount previously deposited by B as forfeited and put the property back up for auction. The court held, under Section 55(1)(a) of the Transfer of Property Act, 1882, that A was in the wrong for failing to disclose a material defect – that is, there was no adequate passage to the unit. A was not allowed to take advantage of this wrong to retain the deposit.
• Producing title deeds for inspection: If the buyer so requests, the seller must supply the title deeds for inspection before execution of the sale deeds. The main objective is to satisfy the buyer that there is no defect or problem with the title, and that it would present no disadvantage if the buyer were to acquire it. The title is usually delivered directly to the seller or to the seller's representative or lawyer. However, the legislature can also introduce provisions with respect to the place of delivery.
• Answering relevant questions as to the title: Before the sale, the seller also has a duty to answer all 'relevant' questions with respect to the sale. If the seller fails to answer, the buyer has the right to rescind the contract. Answering relevant questions as to the title is the responsibility of the seller because it is obliged to 'make out a good title' in itself. If the information contained in relevant documents leads to doubts or questions, the seller must resolve them upon being asked to do so by the buyer.
• Executing conveyance: Conveyance is the legal process of transferring the property from the seller to the buyer. The conveyance is executed before execution of the sale deeds to complete the process of the sale. Section 55(1)(d) of the Transfer of Property Act, 1882 stipulates that the buyer must tender the instrument.
• In Jamshed Khodaram Israni v Burijori Dhunjibhai,, there was an agreement between the buyer and seller to transfer a certain piece of land for INR 85,000. The buyer deposited INR 4,000 as a deposit. Within two months of the date of the agreement, the conveyance was to be signed and INR 80,500 was to be paid by the buyer. After the registration and transfer, the buyer was to pay the remaining balance of INR 500. However, if the buyer failed to make payment within the timeframe specified in the agreement, the deposited money would be forfeited by the buyer. Ultimately, the buyer failed to make payment within the stipulated two months and as a result, it forfeited the deposit. The buyer sued the seller for specific performance. The court held that the language of the plainly expressed stipulation must concretely show the intention of the parties to make their rights dependent on the observation of prescribed time limits. The duty to tender a conveyance and to pay the consideration at the time of the execution was subject to a contract.
• Taking reasonable care of the property and title deeds: The seller's duty to take reasonable care of the property and title deeds begins before execution of the sale deed and continues until delivery of the property to the buyer. Section 55 of the Transfer of Property Act, 1882 stipulates that if there is damage to the property or title within the timeframe specified in that section, the buyer has the right to reduce the price or consideration it must pay. The buyer can also opt to sue for damages and demand compensation from the seller.
• Providing a certificate of no encumbrance: If there are any encumbrances on the property, it is the seller's duty to clear them up before execution of the sale deed. Regardless of whether the seller has knowledge of the encumbrance, the seller must still resolve it. The buyer has the right to enforce this duty of the seller through Section 69 of the Contract Act, 1872. The seller must pay any rents or charges accrued to the property before the date of execution of the sale deed. The seller also has a duty to deal with public charges and, where necessary, must obtain the permission of the statutory authority to make the sale.
• Before the sale deed is executed, if the buyer discovers that there are charges/encumbrances on the property being sold despite receiving assurances to the contrary from the seller, it can:
• • retain a portion of the purchase money to offset the charges on the property;
  • rescind the contract; or
  • sue for damages.
• Handing over the title deeds: As the time of execution of the conveyance deed, it is the responsibility of the seller to hand over the chain of title documents to the buyer.
• Ensuring payment of property tax and pending dues of the government/statutory bodies/authorities/utility dues: Up until the date of execution of the conveyance deed, it is the responsibility of the seller to clear all pending taxes and dues.
• Giving possession to the buyer: Upon execution of the conveyance deed, it is the seller's responsibility to hand over the peaceful and vacant possession of the property to the buyer.

