Buying an under-construction property can offer buyers access to new developments, modern amenities and flexible payment structures. It also involves risks which may not arise in the same way when purchasing a completed property. The project may still be under development, approvals may be pending, possession may be some time away and the final property may depend on plans and specifications agreed during the purchase.
For this reason, buyers should look beyond the price and location before committing their funds. Legal due diligence can help identify concerns relating to the developer, project approvals, title, agreement terms, possession and payment obligations.
Check the Developer’s Title and Rights Over the Land
Before buying an under-construction property, buyers should understand whether the developer has valid rights over the land on which the project is being developed.
The developer may own the land or may have acquired development rights through an arrangement with the landowner. In either situation, the underlying title and development rights deserve careful examination.
Buyers should review the information disclosed for the project and understand whether there are any known claims, encumbrances or disputes affecting the land. A project being marketed by a recognised developer does not remove the need for appropriate legal verification.
Verify the Project’s RERA Registration
The Real Estate (Regulation and Development) Act, 2016 has significantly changed the way qualifying real estate projects are regulated in India. Buyers should check whether the project is registered with the relevant state Real Estate Regulatory Authority, where registration is required.
The project's registration details can provide useful information about the promoter, proposed completion date, approvals, development plans and other disclosures.
Buyers should compare the information available on the regulatory authority's website with the details provided by the developer. Differences in project details, timelines or specifications should be clarified before the purchase.
Examine the Approved Plans and Project Specifications
An under-construction property is sold before the buyer can fully inspect the completed premises. The approved plans and specifications therefore become particularly important.
Buyers should examine the sanctioned plans, layout and details of the proposed apartment or unit. The carpet area, floor, unit number, parking arrangements and promised amenities should be clearly understood.
Changes to plans or specifications can have significant consequences. Buyers should therefore examine the agreement for provisions dealing with alterations and understand the circumstances in which the developer may make changes.
A buyer should be cautious about relying only on brochures, advertisements or verbal promises. Important features should be properly reflected in the contractual documents.
Read the Agreement for Sale Carefully
The agreement for sale is one of the most important documents in an under-construction property transaction. Buyers should read it carefully before signing or making substantial payments.
The agreement should clearly record the property details, sale consideration, payment schedule, possession date and obligations of both parties. Provisions relating to cancellation, default, interest, delay and dispute resolution also deserve close attention.
Buyers should not assume every clause is standard simply because the developer uses the same agreement for multiple purchasers. A contractual provision can have significant consequences if the project is delayed or the transaction does not proceed as expected.
Where the agreement contains complex provisions, seeking advice from real estate lawyers can help buyers understand their rights and obligations before signing.
Understand the Payment Structure
Under construction projects often involve payments linked to construction milestones. Buyers should understand when each payment becomes due and whether the agreement clearly identifies the relevant stages.
Buyers should also consider the consequences of delayed payments. Interest, cancellation or other contractual consequences may apply depending on the agreement and applicable law.
The buyer should retain records of all payments, correspondence and documents relating to the transaction. These records can become important if a dispute arises later.
Check the Possession Date and Delay Provisions
Possession is one of the most important concerns for an under construction property buyer. The agreement should specify the expected date of possession and explain the consequences of delay.
Buyers should examine the contractual provisions relating to compensation, interest, refund and termination. The applicable legal framework may also provide remedies in cases of delayed possession, depending on the circumstances.
It is important to distinguish between a projected completion date mentioned during marketing and the legally relevant date recorded in the transaction documents.
A buyer should therefore focus on the contractual documents and project disclosures rather than relying solely on sales representatives' assurances.
Understand the Carpet Area and Other Charges
Buyers should understand precisely what they are paying for. The carpet area should be clearly stated, along with the consideration payable for the property.
Other charges can include amounts relating to maintenance, parking, amenities, infrastructure, utility connections, taxes and other expenses. The buyer should understand which charges are included in the quoted price and which may be payable separately.
Unclear cost structures can lead to unexpected financial obligations. The agreement should provide sufficient clarity before the buyer commits to the transaction.
Check the Completion and Occupancy Requirements
Possession of a completed apartment involves more than finishing the physical construction. Relevant approvals and certificates may also be required before lawful occupation, depending on the applicable local regulations.
Buyers should understand the documents required for possession and occupation of the property. They should also verify whether the project has received the relevant approvals at the appropriate stage.
Taking possession without understanding the status of necessary approvals can create practical and legal complications.
Review Cancellation and Refund Provisions
Buyers should understand the circumstances in which they can cancel the transaction and the financial consequences of doing so.
Similarly, the agreement should be examined for provisions dealing with cancellation by the developer, refund of amounts paid and applicable interest.
Cancellation clauses can become particularly important when possession is delayed, the project undergoes significant changes or contractual obligations are not fulfilled.
A buyer should understand these provisions before signing rather than attempting to negotiate an exit after a dispute has arisen.
Consider the Dispute Resolution Mechanism
Property transactions can give rise to disagreements involving payment, possession, construction quality, contractual obligations or delays. The agreement should therefore be reviewed for its dispute resolution provisions.
Depending on the agreement and the nature of the dispute, mechanisms such as proceedings before the relevant regulatory authority, consumer remedies, civil proceedings or arbitration for real estate disputes may become relevant.
The presence of an arbitration clause does not automatically determine every available remedy. Buyers should understand the wording of the agreement and the applicable legal framework before deciding how a dispute should be addressed.
Conduct Legal Due Diligence Before Paying a Major Amount
The most effective time to identify legal risks is before the transaction becomes difficult to reverse. Buyers should consider conducting due diligence before signing the agreement or making substantial non refundable payments.
The review should cover the developer's rights over the land, project approvals, regulatory disclosures, agreement terms, payment obligations and possession provisions. The scope of the review should reflect the nature and value of the property.
A careful review does not guarantee a completely risk free transaction. It does, however, give the buyer a better understanding of the legal position and the contractual protections available.
Conclusion
An under construction property requires careful assessment because the buyer is committing funds towards an asset which is still being developed. The risks can involve title, approvals, project registration, construction timelines, payment obligations, contractual terms and possession.
Before signing, buyers should verify the project's legal and regulatory position, examine the agreement for sale, understand the payment structure and carefully review the developer's obligations.
A property purchase is a substantial financial commitment. Taking time to examine the legal position before signing can help buyers make an informed decision and reduce the risk of avoidable disputes during the construction and possession stages.
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