A Q&A guide to corporate real estate law in India.
The Q&A gives a high level overview of the corporate real estate market trends; real estate investment structures, including REITs; legislation; title and public registers of title; confidential information; state guarantee of title; tenure; sale of real estate; seller's liability; due diligence; warranties; cost; taxes and mitigation, including VAT and stamp duty/transfer tax; climate change targets; third party outsourcing; restrictions on foreign ownership or occupation; finance; leases; planning law and consents; and proposals for reform.
To compare answers across multiple jurisdictions, visit the Corporate Real Estate Country Q&A tool.
This Q&A is part of the PLC multi-jurisdictional guide to corporate real estate law. For a full list of jurisdictional Q&As visit www.practicallaw.com/realestate-mjg.
The main trends in the real estate market in the state of Maharashtra (the wealthiest state in India) over the last 12 months are as follows:
Commercial real estate:
IT and ITES companies have been increasing their leasing activity to take advantage of the favourable commercial terms offered by office space developers;
Special Economic Zone (SEZ) office spaces saw stronger demand as compared to non–SEZ office spaces;
the suburban sub-markets continue to be preferred by tenants, particularly in the case of the IT sector, due to the cost advantage and availability of substantial supply.
Retail real estate:
retailers continued to expand into both high streets and malls. Malls are also witnessing healthy leasing activity, with pre-commitments in malls under construction remaining stable;
Delhi NCR saw the strongest absorption rate, while Bangalore showed strength in high street leasing. The prime retail sub-markets of Delhi and Mumbai saw a rise in capital values.
Residential real estate:
cautious buyer sentiment prevailed due to the adverse impact of the existing macro-economic factors such as rising interest rates and surging inflation;
the spate of hikes in interest rates by the Reserve Bank of India (12 times over the past 18 months) led to a steep rise in the outgoings for home loan borrowers;
new launches were made in the mid-income and budget homes segment.
A significant deal in Mumbai was the sale by Earnest Towers Private Limited of 190,000 square feet carpet area in the first international financial centre, Bandra Kurla Complex (Bandra (East), Mumbai) and 251 parking spaces, together with the proportionate undivided interest in the building and land to Citibank N.A. and Citibank Global Markets India Private Limited for nearly US$197 million.
Given regulatory restrictions, foreign investors must invest in real estate in India through Indian companies that acquire real estate or interests therein and develop any planned projects. Such investments can be made through wholly owned subsidiaries of foreign investors or through joint ventures with Indian partners.
Indian laws do not currently permit the formation of REITs. Certain draft regulations were issued a few years ago, but have not come into effect.
Certain investors called "foreign institutional investors" (that is, investors registered with the Securities and Exchange Board of India such as pension funds, mutual funds, investment trusts, asset management companies, nominee companies and incorporated/institutional portfolio managers, university funds, endowments, foundations and charitable trusts/societies with a track record), can invest in listed or unlisted companies that undertake real estate projects. However, such investors can invest only up to 10% of the company's share capital and their collective shareholding cannot exceed 24% of the share capital unless such limit is increased by the board of directors and shareholders of the company.
Private investors such as companies or other entities can invest in the manner and subject to the investment conditions provided under the foreign investment regulations.
In India, real estate is governed at both the federal and state level. The principal federal legislation comprises the:
Transfer of Property Act 1882. This Act governs the transfer of property and sets out the legal framework for the following types of transactions:
sales;
leases;
mortgages;
gifts;
exchanges;
transfers of actionable claims.
Indian Contract Act 1872. This Act sets out the framework for contracts and does not specifically deal with real estate transactions, but principles under this law apply to contracts relating to real estate as well. The following principles apply in particular:
enforceability of the contract;
capacity;
consideration; and
intention of the parties
Specific Relief Act 1963. This Act sets out the provisions for enforcing rights of parties through specific performance of contractual obligations.
Registration Act 1908. This Act:
sets out the real estate related instruments that must be compulsorily registered and those whose registration is optional; and
states the effect of non-registration of documents whose registration is mandatory.
Urban Land Ceiling and Regulation Act 1976 (ULCRA). This law imposed certain ceilings on holding of urban land. It has been repealed in most Indian states, but still applies in a few states. In addition, certain approval requirements continue to apply where disposal of certain lands is envisaged even in those states where the statute has been repealed. For example, if an order under the ULCRA contains a restriction on transfer of land, the restriction may be valid and permission of the government would be required for the transfer even though the ULCRA has been repealed. However, this has been challenged before the competent courts (the action is pending).