The duties and obligations of the buyer are as follows:

• Disclosing material facts: Where the buyer has knowledge or information about the nature and extent of the seller's interest in the property, and such knowledge or information indicates an increase in the material value of such interest, the buyer has a duty to disclose such information to the seller. This duty applies where the buyer has reason to believe that the seller is unaware of this information.
• Paying the price: The buyer's duty to furnish the promised consideration is paramount. It must pay or tender this at the agreed time and place of execution of the sale, and to such person as per the instructions of the seller. The duty to pay is personal in nature and the buyer, upon refusal of the seller to accept it, is free to make a deposit with the court. The buyer must further ensure that the source of payment is untainted.
• Bearing loss to the property: Once ownership of the property has been transferred from the seller to the buyer, any loss to the property as a result of the destruction, injury or reduction in value not caused by the seller's actions is to be borne by the buyer. This rule applies even if:
• • possession has not been delivered yet by the seller; or
  • full payment of consideration has not been furnished by the buyer.
• The key issue is the passing of ownership. Once the buyer attains ownership, even if it does not have possession, it must bear the losses.
• Paying outgoings: As with bearing loss to the property, the key point to focus on here is ownership. Once ownership passes to the buyer, the latter is obliged to pay any public charges or rent payable with respect to the property. Public charges may include taxes imposed by the municipality or relevant authorities on the property. The authorities charge tax against the property itself, and not on the buyer or seller in particular. Before the sale, public charges are paid by the seller. After the sale, public charges are paid by the buyer. Upon completion of the sale, the seller ceases to enjoy the benefits of the property; however, it gains the right to indemnification from the buyer with respect to charges imposed after completion of the sale.

Consequences of breach of contract: A contract binds the buyer and seller to move forward with the transaction on the stated terms at closing. After execution of the agreement, neither the buyer nor the seller can back out without breaching the agreement. Still, a breach does not always give the other party the right to terminate the agreement. Most contracts allow for notice and waiting periods, and provide opportunities for remedy and continued performance. Parties must pay special attention to the requirements for termination upon breach before calling off the deal.

Different remedies are available depending on who is in breach. If the seller is in breach, a court can grant specific performance and force it to complete the sale. This remedy is available because it is assumed that each parcel of land is unique and monetary damages will not truly give the buyer the benefit of its bargain. If specific performance is not possible, the buyer can seek monetary damages. The seller may be liable for the return of the buyer's deposit, together with interest and expenses for title examination, land survey preparation and attorneys' fees.

If the buyer breaches a purchase agreement and refuses to complete a sale, it will generally forfeit the deposit; the seller can also seek monetary damages. A court will not order specific performance to force the buyer to buy the property because monetary damages are adequate to compensate the seller.

To avoid the hassle and uncertainty of calculating actual damages for a buyer's breach, a real estate contract may include a liquidated damages clause, which is a pre-negotiated sum that one party to an agreement will owe in the event of breach. This ensures predictability and can act as a type of insurance against the cost of a breach. Although such a clause is commonly included, a court will disregard it if the financial penalties it provides for are exorbitant. In most cases, the liquidated damages clause is the amount of the deposit, which is paid to an escrow agent at the time the contract is executed. If the buyer breaches the contract, the escrow agent pays the money to the seller, which keeps it as damages for the breach.

5.8 What taxes are payable on a real estate transaction?

Capital gains tax: Capital gains tax is levied on the profit/capital gain that arises at the time of sale of the property. This tax must be paid by the seller and is paid by all taxpayers, irrespective of the state in which the property is situated.

Tax deduction at source: The buyer of a property must deduct tax at a rate of 1% from the amount payable to the seller. This amount must then be forwarded by the buyer to the income tax authorities. This tax is payable by all taxpayers, irrespective of the state in which the property is situated. However, it applies only if the transaction value is more than INR 5 million.

Service tax: If the property that is being sold is under construction, service tax will also be payable.

The effective rate of service tax on property is 3.75% or 4.5%, depending on the size of the property and the transaction value. Service tax on the sale of property must be paid by all taxpayers irrespective of the state in which the property is situated. This is paid by the buyer to the seller, which in turn deposits it with the government.

Value added tax (VAT): VAT is a state tax. Some states impose VAT on the sale of property that is under construction; others do not. VAT is paid by the buyer to the seller, which in turn deposits it with the government.

