Direct Transfer of Under Construction Property

Transfer of Under Construction Property is one of the most complex topics in real estate. It is situational and there are no right or wrong answers. Transfer of Under Construction Property depends on multiple factors like Construction Status, Home Loan of a Seller, Builder or Landowner share etc. The buyer is in a dilemma on how to make payment and what is the right procedure to execute the deal. The situation is complex if the occupancy or completion certificate is issued, but the property is yet to be registered. Another confusion is who will bear the cost of VAT and Service Tax i.e. buyer or a Seller. In my post, Buy Resale Under Construction Property i tried to explain all the imp points which a buyer should take care at the time of Transfer of Under Construction Property. The right and the best way, which is being followed for Transfer of Under Construction Property is through tri-party transfer deed or assignment deed. As i explained that this deed is signed by the buyer, the seller and the builder as a confirming party.

This post is dedicated to new form of transfer i.e. bi-party transfer of Under Construction Property which is executed between the buyer and a seller. It is also known as Direct Transfer of Under Construction Property. In short, the builder is not a party to transfer or assignment deed. This mode of Transfer of Under Construction Property started from Maharashtra and now i am getting cases from other states like UP, Delhi, Haryana etc. In my opinion, this is not a fool-proof or a legally correct way to transfer the under construction property. Unfortunately, builders are not willing to cooperate with the seller. It’s a completely hassle free and convenient process for the builder. At the same time, Direct Transfer of Under Construction Property is riskier for buyer compared to tri-party transfer or assignment deed. First let’s understand how it works.

Direct Transfer of Under Construction Property – How it works?

1. Seller finds a new buyer for under construction property.

2. Seller approach builder for Transfer of Under Construction Property.

3, Builder issue NOC to seller mentioning that he does not have any objection in Transfer of Under Construction Property to the new buyer. I will write a separate post on imp points to be mentioned in NOC issued by the builder.

4. Based on builder’s NOC, Seller and Buyer execute Sale Agreement or Transfer Deed.

5. Seller submits this sale agreement with the builder.

6. Based on Sale Agreement, builder transfer allotment in the name of a new buyer in his records. In some cases, on demand of buyers home loan provider, builder endorse the sale agreement between the seller and the buyer.

Now this process is full of loopholes. NOC part, i will cover in my one of the future post which will be dedicated to NOC issued by the builder. Let’s check why a buyer should not agree to this process.

Direct Transfer of Under Construction Property

 1. Legal Transfer of Property Title: There is confusion between various govt departments on the transfer of property title. At a macro level, there is a supreme court ruling on the same subject. A property title can only be transferred through conveyance deed which is registered in Sub-Registrar office. This conveyance deed can only be executed when the property is constructed and ready for possession. In short, for under construction property the title of the property rests with the builder or landowner till Sale Deed or Conveyance deed is not executed in the favour of a buyer.

The contrary view is the ruling of income tax department. It states that for calculation of capital gain, date of allotment of under construction property will be considered as Date of acquisition. It implies that buyer vest the property title from Date of Allotment of under construction property.

I will go by the ruling of Supreme Court of India in this regard. Therefore, if buyer signs the transfer or assignment deed only with the seller then it is legally null and void. Reason being, property title is still not transferred to the seller by the builder. Subsequently, the seller is not authorized to transfer his rights or interest in a property to a buyer and only the builder can do so. In Direct Transfer of Under Construction Property, there is no agreement between buyer and the builder. The entire transaction is based on NOC issued by the builder.

2. High-Risk Transaction: As i mentioned that direct transfer of Under Construction Property is High-Risk transaction. To share an example, the entire transaction rests on builder NOC and seller always insist on direct payment from a buyer to seller. Recently, i came across a case in which seller got 3 NOC’s issued for the Transfer of Under Construction Property. He took money from all 3 buyers and is now absconding. As a buyer, you cannot ensure that NOC issued by the builder is the lone NOC and there is NO intent of financial fraud. This is one of the examples and there can be multiple possibilities of financial fraud.

3. Enforcement of Agreement: Assuming i bought a property from person A through Direct Transfer of Under Construction Property. We mutually agreed upon certain terms and conditions which we included in our bi-party agreement. Now tomorrow builder may refuse to accept these legal clauses as he is not a party to the agreement. Therefore, Sale Agreement or Assignment Deed signed between the seller and the buyer is legally not enforceable. Moreover, all the details like payment status etc in the agreement will be based on seller’s declaration. In future builder can always dispute any specific clause in the agreement. In case of landowner’s share, a buyer may land in a bigger trouble as total 5-6 parties are involved depending on the case to case basis.

4. Financial Implication: Lastly, any direct transfer of Under Construction Property can have a financial implication for the buyer. In such cases, i have observed that builder may put across illegitimate financial demands from the buyer. If buyer protest, the builder has a simple reply that he discussed these charges with the seller. Moreover, builder NOC does not mention anything on payment front therefore it is important that buyer should involve builder in the property transaction.

Concluding Remarks: To safeguard buyer’s interest in property transactions, It is advisable to enter into a tri-party agreement / assignment deed / transfer deed. It is the responsibility of a seller to convince builder. As a buyer, there is no compulsion or force to enter into an agreement. It is seller’s problem and by entering into a direct transfer of under construction property the buyer is risking his hard earned money. If buyer’s will not agree for direct transfer of Under Construction Property then builder’s will be forced to change the process.

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