Land Acquisition Act 1894. This Act authorises the government to acquire land for "public purposes". This law sets out the detailed procedure for such acquisition, the price payable for land to be acquired and the related matters.
In addition to federal legislation, some state laws may be applicable. Therefore, in Maharashtra state (where Mumbai, India's commercial capital, is located), the following laws apply in addition to the laws above, among others:
The Maharashtra Land Revenue Code 1966.
The Bombay Tenancy and Agricultural Lands Act 1948.
The Maharashtra Rent Control Act 1999.
The Maharashtra Agricultural Lands (Ceiling on Holdings) Act 1961.
The Maharashtra Regional Town Planning Act 1966.
The Mumbai Municipal Corporation Act 1888.
The term real estate denotes immovable property as defined under various statutes and generally includes:
Land.
Buildings and other structures permanently attached to the land.
Units in buildings including apartments, flats, commercial units and office spaces.
Things which are attached to earth or permanently fastened to anything which is attached to earth.
The ownership of land, buildings and structures is registered in the same register, which is maintained under the Registration Act 1908. The register will indicate whether the land and the building on it are owned by the same person or not.
Title to real estate is evidenced by a combination of the following:
Registration of the instrument of transfer with the relevant registration authority (usually, the Sub-registrar of Assurances).
Taking possession of the immovable property.
Updating the details of the document registered and the owner's name in the relevant land records relating to the immovable property.
To ensure that the document evidencing ownership or interest in real estate can be relied on as evidence, stamp duty applicable in the relevant state in India must be paid on the document. Once the document is executed, it must be registered with the relevant Sub-Registrar of Assurances (Registration Act 1908). The document must be registered within four months from the date of execution of the document (which may be extended with certain approvals).
The main information and documents registered in the registration office comprise:
A detailed description of the property.
Names and addresses of the seller, the buyer and the witnesses.
Particulars of the document registered with the registration authority in relation to the property in question.
Documents registered in the public register of title become public documents and are therefore accessible to the general public. Copies of documents can be obtained by any person by making an application in the prescribed manner.
Therefore, confidential information that forms part of a document registered with the title registration authority cannot be protected from disclosure.
State guarantee of title is not yet available. However, it has been proposed to enact a law that will provide for state title guarantee.
In some states, the land authorities can issue the no-encumbrance certificate in relation to the real estate. Although this certificate does not qualify as a guarantee on title, it mitigates the risks involved to an extent. The land authorities in the State of Maharashtra do not issue such certificates.
Immovable properties are usually freehold or leasehold.
Freehold property means that the owner has absolute ownership rights in respect of the property, including the right to transfer the property. Leasehold property means that the holder of the property has the right to enjoy property for a certain period or in perpetuity for a specified consideration and subject to any other terms and conditions.
Immovable properties can also be held under a leave and licence. This gives the property holder a bare licence to use the property; the ownership title belongs to another person.
Real estate is marketed by developers, individuals, and financial institutions, among other things, through various advertising mediums (print media mainly but also television, radio, exclusive real estate exhibitions (which are increasingly becoming popular) and real estate listing websites).
Commercial negotiation generally takes place once the buyer has conducted a site inspection of the target property and confirms its willingness to buy the property. Commercial negotiations cover the following:
Sale price.
Details of the property proposed including, for example:
all expenses related to the property;
encumbrances in relation to the property;
approvals/permissions/consents required for the purchase;
facilities/amenities being offered with the property.
Terms of payment of the sale price including the timeline.
Timeline for legal due diligence by the buyer.
Timeline for completion of the transaction.
Once the parties to a sale transaction have completed commercial negotiations, the main terms of their agreement are recorded in a memorandum of understanding, which is a relatively informal document, or in a more formal agreement for sale.
An agreement for sale would essentially record the following aspects:
The sale price of the real estate.
Details of the real estate being sold, any accompanying facilities, and details of applicable charges.
Any conditions precedent to be fulfilled prior to the purchase of the property (for example, clearing all encumbrances in relation to the property and approvals to be obtained).
Payment schedule (if any).
Details of legal due diligence to be undertaken including the investigation of the seller's title.
Time frame for completion of the transaction.
