Being a Joint Owner of a property is a casual affair in India. The potential joint owner of a property doesn’t understand the future implications. In my previous post, i highlighted why it is important to mention the type of joint property ownership in agreement. Though the inclusion of Joint Tenants or Tenants in Common is more relevant in case one of the joint owner is deceased. There are certain other clauses that should be included in sale deed to safeguard your interest as a joint owner.
Before we proceed, i would like to clarify one of the biggest misconceptions of joint property purchase. In one of the query, a Person A included his brother as a joint owner. He was pooling 20% money for the purchase of property. He was also paying 100% EMI of balance 80% Home Loan. His bank insisted on the inclusion of a loan guarantor. His brother agreed provided Person A include him as a joint owner of the property. Person A was under impression that as he is pooling 100% money and paying 100% EMI, therefore, property ownership rests with him. Unfortunately, his brother betrayed him later and sought his share in the property.
Being a Joint Owner – 5 Clauses You Should Include In Sale Deed
1. Percentage Ownership:
In 99% cases, i observed that % ownership is not recorded in the sale deed. Though it is perfectly fine if the ownership is on equal basis i.e. 50-50. By default, the % ownership is equal if it is not recorded. It becomes important to mention the % ownership if the buyers would like to keep it in the % of money pooled for property purchase.
For example, if i am buying a property with my father. My father is pooling 60% of the consideration value and balance 40% is contributed by me. In this case, it will mention the % ownership as 60:40 in favor of my father.
Just to clarify that being a First Party or Second Party in the sale deed does not matter. What matters is % ownership that should be mentioned as a separate clause. There is a misconception that First Party in the agreement is superior/has more rights compared to Second Party :). Builders also misled potential buyers in this regard.
In my opinion, even in the case of equal ownership, it is advisable to mention % ownership as 50-50 to avoid any future dispute.
The problem in India is that we don’t believe in open discussions. The biggest casualty is the fate of property in case of split/dispute. This split/dispute can be among family members, business partners, friends etc. To share an example of Mr. Akash. He bought a property with his wife being a Joint Owner. He was paying 100% EMI to service the home loan. Now due to marital dispute he filed RCR against his wife and his wife is staying in a different city. He stopped paying EMI as his wife refused to share the burden and bank declared the property as NPA. It is advisable that Husband & Wife should mutually resolve the dispute to avoid financial loss.
Therefore, it is advisable that joint owner/s should discuss and mutually agree on all such possible scenarios before joint property purchase. These scenarios and corresponding solutions should be recorded in the sale deed. It will be legally binding on both joint owners in future. Always remember that valuation of the property nosedive in the case of dispute with the joint owner.
In another query, one of the readers asked me that he is a joint owner in one of the property. Now he wants to book the profit, sell his share and exit the property. He is under impression that he can sell his share in the property independently. It is not correct.
Secondly, the problem arises when the property is mortgaged to the bank. Any change in the ownership is not possible till the property is mortgaged. Only under extraordinary circumstances, banks allow a change in ownership. For example, in the case of death of a sole owner of the property or any court order in this regard. However, in some draft home loan agreements, bank include a clause that home loan agreement supersedes any court order. In such cases, the borrower will abide by the terms and conditions of the home loan agreement.
Therefore, it is advisable to lay down exit route in case property is bought for investment purpose or there is a future plan to sell the same. In case the property is not mortgaged, one of the joint owners can transfer his/her share to another joint owner through relinquishment deed. It is also possible to sell his/her share with the consent of other joint owner/s.
4. Home Loan Liability:
In one of the recent queries, a father, and his son bought a property for 50L in Pune as a joint owner. The father pooled his share of 25L from retirement corpus. On the other hand, son availed home loan of 25L to pool his contribution. As expected, bank included father as co-applicant and told him that it is just a formality. Unfortunately, son lost his job and stopped paying EMI. The father was under impression that as his son availed home loan, therefore, he has NO home loan liability. It is not a correct understanding. A co-borrower has an equal responsibility to repay a home loan. Again banks confuse borrowers with terms like Primary and Secondary Borrower.
In the case of joint property, the banks insist that all the joint owner/s should be co-borrowers. Therefore, even if the father paid his contribution in advance but he has equal liability to pay off the home loan.
In such cases, it is advisable to include a clause in sale deed that property will be sold off in the case of home loan default i.e. co-borrower/s find it difficult to service the home loan. From the sale proceed, the home loan will be cleared first and an actual receipt will be divided as a fixed % as agreed upon mutually at the time of purchase.
In the example shared in this section, the father should have insisted on a clause that sale proceeds will be divided equally and son will clear the home loan from his share in the sale proceeds.
Another major bone of contention for a joint owner. One of my clients, Neelam Sawant bought a joint property with her sister in Thane for investment purpose. Both received X amount as a part of the inheritance and instead of splitting among themselves they decided to buy joint property. At the time of purchase both the sisters were staying in Pune. They were receiving a rent of Rs 30,000/= per month and was split equally. Coincidentally brother in law of Neelam got a job in Mumbai. The sister of Neelam started staying in Thane property.
The problem arises when her sister refused to pay fair rent to Neelam. Ideally, Neelam’s sister should have paid Rs 15,000 per month to her as a rent i.e. in the proportion of her share in the property. The argument of her brother in law was that his wife is the joint owner, therefore, they will not pay RENT. Now it is a catch 22 situation for Neelam. Neither she can sell the property nor she is getting rent.
Therefore, it is always advisable to include a clause in sale deed to address the scenario if one of the joint owners will use the property for self-occupation. Assuming equal ownership in the property, the occupant joint owner will pay 50% of the fair rental value as a rent to another joint owner.
Words of Wisdom:
The list is endless but i tried to cover 5 most important clauses based on my experience. Being a joint owner you should not shy away from discussing issues/points that may cause heartburn in future. You may list down all such points and mutually agreed upon solutions. It is advisable to record them in sale deed.
In some cases, it is not possible to include certain clauses in sale deed because of objection from the seller or bank (if you are availing home loan). In such cases, you as a joint owner may sign a separate agreement listing down all the mutually agreed upon terms and conditions. This agreement will be a supplementary agreement to sale deed though you need not share it with the bank. In other words, it is mutual understanding between joint owners.
Copyright © Nitin Bhatia. All Rights Reserved.
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