Central laws governing Real Estate in India
Central laws governing Real Estate in India
Indian Contract Act, 1872
This legislation specifies when a party can be said to have the capacity to contract. A contract pertaining to realty can be entered into, among others, by an individual (who is not a minor or of unsound mind), partners of a firm, a corporate body, a trust, a sole corporation, the manager of an undivided family, and a foreigner. All the requirements of a valid contract, i.e. consideration, intention to contract and validity under the law of the land must be satisfied.
Transfer of Property Act, 1882
This lays down the general principles of realty, like part-performance and has provisions for dealing with property through sale, exchange, mortgage, lease, lien and gift. A person acquiring immovable property or any share/interest in it is presumed to have notice of the title of any other person who was in actual possession of such property.
Registration Act, 1908
The purpose of this Act is the conservation of evidence, assurances, title, publication of documents and prevention of fraud. It details the formalities for registering an instrument. Instruments which it is mandatory to register include:
(a) Instruments of gift of immovable property;
(b) Other non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, to or in immovable property;
(c) Non-testamentary instruments which acknowledge the receipt or payment of any consideration on account of instruments in (b) above.
(d) Leases of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent
Sales, mortgages (other than by way of deposit of title deeds) and exchanges of immovable property are required to be registered by virtue of the Transfer of Property Act. Evidently, therefore, all the above documents have to be in writing. Section 17 of the Act provides for optional registration. An unregistered document will not affect the property comprised in it, nor be received as evidence of any transaction affecting such property (except as evidence of a contract in a suit for specific performance or as evidence of part-performance under the Transfer of Property Act or as collateral), unless it has been registered. Thus the doctrine of part performance dealt with under Section 53 A of the Transfer of Property Act and the provision of Section 49 of the Registration Act (which provide that an unregistered document cannot be admissible as evidence in a court of law except as secondary evidence under the Indian Evidence Act) together protect the buyer in possession of an unregistered sale deed and cannot be dispossessed. The net effect has been that a large number of property transactions have been accomplished without proper registration. Further other instruments such as Agreement to Sell, General Power of Attorney and Will have been indiscriminately used to effect change of ownership.
Special Relief Act, 1963
This Act is only to enforce individual civil rights. A person dispossessed of immovable property without his consent (other than in due course of law) can recover possession by a suit filed within six months from the date of dispossession. Unless the contrary is proved, in a suit for specific performance of a contract, the Court shall presume that a contract to transfer immovable property is one in which monetary compensation for its non-performance would not afford adequate relief. The Court could also grant a permanent/ mandatory injunction preventing the breach of such contract and award damages.
Urban Land (Ceiling and Regulation) Act (ULCRA), 1976
This legislation fixed a ceiling on the vacant urban land that a ‘person’ in urban agglomerations can acquire and hold. A person is defined to include an individual, a family, a firm, a company, or an association or body of individuals, whether incorporated or not. This ceiling limit ranges from 500-2,000 square metres (sq. m). Excess vacant land is either to be surrendered to the Competent Authority appointed under the Act for a small compensation, or to be developed by its holder only for specified purposes. The Act provides for appropriate documents to show that the provisions of this Act are not attracted or should be produced to the Registering officer before registering instruments compulsorily registrable under the Registration Act.
The objective of acquiring the excess vacant land could not be achieved because of intrinsic deficiencies in the legislation itself. The provisions under Sections 19, 20 and 21 of the Act have together proved counter-productive to the objectives of the legislation. So far, only 19,020 hectares could be taken possession of by State Governments and Union Territories and the remaining land was locked up in various litigations2. This has only helped push up land prices to unconscionable levels and practically brought the housing industry to a stop.