Often the buyer pays a part of the consideration to the seller as a token amount under the agreement for sale.
An agreement for sale is subject to stamp duty in accordance with the laws in the relevant state.
In many cases, the buyer and the seller may directly execute a deed of conveyance or sale deed (see below, Sale contract), and not enter into an agreement for sale.
Once the conditions precedent have been satisfied (if any), the parties typically execute a sale deed or a deed of conveyance. Appropriate stamp duty must be paid on the document.
Under the sale deed or deed of conveyance, all the rights, title and interest of the seller is transferred and conveyed to the buyer in return for the consideration set out in the document. A sale deed or deed of conveyance is essential to establish the buyer's ownership of the property.
Both an agreement for sale and a deed of conveyance/sale deed are legally binding and enforceable only if they fulfill the following requirements:
All essential requirements for a valid contract as provided under the Indian Contract Act 1872 are satisfied.
Stamp duty is payable (see Question 18).
Registration of the document with the jurisdictional registration office as provided under the Indian Registration Act 1908.
In addition, the documents must clearly reflect the intention of the parties that the document is binding to enable the courts to consider it. In this regard, if the parties specifically mention that some provisions of the document are not binding then the same cannot be considered binding on the parties.
Upon execution of the Sale Deed or Deed of Conveyance, the buyer and seller must register the same before the relevant Sub-Registrar of Assurances (Registration Act 1908).
The registration of a tangible immovable property is compulsory if the value of such property exceeds INR100 (as at 1 September 2012, US$1 was about INR55.4) (Registration Act 1908). Therefore, the title can be said to pass to the buyer once registration is completed.
The seller must do the following in a disposal of real estate, among other things (Transfer of Property Act 1882):
Before completion of the sale:
disclose material defects;
produce title deeds;
answer queries in relation to title;
execute the conveyance.
After completion of the sale:
deliver possession of the property to the buyer;
deliver the title deeds and documents upon the full payment of consideration.
Real estate due diligence typically comprises the following:
Review of all the title documents including the title documents of the previous owners to ascertain and verify the title of the seller and the validity of the documents.
Review of the land records of the property to ensure the validity of the seller's title.
Enquiries to the seller concerning, for example, the physical attributes of the property, and the technical and environment related aspects of the property.
Searches of the land registries where the property is located to ascertain any encumbrances in relation to the property and to confirm the seller's good title.
If the seller is a company, searches with the Registrar of Companies to ascertain whether there are any charges on the property that have been registered with the Registrar.
Public notice, typically in two widely circulated newspapers in the area where the property is located. The public notice is usually issued in English and in one other local language. The notice invites claims and objections from the general public in relation to the proposed sale of property.
Physical inspection of the property, usually by an architect.
Obtaining a report from an architect on the physical attributes of the property that also serves to establish whether the property is reserved for public purposes.
Obtaining a declaration on oath on title from the seller confirming the factual position relating to the seller's title to the property which should include any defect of title that the seller seeks to disclose.
Based on the findings, the buyer's lawyers consider and confirm whether the seller's title to the property is clear, marketable and free from encumbrances.
A Sale Deed or a Deed of Conveyance typically covers representations and warranties in relation to the immovable property. These include the following:
That the seller has clear and marketable title to the immovable property free from any encumbrances, liens or charges.
That the seller has absolute ownership, possession and use of the property.
That the seller has the absolute right, power and authority to assign, sell, transfer and convey the property in the manner set out in the Sale Deed or Deed of Conveyance.
That there are no outstanding payments in relation to the property including in terms of taxes and levies.
That there are no litigation proceedings, or any prohibitory or attachment orders or any notices from the authorities for acquisition of the property.
That there are no easement rights enjoyed by any person over the property.
That no third party approvals are required for the sale and transfer of the property.
The liability of an owner or occupier is dependent on the:
Contractual arrangement between such owner or occupier and the person from whom it purchased the property.
The nature of the defect on account of which such liability has arisen.
The seller must disclose any material defect in the property or in the seller's title, which the seller is aware of and the buyer is not aware of and which the buyer could not in the ordinary course of diligence discover. The defect must be material and the test of materiality is that the defect must be of such nature that it might be reasonably supposed that if the buyer had been aware of it, the buyer may not have entered into the contract at all for it would be getting something different from what it had contracted to buy.
A few instances of material defect are:
Existence of a restrictive covenant attached to the property.