Stamp duty and registration charges on property: At the time of transfer of title of the property and registration with the government, stamp duty and registration charges are also payable. The rate of stamp duty differs from state to state. Some states also give a concession if the new owner of the property is a woman.

6 Real estate finance

6.1 Who are the most common providers of real estate finance in your jurisdiction? Do any restrictions apply in this regard?

The most common providers of real estate finance under the Real Estate (Regulation and Development) Act are:

• banks;
• non-banking financial institutions;
• external commercial borrowings; and
• REITs (real estate investment trusts).

The following restrictions apply:

• Developers must deposit 70% of the proceeds received from a project in a separate account, which can be used for the earmarked project. This affects the short-term liquidity of developers.
• Developers cannot sell any units until they have registered with the regulating authority, which is subject to several requirements. Developers thus cannot raise the initial capital for the early stages of a project from the sale of units. They therefore rely on equity financing, debt financing or a mix of equity and debt financing to raise capital in the early stages, and then use cash flow to repay the same.
• In case of financial institutions, developers cannot transfer or assign their majority rights and liabilities in respect of a project to a third party without:
• • the prior written consent of two-thirds of the allottees (purchasers of the flats); and
  • the prior written approval of the regulatory authority.

6.2 What forms of real estate finance are available in your jurisdiction?

To understand real estate financing in India, it is vital to understand the real estate market and the dynamics involved. The forms of real estate financing may include:

• mortgage lending (private debt);
• publicly traded debt (securitised mortgages); and
• REITs.

A REIT is a company that operates and owns income-producing commercial real estate. These companies usually invest in, manage and collect rent on mobile phone masts, data centres, apartment buildings, warehouses, hotels, hospitals, malls and so on.

The most common form of real estate financing is by way of mortgage. There are several types of mortgages in India, as follows:

• Simple mortgage: In this case the property is mortgaged without delivery of possession to the lender; and upon the borrower's failure to repay the loan, the lender is entitled to appropriate the proceeds from the sale of the property towards the mortgage sum.
• Mortgage by way of conditional sale: In this case the borrower ostensibly sells the mortgaged property to the lender with a covenant that the mortgage will be treated as void upon the borrower making payment of the mortgage sum to the lender.
• Usufructuary mortgage: In this case possession of the mortgaged property is delivered to the lender with authorisation to retain the mortgaged property, as well as to receive rents and profits accruing therefrom.
• English mortgage: In this case the property is transferred absolutely to the lender, with a covenant to retransfer the same to the borrower upon payment of the mortgage sum.
• Mortgage by deposit of title deeds: This the most common form of real estate financing in India. In this case the borrower delivers the title deeds with respect to immovable property to the lender with the intent to create a security thereon.

6.3 What formal, documentary and other requirements do lenders typically require of borrowers?

Each bank and financial institution has its own requirements and criteria to approve a loan application. The standard requirements are as follows:

• proof of funds evidencing the borrower's ability to repay the loan;
• an expert valuation/estimation of the real estate;
• a determination of the ownership and any encumbrance on the property;
• submission of title documents to the bank/financial institution; and
• title due diligence.

6.4 What type of security interests are typically required by lenders?

Typically, developers create a mortgage on the project property, which is further secured by the creation of a charge by way of pledge/hypothecation or similar on the shares (if the developer is a company) or assets of the developer in favour of the lenders.

6.5 What is the process for obtaining real estate finance? What costs are payable?

No answer submitted for this question.

6.6 How is security enforced in case of any breach?

In case of breach, lenders have two options:

• Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002: This enables banks and financial institutions to pursue recovery from borrowers, and allows lenders to auction the properties of borrowers in event of complete failure of payment or settlement.
• Insolvency and Bankruptcy Code: A secured creditor can submit an application to an adjudicating authority or the National Company Law Tribunal to realise the security interest.

7 Real estate investment

7.1 Who are the most common investors in real estate in your jurisdiction? Do any restrictions apply in this regard?

In 2019, India attracted more than $5 billion in private equity inflows. Firms from the United States, the United Arab Emirates and Singapore firms were the top investors in the Indian real estate sector. Aside from foreign investments, several large domestic real estate companies and industrial houses (eg, Godrej) have large land banks and are heavily invested in the real estate market in India.

