Legal due diligence is one of the critical missing link in the property transactions. The buyers end up paying more to the connected party, broker, that represents both the buyer and the seller. They nevertheless underestimate the importance of an unbiased opinion of a lawyer who would exclusively safeguard his interests. In an Exclusive Interview with Track2Realty, Advocate Devesh Ratan points out that legal due diligence in advance could safeguard the home buyers against unfair contracts, exploitation & harassment and future litigation.
Ravi Sinha: How important is the role of due diligence in real estate?
Devesh Ratan: Due diligence is nothing but investigation. For example, you need to find out whether there is lease of the land where the project is supposed to be developed; whether there is approval from the government authorities and RERA etc. After all, you are going to put in your life’s savings into it. In the absence of due diligence, if any issue crops up or the builder’s project is stuck then you have to suffer the consequences. If there is no approval of land and tomorrow the government stops the project then your investment is blocked.
Ravi Sinha: Is the due diligence a pre-purchase process or you need the lawyer’s advice at each and every level?
Devesh Ratan: I would say due diligence is an ongoing process. It is required at three different stages – pre-purchase, during the purchase and even after the purchase. In pre-purchase you need to know whether the builder has the land lease and approvals. Next stage is during the purchase what all documents are getting signed by you. Builders and the brokers make you sign an end number of documents by creating a sense of urgency, like rates being revised from tomorrow or the inventory being in short supply.
So, you need to know what all papers you are signing. In all probability you would be signing Allotment Letter, also being called Booking Form or Agreement for Sale, which is on Stamp Paper. When you sign those papers it means you have given your consent and hence retracting is a tough job. Even during the purchase you need to be careful with what all papers you are signing; whom are you paying – builder or the broker. After the purchase and till the time you get the handover of the property, issues like timelines, layout as per the approvals etc are to be checked.
Ravi Sinha: Globally we find that there are specialist real estate attorneys. In your opinion why has it not picked up in India?
Devesh Ratan: There are real estate attorneys in India as well. One of the main reasons why people are not aware is that the lawyers/attorneys can’t advertise. While sitting in India I can easily find a real estate attorney in Texas but you won’t find it that easily in your own city in India. I feel that even in the smaller cities when one buys the land, he goes to get it checked in the office of Tehsildar and the local lawyers do the due diligence of land title and mutation. But, unfortunately, in larger cities while buying an apartment in the societies the busy middle class people don’t bother to check and end up trusting the brokers or the builder’s agents. But you should have a lawyer to at least vet the agreements; papers that you are signing. The amount of effort that you put to find the property, it will take even lesser effort to find a real estate attorney.
Ravi Sinha: You have rightly pointed out that people are relying more on the brokers and paying them. Does it also mean that there is a need of legal education in India for the common home buyers?
Devesh Ratan: I completely agree with you. There is a huge need of legal awareness and legal education in our country, especially with respect to the practical issues. For example, even when you file your tax returns and if there is any complicated issue one takes the help of a CA. But people are reluctant to go to a lawyer. I agree that the legal pendency is very high in India, but at the time of property purchase it is not about going to the court. All you need is a lawyer’s advice. Instead of relying on the broker or the builder’s agent, it is important to have your own person who will give you correct and unbiased advice. A broker will have his interest both ways and he won’t reveal everything to you.
Ravi Sinha: What you are saying is that the broker in India is representing both the buyer and the seller. It is better to have a lawyer who is exclusively representing you.
Devesh Ratan: A lawyer who is exclusively representing you will only look at your interest. A broker has to charge his brokerage from both the parties; he will never say this property has this deficiency, or the papers that you are signing is fixing your liability. For example, many developers put it in their Agreement Form that if they delay the project they will only pay INR 5 but if the buyer delays the payment he has to pay at the rate of 10-15. Only a lawyer can tell you this kind of liability is wrong and it should be negotiated upon.
Ravi Sinha: Today, there are multiple litigation platforms. There is RERA also which is like self-help platform where any buyer can directly approach. Do you think this is also one of the reasons that people are not coming to the lawyers?
Devesh Ratan: You can appear on your own in Consumer Commission or RERA and it is not compulsory to have a lawyer. The court will never say that you have to have a lawyer. For example, RERA is a self-help portal where you can register yourself online and give your factual issues over there. But the builder will always come to RERA with a lawyer who will know the provisions and the grey area of the law and would be well equipped to argue against your interest. So, if the builder can spend money to save his interests, then you should also have an attorney to represent you.
You know the facts about your case but the lawyer will know the legal provisions. For example, the builder’s lawyer will say it in RERA that since the project has already been delayed by three years the buyer should wait for another six months to get the possession. It is only a lawyer who will say that as per the RERA Act I have the right to claim full refund and I do not want to wait anymore. There is no provision in the RERA Act to make you wait more. A lawyer always helps with these small details.
Ravi Sinha: A house is one of the costliest purchase in India. Do you think that an average middle class home buyer can’t even afford to hire a lawyer?
Devesh Ratan: I don’t agree with this because when you are putting in such a huge amount to buy a house, it is an investment to hire the services of a lawyer. Paying to a broker is not an investment, but paying to a lawyer is an investment because if you are facing issues at the time of handover or post the handover, then you have your legal rights secured. You can send a notice to the builder, even before taking possession of the apartment. If you are aware of your legal rights and take prior action, then probably you don’t have to waste time in court cases.
Ravi Sinha: In India litigation is a lengthy process and an average home buyer doesn’t want to get into it. Do you think this is one of the major deterrents?
Devesh Ratan: It indeed is. In our country population is so much and disputes are so many that to adjudicate those we have lesser number of judges. Pendency is so very high at each court, be it civil court, criminal court, consumer commission, and now even RERA. Earlier RERA had less pendency but now even the RERA has lot of pendency. But if you take legal advice in advance probably you can avoid lengthy litigation. But I would still say that in current era of virtual hearings & hybrid hearings in most courts (due to Covid) one has to bother less and the buyer should not get scared. If you won’t fight for your legal rights, then someone else can’t fight it for you.
Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.
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