Existence of a public right of way over the property that could not be discovered with ordinary care.
Existence of a permanent lease granted in relation to the property.
In any event this seller's obligation is subject to contractual provisions in the contract. Also, where the seller expressly undertakes to indemnify the buyer if any defect is discovered, it is liable in damages on the discovery of the defect even though it was not previously aware of it.
This is a matter of the parties' agreement (see also Question 14).
As normal industry practice, the following costs are typically borne by the buyer:
Stamp duty and registration fees.
Legal due diligence costs.
Fees of advisers and consultants such as, for example, lawyers, architects, environment consultants and brokers, engaged by the buyer.
As a matter of practice, the following costs are typically borne by the seller:
Costs for obtaining any approvals required for the sale of the property.
Costs for making out a clear and marketable title to the property.
Fees of consultants such as lawyers, architects and brokers, engaged by the seller.
VAT is a state tax in India and therefore, the relevant state law determines the applicability of VAT and its rates.
In the state of Maharashtra, the levy and collection of tax on sale and purchase of certain goods is governed by the Maharashtra Value Added Tax Act 2002 (MVAT Act), which came into force on 1 April 2005. There has been some litigation concerning the imposition of VAT in the state of Maharashtra. As a result, the MVAT Act was amended with effect from 20 June 2006 and VAT was specifically imposed on the sale and purchase of flats, building units, bungalows, buildings or premises under construction, at the rate of 5% of the total contract value in case of a construction contract. The validity of this amendment was challenged before the Bombay High Court, which did not consider the challenge, and the matter is therefore pending before the Supreme Court.
Subsequently, a Circular dated 6 August 2012 was issued by the government of Maharashtra which states that property developers are liable to pay VAT at the rate of 5% from 20 June 2006 to 31 March 2010 and at the rate of 1% from 1 April 2010 onwards.
In addition to VAT, if any, a buyer who buys a property under construction also must pay service tax at the rate of 3.09% of the agreement value subject to prescribed conditions.
Generally, the buyer agrees to pay stamp duty and registration fees on a sale of immovable property unless the buyer and seller agree otherwise.
The stamp duty rate varies by state, and depends on various factors such as, for example:
The consideration paid under the contract.
The type of property.
The location of the property.
The market rate as determined by government guidelines.
In the State of Maharashtra, the standard stamp duty rate for sale and transfer of immovable property is 5% of the market value of the property or the consideration, whichever is higher, subject to the above factors.
In addition, there may be taxes specific to the nature of the property to be paid, for example if the land is occupied by a protected tenant as recognised under the Bombay Tenancy and Agricultural Lands Act 1948. In the case of leasehold properties, transfer premium may have to be paid to the land owning authority/landlord before the sale and transfer of the property.
Capital gains are divided into short term and long term capital gains depending on the nature of the assets:
Short term capital gains are payable in respect of assets which are held by the investor for a period of less than three years. These capital gains are subject to income tax at the rate applicable to the investor.
Long term capital gains are payable in respect of assets which are held for more than three years. The tax rate is calculated in accordance with the Cost Inflation Index which is determined by India's central bank (Reserve Bank of India) (RBI) from time to time and is taken into consideration for determining the taxable gain. For the purposes of computing long term capital gains, the consideration received from the sale of the property, the cost of acquisition of such property and the expenses incurred in relation to the property (for example, improvements) are taken into consideration.
Long term capital gains tax is not payable if the seller (a natural person or Hindu undivided family) either:
Invests the amount equal to sale proceeds in another residential property within one year before or two years after the sale, or constructs a residential building within a period of three years from the sale.
Invests the sale proceeds in government bonds as specified within six months from the sale and keeps the investment for three years from the sale.
Although no federal or state legislation has been enacted in relation to greenhouse gas emissions, India is a signatory to the Kyoto Protocol which imposes obligations on the signatory nations to reduce their emissions of greenhouse gases.
There are certain codes in place which lay down guidelines the developers must comply with while constructing and developing buildings which include the following:
Energy Conservation Building Code. This Code was launched in May 2007 by the Ministry of Power to promote energy efficiency in the building sector.
National Building Code. Issued by the Bureau of Indian Standards, this Code serves as a model code to be complied with by the entities involved in developing and construction activities with a view to conserve energy.