Certain restrictions apply to individuals and companies when it comes to ownership of real estate, as follows.

Individuals: Persons resident outside India will fall under one of the following categories:

• non-resident Indians;
• foreign nationals of Indian origin; and
• foreign nationals of non-Indian origin.

People in the first category above can purchase or be gifted residential and commercial property, but not agricultural land, plantations, farmhouses or private forest land, which may only be inherited by persons in the second and third categories.

Persons in the second category above cannot purchase immovable property in India unless such property is acquired by way of inheritance from a person who was resident in India. They can, however, acquire or transfer immovable property in India by way of lease for a period not exceeding five years.

Companies: A foreign company has no right to acquire immovable property in India. Further, a foreign company which has established a liaison office in India has no right to acquire immovable property, but can acquire property by way of lease for a period not exceeding five years.

7.2 What investment vehicles are typically used in your jurisdiction? What are the benefits and drawbacks of each?

A 'real estate investment vehicle' is an entity that invests specifically in immovable property and whose investments are taxed only once – either in its own hands or in those of the interest holders. The different real estate investment vehicles in India are as follows:

• A real estate private equity fund undertakes private and public investments in the real estate sector. This vehicle acts as an alternative asset primarily focused on high-net-worth individuals.
• A real estate investment trust (REIT) is a company that both operates and owns income-producing commercial real estate. It has the ability to be liquidated.
• A real estate operating company (ReoCo) is similar to a REIT. It is also publicly traded; but because of a lack of regulation, this vehicle affords greater flexibility. Unlike REITs, ReoCos have no obligation to distribute their profits among their shareholders, allowing them to make more investments.

7.3 How are these vehicles established and administered in your jurisdiction?

The vehicles outlined in question 7.2 may be established as either registered trusts or special purpose vehicles.

8 Planning and zoning

8.1 How is land use regulated in your jurisdiction?

Land use is regulated and controlled in India in the following ways:

• Zoning: This refers to the process of demarcating a city under a master plan of the city which governs the use of zoned land for various purposes. Zoning also includes rules on the location, height, use and coverage of structures within each zone. It imposes uniform restrictions on the shape and placement of buildings. Certain activities with respect to land use are permitted or prohibited depending on the zone in which the relevant property or land is located. For example, no commercial activities can be undertaken in a zone which is earmarked for residential purposes.
• Building regulations: Building regulations define how new structures are to be built and which materials are to be used. They also specify the approved floor area ratio (FAR). They may additionally:
• • set out rules on the maintenance and improvement of existing buildings;
  • prohibit the construction of any structure;
  • restrict the style of architecture, the position of a building on the plot, its distance from the street, or the height and depth of its basement; and
  • regulate the use of buildings for residential or commercial use.
• Rent controls: These aim to prevent landlord from increasing rent to a level which cannot be afforded by middle and lower-income families.
• Taxes and cess: Tax is levied for the purpose of earning revenue.

8.2 What is the process for obtaining planning permission? How long does this take? What costs are incurred?

Planning permission or building plan approval requires the following sanctions from the relevant authorities:

• Licence from the director of town and country planning (DTCP): Once the land has been identified, an application must be submitted to the DTCP for the conversion of agricultural land into non-agricultural land. In issuing such approval, the DTCP will also ask the applicant to comply with the environmental clearances, zonal clearances and local/municipal laws. The timeline for obtaining a DTCP licence is two to three months.
• Building approval: This involves obtaining approval of the building plans/building permit under the provisions of the Building Bylaws, the city master plan and local body acts. It includes the following:
• • Building plan: This must be submitted before construction activities begin. It is a graphical representation of what the building will look like after construction. It ensures that the building complies with the building laws. Once it has been approved, the builder should commence construction within two years and there should be no deviation from the sanctioned plan. The timeline for obtaining such approval is tentatively about 30 days and the costs vary on a case-by-case basis, depending on the size of the project.
  • Layout approval: The builder must obtain approval of layout plan from the relevant authorities before starting the construction of residential or commercial buildings. The layout plan must conform with the approved FAR or floor space index.
  • Intimation of disapproval: Also known as a building permit, this sets out the conditions that must be complied with during the different phases of the construction project. It has three parts:
  • • immediately before the commencement of construction;
    • during the construction period; and
    • after construction is completed.
• Commencement certificate: This constitutes permission to start construction from the local development authority. The foundation stone and building boundaries cannot be laid without this document.
• Completion certificate: This is mandatory before selling the building. It is issued after an inspection and confirms that the builder or owner has constructed the building as per the approved plan.
• Services and utilities installation: This is needed for electricity, gas and water for potable and non-potable use. The building should comply with the building laws for the approval of basic amenities. The builder must obtain a no-objection certificate (NOC) in relation to the project from the pollution board of the respective municipality or authority to dig bore wells and approval for the sewerage and water supply.
• Occupancy certificate: This is required from the relevant local body/authority before occupation of the building. The local body forwards the proposals to various other concerned authorities in the city to issue specific approvals/NOCs before granting the occupancy certificate.

The costs of the entire process are set by the state in which the project is located and will vary depending on the size of the project.

8.3 Can a planning decision be appealed?

Yes, a planning decision can be appealed if it violates any party's private rights, by way of filing a civil suit before the court of appropriate jurisdiction. It can also be appealed through public interest litigation if it violates the public interest.

8.4 What are the consequences of failure to obtain planning permission or to comply with a planning condition?

Construction work cannot be commenced until the requisite construction permit has been obtained from the regulatory authorities. Anyone that commences construction without a permit will be liable for demolition and a penalty.

8.5 Is expropriation of land possible in your jurisdiction?

Expropriation of land is possible where the government can show that such property is required for the purposes of public use or a public purpose. 'Public purpose' encompasses activities that fall within the realm of the government to serve the public interest (eg, construction of roads, laying of railway lines, construction of bridges).

8.6 Is confiscation of land possible in your jurisdiction?

Yes, land can be confiscated under several public laws, such as:

• the Forest Act;
• the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act; and
• the Prevention of Money Laundering Act.

Forfeiture of land is permitted under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976, The Criminal Procedure Code, 1973 also provides for the disposal of property at the conclusion of a trial.

9 Environmental

9.1 What main environmental legal provisions apply to the development, use and occupation of real estate?

The following environmental laws have relevance for the real estate sector:

• the Air (Prevention and Control of Pollution) Act, 1981;
• the Environment (Protection) Act, 1986;
• the Hazardous Waste (Management and Handing) Rules, 1989; and
• the Water (Prevention and Control of Pollution) Act, 1974.

The regulatory authorities concerned with real estate development in India are:

• the Central and State Pollution Control Board;
• the Coastal Regulation Zone Management Authority; and
• the Real Estate Regulatory Authority.

9.2 Who can be held liable for environmental contamination and how are clean-ups effected?

Liability: Under Article 48A of the Constitution, the responsibility for protecting and improving the environment is vested in the state. However, Article 51A of the Constitution imposes responsibilities on individual citizens to maintain and preserve the environment and its components. In this context, liability for environmental contamination may be broken down into two categories:

• individuals; and
• legal or juristic entities, including both corporations and state departments. Moreover, individuals acting on behalf of a corporation can make that corporation vicariously liable for environmental contamination.

The responsibility of individuals and corporations to dispose of waste in a sustainable manner is also set out in various waste management rules, including those relating to the disposal of biochemical waste, hazardous waste and plastic waste. Liability may be incurred under:

• the Air Act, 1981;
• the Water Act, 1974;
• the Environment Protection Act, 1986;
• the Wildlife Protection Act, 1972; and
• the Forest Conservation Act, 1980.

For corporations, the principles of vicarious liability apply and penalties usually take the form of fines. Furthermore:

• Section 268 read with Section 290 of the Penal Code, 1860 deals with public nuisance;
• Section 277 of the code deals with water pollution; and
• Section 278 of the code deals with air pollution.

These provisions may result in both individual and criminal liability.