This legislation was repealed by the Centre in 1999. The Repeal Act, however, shall not affect the vesting of the vacant land, which has already been taken possession by the State
Government or any person duly authorised by the State Government in this regard under the provisions of ULCRA. The repeal of the Act, it is believed, has eliminated the large amount of litigation and released huge chunks of land into the market. However the repeal of the Act has not been carried out in all states. Initially the repeal Act was applicable in Haryana, Punjab and all the Union Territories. Subsequently, it has been adopted by the State Governments of Uttar Pradesh, Gujarat, Karnataka, Madhya Pradesh and Rajasthan. Andhra Pradesh, Assam, Bihar, Maharashtra, Orissa and West Bengal have not adopted the Repeal Act so far.
Land Acquisition Act, 1894
This Act authorises governments to acquire land for public purposes such as planned development, provisions for town or rural planning, provision for residential purpose to the poor or landless and for carrying out any education, housing or health scheme of the Government. In its present form, the Act hinders speedy acquisition of land at reasonable prices, resulting in cost overruns.
The Indian Evidence Act, 1872
Under the Act, whenever the status of any person as the owner of a piece of immovable property of which he is shown to be in possession is questioned, the burden of proving that he is not the owner lies on the person who asserts that he is not the owner.
State laws governing real estate
While each state has its own set of laws, which govern planned development, rules for construction and floor-area-ratio (FAR) or floor-space-index (FSI) and formation of societies and condominiums, two laws that exist in every state, are the stamp duty and rent laws. Stamp Duty is being covered in a later section.
Rent Control Act
Rent legislation in India has been in existence for a very long time. Rent control by the government initially came as a temporary measure to protect the exploitation of tenants by landlords after the Second World War. However these rent control acts became almost a permanent feature. Rent legislation provides payment of fair rent to landlords and protection of tenants against eviction. Besides, it effectively allows the tenant to alienate rented property. Tenants occupying properties since 1947 continue to pay rents fixed then, regardless of inflation and the realty boom. Some of the adverse impacts of the Rent Control Act are:
(1) Negative effect on investment in housing for rental purposes
(2) Withdrawal of existing housing stock from the rental market
(3) Accelerated deterioration of the physical condition of the housing stock
(4) Stagnation of municipal property tax revenue, as it is based on the rent
(5) Resultant deterioration in the provision of civic services
(6) Increase in litigation between landlords and tenants.
The Rent Control Act, in fact, is the single most important reason for the proliferation of slums in India by creating a serious shortage of affordable housing for the low income families. Low and middle-income families typically live in rented accommodation all over the world and the need for such accommodation in our cities will only increase as the economy modernises, labour mobility increases and urbanisation takes place. It is, therefore, necessary to increase the stock of rental housing. Promotion of rental housing can have a significant impact on the economy in many ways:
(i) It reduces shortage of housing for a large section of the population who cannot afford ownership.
(ii) Housing construction being a labour- intensive activity, investment in housing generates employment for both skilled and unskilled labour.
(iii) Housing has backward and forward linkages with many other industries.
(iv) Rental housing helps in stabilising real estate prices and checking speculation and, thus, makes housing affordable for the weaker sections.
(v) It helps check proliferation of slums.
In the absence of rent control, dilapidated urban housing would be periodically pulled down and replaced by modern apartment buildings and other complexes leading to more rational use of prime locations and also creating a continuous process of urban renewal.
This has not happened in India because rent control combined with security of tenure provides no incentive for house owners to undertake renovation work. This explains the run down appearance of many of our buildings in prime locations, which gives Indian cities a much more shabby appearance than their counterparts in other developing countries.
Repeal of the Rent Control Act could unleash a construction boom as has happened in many major cities all over the world. This is not only necessary to meet the growing unmet demand for housing but it would also have a highly favourable effect on employment generation.
In 1992, the Central Government proposed a model rent control legislation, which was circulated to all states. The model Act proposed modification of some of the existing provisions regarding inheritance of tenancy and also defined a rent level beyond which rent control could not apply.
A New Delhi Rent Control Act based on this model law was passed in 1997 but it has not been notified to date because of resistance from traders who are sitting tenants. Only a few states have introduced the model Act.