There are certain other mechanisms in place, such as:
Environment Clearance for Large Construction Projects. Developers must obtain an Environment Impact Assessment and Clearance certificate from the Ministry of Environment and Forests for building and constructing projects that meet certain threshold requirements.
Leadership in Energy and Environmental Design (LEED) India. The LEED Rating System certifies buildings after evaluating their performance in respect of:
sustainable area development;
water savings;
energy efficiency;
materials selection; and
indoor environmental quality.
Green Rating System. The LEED Rating System mainly relates to air conditioned buildings, while most of the buildings in India are non-air conditioned. The Energy and Resources Institute introduced the Green Rating System to certify new commercial, institutional and residential buildings.
It is common for companies to use the services of professional firms specialising in real estate services to manage their real estate portfolios as well as to fulfil their accommodation needs. The services provided by such companies include:
Project and asset management.
Facility management services.
Lease administration.
Project and development services.
Transaction management, which includes land acquisition and disposal, occupancy planning, tenant representation, and real estate related research services.
India's foreign exchange regulations impose significant restrictions on the ownership and occupation of real estate by persons resident outside India.
Non-residents can be categorised as follows:
Person who is a citizen of India but not resident in India.
Person who is of Indian origin but not resident in India.
Person who is neither a resident nor of Indian origin.
The persons falling under the first and second categories above are entitled to acquire immovable property, subject to such property being commercial and residential properties and not agricultural land, plantations or farmhouses. Further, an acquisition must be made out of funds received in India from overseas or funds held in certain domestic accounts maintained in India in accordance with foreign exchange regulations.
Persons falling in the third category are not permitted to acquire immovable property in India but they are entitled to make investments in Indian companies (either as a joint venture or a wholly owned subsidiary) for the purpose of construction-development activities and for the development of industrial parks, subject to certain conditions being satisfied.
In addition, foreign investment regulations impose several conditions on construction/development projects including the minimum built-up area or size of project, minimum capitalisation requirements and certain lock-in requirements.
A change of control of a company does not generally affect the ownership of immovable property.
However, lease documentation or regulations relating to government leases may impose restrictions on change of control or composition of the lessee, whereby the lessee is required to obtain the lessor's approval before any change of control, or pay certain "transfer premium" in the case of such change.
The Land Acquisition Act 1894 authorises the state to acquire privately held land for public purposes. The term public purpose has been significantly expanded by case law and can include a variety of economic activities including those by private parties. For example, land may be acquired for public purposes when it acquired for the following:
Villages, development or improvements to the existing village sites.
Town or rural planning.
Public offices.
Any development scheme sponsored by the government.
An owner whose land is compulsorily acquired is entitled to receive:
Compensation, which is determined in accordance with the market value as on the date of the publication of the acquisition notification.
Interest calculated from the date of the acquisition notification until the date of the acquisition order or the date of taking possession of the land, whichever is the earlier.
Additional compensation of 30% of the market value.
The government is in the process of preparing a new law; the Land Acquisition, Rehabilitation and Resettlement Bill 2011 has been passed. The compensation and the procedure for compulsory acquisition of the land will be subject to the new law, if and when it is legislated by the Indian Parliament (see Question 43).
In addition to the above, there are local regulations according to which the owner of compulsorily acquired land is entitled to additional monetary compensation.
Where the land is reserved for public use under the local development plan (for example, public use areas such as playgrounds or schools) the land reserved must be surrendered by the owner to the authority, in return for compensation calculated on the basis of the floor space index (FSI) (the ratio of the building's total floor area to the size of the parcel of land on which it is used).
Municipal assessment taxes are determined from time to time by the municipal authorities and differ by municipality, accordingly.
The calculation of municipal taxes and the applicable exemptions can be summarised as follows:
All the private properties (lands or lands with buildings attached), whether freehold or leasehold, are subject to assessment taxes.
The taxes are computed based on the capital value of the property (which is based on market value), as opposed to the rateable value system.
The following properties are exempted from municipal assessment taxes:
land or land with buildings attached owned, occupied or used by the state or the central government;
properties owned by public authorities;
land reserved for public use under the development plan (for example, playgrounds, gardens and roads).
Properties owned and used by public charitable trusts such as, for example, temples, hospitals, and schools, are partially exempted from the assessment taxes.