Under Section 135 of the Companies Act, 2013, corporations have a corporate social responsibility to spend 2% of their net profits over the preceding three years on environmental initiatives. This includes conducting their business in an environmentally responsible manner, such as reducing emissions or ensuring the safe disposal of waste.

Finally, clean-up drives are also initiated by the central government or state departments. The government has actively framed policies (eg, Swacch Bharat Abhiyan, Swacch Sagar Surakshit) to help clean up various areas of the country.

9.3 What environmental provisions and considerations should be factored into real estate transactions?

• Check for the presence of hazardous materials;
• Check for petroleum contamination and contaminants in the groundwater or soil of the property; and
• Check for air quality and water quality, and review the test reports for neighbouring areas.

9.4 What initiatives are in place to promote green buildings and energy efficiency in your jurisdiction?

Recent initiatives taken to promote green buildings and energy efficiency include the following:

• Aiming for Sustainable Habitat: New Initiatives in Building Energy Efficiency 2021: This was launched by the Bureau of Energy Efficiency to enhance energy efficiency in the building sector and was launched as part of Azadi Ka Amrut Mahotsav, a government of India initiative to celebrate the 75 years of Indian Independence.
• Eco Niwas Samhita 2021: This is an energy conservation building code for residential buildings aimed at boosting India's energy conservation efforts. It specifies code compliance methods and minimum energy performance requirements for building services, and sets out a verification framework.
• Energy Conservation Building Code: This was developed for new commercial buildings in 2007. It sets out minimum energy standards for new commercial buildings with a connected load of at least 100 kilowatts or contract demand of 120 kilovolt-amperes.

9.5 What types of environmental certifications apply in your jurisdiction?

The main clearances to be obtained are:

• a Fire Department permit;
• consent to establish and consent to operate; and
• an air and water pollution control permit.

10 Trends and predictions

10.1 How would you describe the current real estate market and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

The Indian real estate market continued to grow in 2022 despite apprehensions. According to the Economic Times Housing Finance Summit, "about 3 houses are built per 1,000 people per year compared with the required construction rate of five houses per 1,000 population,"

Emerging trends and initiatives include the following:

• The Atmanirbhar Bharat 3.0 package announced by Finance Minister Nirmala Sitharaman in November 2020 included income tax relief measures for real estate developers and homebuyers for the primary purchase/sale of residential units with a value of up to INR 20 million.
• In July 2021, the Securities and Exchange Board of India lowered the minimum application value for real estate investment trusts from INR 50,000 to INR 10,000–15,000 to ensure market accessibility to retail investors.
• In the 2021–22 Budget, deductions of up to INR 150,000 on housing loan interest and tax holiday interest for affordable housing projects were extended until the end of fiscal year 2021–22.
• The government has also created an Affordable Housing Fund at the National Housing Bank with an initial corpus of INR 10,000 crore i.e. 100 Billion USD for micro-financing companies in the housing finance sector.

According to a report by the India Brand Equity Foundation:

11 Tips and traps

11.1 What are your top tips for the smooth conclusion of a real estate transaction and what potential sticking points would you highlight?

• Proper due diligence of the property should be conducted, dating back to 31 years of previous ownership. All necessary documents – such as purchase documents, land acquisition details, succession documents, partition deeds, court cases and orders, sale deeds, encumbrance details, licences and approvals with regard to changes in land use, zoning laws and laws relating to land acquisition – should be checked.
• Check whether the transfer documents (ie, the sale deeds/conveyance deeds) have been duly registered and adequate stamp duty has been duly paid.
• Check for any government orders in relation to land acquisition resettlement and rehabilitation.
• Check for compliance with local laws relating to land earmarked for scheduled castes/scheduled tribe, and land belonging to religious sects.
• Physical verification of the property is required to verify the status of the property, to include identifying any trespassing or hindrances due to high-tension wires or trees on the property.
• Keep in mind the different costs and fees incurred in buying a property. Apart from the consideration paid to the seller, other costs – such as stamp duty, registration fees, change of land use fees, property taxes, due diligence fees of lawyers, real estate agent fees and fees for licences and approvals – should also be factored in.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.