The municipality generally has the powers to recover such taxes by charging penalties or interest in case of non-payment and also by attaching and auctioning properties. Criminal liability may arise for other related offences such as, for example, failure to provide information by the occupier.
Various methods are used to finance acquisitions of large real estate portfolios, such as, for example, debt, or equity or mezzanine financing.
The common ways to finance real estate acquisitions or that of companies that own the real estate assets, is through:
Domestic banking loans (subject to certain restrictions concerning the acquisition of land).
Private equity funding.
Formation of joint ventures.
Other financing structures including lease rental discounting, and revenue assignment.
Real estate is most commonly used as collateral for loans, by creation of mortgages to secure such loans. Other forms include lease rental discounting transactions and creating security over future rentals in favour of lenders.
The Transfer of Property Act 1882 deals with the types of mortgages that can be created over immovable properties. A mortgage is essentially a transfer of interest in immovable property for the purpose of securing financing advanced or to be advanced by way of a loan or other debt obligation.
While the Transfer of Property Act 1882 provides for six types of mortgages, the most common forms of mortgage are a mortgage by deposit of title deeds and an English mortgage, discussed below:
Mortgage by deposit of title deeds. This mortgage is created where the mortgagor delivers the title deeds of the mortgaged property to the mortgagee with the intent to create a mortgage in favour of the mortgagee. This is also known as an "equitable mortgage", and no formal mortgage document is executed between the mortgagor and the mortgagee. As a practical matter, however, the creation of such mortgage is recorded in writing by the mortgagor or the mortgagee.
English mortgage. This mortgage is created where the mortgagor executes a mortgage deed whereby the mortgagor undertakes to repay the debt and absolutely transfers the mortgaged property in favour of the mortgagee, subject to the condition that on repayment of debt, the mortgaged property will be transferred back to the mortgagor.
In case of an English mortgage, the mortgage deed must be adequately stamped and registered with the Sub-Registrar of Assurances in the prescribed manner. In case of a mortgagor being a company, perfection of mortgage also requires the filing of certain forms with the Registrar of Companies providing the particulars of the English mortgage or the equitable mortgage.
Real estate securitisation is very common in India and usually comprises securitisation of current and future real estate cash flows and receivables as well as securitisation of real property. However, commercial mortgage backed securities are gaining importance.
Leases are primarily governed by the Transfer of Property Act 1882.
As a general rule, parties are free to negotiate the contractual terms of the lease including their respective rights, duties and obligations. However, in case of contractual leases entered into between a private entity and the government, the lessees are usually constrained to accept the lease terms offered by the government and do not have much flexibility to negotiate.
A formal lease requires a lease deed to be executed between the lessor and the lessee. Stamp duty applicable in the relevant state in India is payable on the lease deed.
The lease deed must be registered with the relevant registration authority (Indian Registration Act 1908) (see Question 5).
As a general rule, rents payable can be negotiated and agreed between the parties and such terms will be binding on the parties.
However, rent control legislation that applies in many states control rent levels. For example, in the State of Maharashtra, the Maharashtra Rent Control Act 1999 imposes restrictions on the rent that can be charged. Under this Act, a landlord can increase the rent only as follows:
At the rate of 4% per annum in respect of the premises let out to a lessee.
For carrying out any structural repairs or changes to the property, subject to the increase not exceeding 15% per annum of the expenses incurred in carrying out such repairs or changes.
If the landlord must make certain payments to the statutory authorities including rates, tax, and charges.
Notably, the following leases are exempted from the provisions of the Maharashtra Rent Control Act 1999:
All premises belonging to the government or local authorities.
Premises let or sub-let to:
banks (as defined under the Act);
public sector undertakings or corporations established under any state or federal law;
foreign missions;
international agencies;
multinational companies; and
private and public limited companies having a paid up share capital of INR1 million or more.
The term of lease can be agreed by the parties. For example, leases can be given for very long terms or for an indefinite period.
As a general rule, renewals of leases are governed by the terms of the lease deed. A lessee does not have a statutory right to renew the lease. However, the lease deed may provide the lessee an option to renew the lease deed on terms set out in the deed or as mutually agreed with the lessor.
The tenant has the statutory right to hold and occupy the leased premises for the duration of the lease, subject to termination rights under the lease deed (see Question 38).
A lessee is typically restricted under the lease deed from disposing of or encumbering its leasehold rights. A lessee is usually required to obtain the lessor's prior permission to dispose of or mortgage the lessee's interests. Further, the lessee may be required to pay certain transfer fees as agreed between the parties, and other conditions may be imposed. Finally, the transfer of rights by the lessee does not absolve it of its contractual liabilities towards the lessor.
Absent a restriction in the lease deed, the lessee can transfer its interest in the leased property in the following manner:
Mortgage.
Sub-lease (all or part of the property).
Assignment of tenancy rights.
Subject to the lease deed, the lessee can share their business premises with companies in the same corporate group. It is common to include this right in lease deeds.
As a general rule, the obligation to keep the leased premises in good repair can be imposed on any party to the lease.
However, in the state of Maharashtra, under the leases to which the Maharashtra Rent Control Act 1999 applies (see Question 32), it is the landlord's responsibility to carry out repairs and keep the leased premises in good condition, but this obligation can be contractually imposed on the lessee under the lease deed.
The law does not specifically require parties to insure the property. This obligation can be imposed on any of the parties under the lease deed. As a matter of practice the landlord generally insures the property. However, in a long term lease, the onus is mostly on the tenant.
The grounds on which the landlord or the tenant can terminate a lease are usually set out in the lease deed.
The usual grounds on which the landlord can terminate a lease include the following:
A breach by the lessee of the terms and conditions of the lease deed.
Default in payment of rent.
Tenant's insolvency or bankruptcy.
The use of property not for purposes permitted under the lease deed.
The tenant can terminate the lease on the happening of any of the following events:
Breach by the landlord of the terms and condition of the lease deed.
Tenant's insolvency.
The property is destroyed and unfit for use by the tenant.
Default by the landlord in payment of statutory outgoings in respect of the property
Finally, any lease can be terminated once the term expires if the parties mutually agree to terminate the lease.
A lessee's insolvency usually is a ground for termination of the lease (see Question 38, Landlord).
The authorities that regulate planning control and property development differ from state to state.
In the state of Maharashtra, the regional and town planning authorities include the following:
Mumbai Municipal Corporation.
Mumbai Metropolitan Region Development Authority.
Maharashtra Housing Area Development Authority.
Maharashtra Industrial Development Corporation.
City and Industrial Development Corporation.
Maharashtra Regional Town Planning Authority.
Slum Rehabilitation Authority.
The laws that apply to planning and development aspects include the:
Development Control Regulation for Greater Bombay 1991.
Maharashtra Region and Town Planning Act 1966.
Mumbai Municipal Corporation Act 1888.
Maharashtra Slum Areas Act 1971.
Maharashtra Housing and Area Development Act 1976.
See Question 42.
The planning consents and procedures differ from state to state.
In the state of Maharashtra, the following key permissions and consents are required to authorise the commencement of real estate development projects:
Building Layout Approval.
Commencement Certificate/Intimation of Disapproval.
Non-agricultural Permission (if land is agricultural land).
No-objection Certificates from the various authorities.
Environmental permissions.
Zoning permissions.
Occupation or Completion Certificate.
Utility services permissions.
The permissions may vary depending on the type of the project and location, among other things. For instance, for slum rehabilitation projects, certain additional approvals are required from the Slum Rehabilitation Authority.
In granting certain material permissions, the authorities may be required to consult with third parties before granting such permissions. A typical example is environmental approvals, in relation to which third parties must be heard in many cases.
A public inquiry can be initiated on various grounds. Some of the key areas of concern include environmental issues, encroachments on public spaces, and violation of building rules and regulations.
The Municipal Commissioner must convey his decision within 30 days of receipt of the application for construction. Should the applicant not receive the decision within this time frame, the applicant is entitled to proceed with the proposed project subject to complying with the provisions of the Mumbai Municipal Corporation Act 1888 and the bye-laws made under this Act.
The rights of the aggrieved party to file an appeal depend on the facts and circumstances of the case.
There are certain significant proposals to reform real estate law in India, which can be summarised as follows:
Maharashtra Housing (Regulation and Development) Bill 2012. This Bill proposes to establish:
a real estate regulatory authority in Maharashtra State to be responsible for regulation and planned development in the real estate sector, and to ensure the sale of immovable properties in an efficient and transparent manner, and to protect consumers interests;
an appellate tribunal to adjudicate disputes and hear appeals for real estate connected matters.
The Maharashtra Legislative Assembly has passed this Bill on 16 July 2012 and the Bill is now awaiting the assent of the President after which it will come into effect. However, the implementation of the Bill is likely to be delayed as a significant number of rules must be issued once the Bill becomes law, to render the law operational.
Land Acquisition Rehabilitation and Resettlement Bill 2011. The Ministry of Rural Development has prepared a preliminary draft of the Land Acquisition and Rehabilitation and Resettlement Bill 2011. The objective of the Bill is to facilitate compulsory land acquisition for various public purposes including infrastructure development, industrialisation and urbanisation, while addressing the concerns of farmers and those whose livelihoods are dependent on the land being acquired. This law is expected to dramatically alter the land acquisition process as well as the compensation payable to land owners. The Bill is yet to be approved by the Indian Parliament.
Real Estate (Regulation & Development) Bill 2011. In essence, this Bill seeks to:
establish a regulatory oversight mechanism to enforce disclosure, fair practice and accountability norms in the real estate sector; and
provide adjudication machinery for speedy resolution of disputes.
The Bill aims at restoring confidence of the general public in the real estate sector by instituting transparency and accountability in real estate and housing transactions. The Bill also seeks to establish a real estate regulatory authority in each state with specified functions, powers, and responsibilities to facilitate the orderly and planned growth of the real estate sector. It also seeks to impose strict disclosure obligations for developers, including, for example details of the developer and project, and land status. The Bill is still in its early stages and is not expected to come into effect in the near future.
Main activities. CREDAI is the apex body of private real estate developers in India representing over 8,800 developers through 20 member associations in the country. The association links the members to the government and customers through numerous initiatives and activities.
Main activities. BAI provides business opportunities and promotes healthy competition among contractors and has a direct membership of 13,000 constructors and indirect membership of 50,000 constructors affiliated to it through various regional associations.
Main activities. The chamber is a representative organ of corporate India which articulates the genuine legitimate needs and interests of its members. Its mission is to impact the legislative and economic policies so as to foster a balanced economic, social and industrial development.
Main activities. The BMC is a public body that governs the city of Mumbai. It is responsible for public hospitals, education, and infrastructure of the city, among other things.
W www.maharashtra.gov.in/Site/Home/Index.aspx
Description. The official website of the government of Maharashtra. Includes details in relation to various departments/sectors, notifications and circulars. Maintained by the government of Maharashtra, periodically updated. The website is in English.
Description. The official website of the Department of Registration and Stamp Duty. Includes details in relation to online facilities such as, for example, access to public data, notifications issued. Maintained by the government of Maharashtra, periodically updated, in English.
Description. The official website of the government of India. Includes details in relation to various departments/sectors, notifications and circulars. Maintained by the government of Maharashtra, periodically updated, in English.
Description. The official website (in English) of the Reserve Bank of India (RBI). Includes details in relation to its departments, the Reserve Bank of India Act 1934, RBI circulars, policies, press notes, guidelines, and so on. Maintained by the RBI.
Description. Unofficial website containing some relevant legislation in English, such as Foreign Exchange Management Act 1999, as well as regulations, circulars, and notifications, among others. Periodically updated.
Description. The official website of the Slum Rehabilitation Authority (in English). Details in relation to the slum rehabilitation statute, process outline for slum redevelopment projects, and notifications, among others. Maintained by the Slum Rehabilitation Authority, periodically updated.
Description. The official website of the Maharashtra Industrial Development Corporation (MIDC). Includes details in relation to the MIDC statute, process of sale /leasing, purchase of MIDC lands, notifications, and policies, among other things. The website, maintained by the MIDC, is in English and is periodically updated.
T + 91 22 6639 6880
F + 91 22 6639 6888
E sai.krishna@azbpartners.com
Qualified. India, 1995
Areas of practice. Foreign direct investment with a specific focus on the real estate sector; joint ventures; fund formation activities.
Recent transactions
Advising GIC, Singapore, in relation to their investment in a joint venture with an Indian developer.
Advising Morgan Stanley's real estate funds in connection with their investment in an Indian real estate development.
T +91 22 6639 6880
F +91 22 6639 6888
E monika.bhonsale@azbpartners.com
Qualified. India, 2000
Areas of practice. Real estate.
Recent transactions
Advising on real estate transactions relating to sale and purchase of properties, development agreements, and leases, including conducting title due diligence, and negotiating and finalising transaction documents.
