In my post, buying a property from landowner share I briefly discussed Joint Development Agreement. I keep receiving large no of queries on Joint Development Agreement. Most of these queries are directly or indirectly linked to the registration of the Joint Development Agreement. Based on the request of the readers, I decided to share my views through dedicated post on this topic.
What is Joint Development Agreement?
In layman terms, assume that I own a residential land and builder approach me to construct flats on my land. This arrangement is beneficial for both the parties. The reason being I as a landowner will unlock the value of my land without any additional investment of Single Rupee. From builder’s perspective, he need not invest money to buy land. He can use the same money to construct the property. Therefore, for both the parties the capital requirement is minimal. They enter into a Joint Development Agreement wherein landowner pool his land and builder bear the cost of construction to complete the project.
My general observation is that in almost all the cases it is profitable for the landowner to enter into a Joint Development Agreement instead of selling land. On the contrary from buyer’s perspective, the best possible scenario is that the builder should be the owner of the land. It will rule out all kind of disputes related to land or between builder & landowner. The reputed builders prefer to buy the land and then construct a project. Let’s check out 5 important points to be considered by the buyer to avoid being cheated.
Joint Development Agreement – 5 Important Points to Avoid Cheating
1. Joint Development Agreement should be registered:
Let me clarify that here by registration I mean that the joint development agreement between builder and the landowner should be registered in sub-registrar office. One of the most common practice is to get Joint Development Agreement (JDA) notarized or sign it on the stamp paper of Rs 200/=. The same agreement is presented as registered Joint Development Agreement to the potential buyer. It is not correct.
Now you must be wondering why it is imp to register JDA. At the macro level, neither builder nor landowner can dispute the terms and conditions of the registered JDA. Secondly, it provides authenticity to the agreement. In one of the cases, I found that there were 23 corrections in the Joint Development Agreement. It was next to impossible for the buyer to find out whether the corrections were genuine or not. On the hand, if the Joint Development Agreement is registered then the buyer can directly apply for certified copy from the sub-registrar office.
2. Joint Development Agreement is not a title transfer:
JDA even if it is registered in Sub-Registrar office should not be mistaken as Conveyance or Sale Deed of a flat in favor of landowner. Recently, one of my clients purchased a property from landowner just based on the registered JDA between the builder and the landowner. The buyer was given an understanding that JDA is conveyance deed in favor of landowner. After 3 months he came to know that same property is sold to some other buyer by the builder. The reason being landowner gave marketing rights of her flat to the builder.
In a nutshell, it is crucial to involve builder in case you are buying landowner share & I keep highlighting this point in my posts. Therefore, a buyer should either demand Builder NOC or a tri-party Assignment deed should be executed between the buyer, landowner and the builder. In most of the cases, builders refuse to sign assignment deed or issue NOC. In such cases, it is better to avoid buying such property.
3. Supplementary Agreement to Joint Development Agreement:
Another smart trick by the builders. The Joint Development Agreement is executed & registered to comply with rules and regulations. After that, a separate supplementary agreement to joint development agreement is signed. It is either change in some of the existing clauses of JDA or additional clauses that will form part of JDA.
Please note that there is NO HARM in executing Supplementary Agreement provided it is also registered. Otherwise, the supplementary agreement is just another piece of paper with NO VALUE. For example, in one of the cases, 23 flats were allocated to the landowner under JDA with specific flat numbers. After that supplementary agreement was signed. The count of flats increased from 23 to 39 & flat no’s were changed. One of my clients bought one such flat. After 18 months there was a dispute between builder and landowner. Now my client is in a soup where to go.
4. Transfer of Rights by Landowner:
It is very normal for the landowner to transfer rights/title in the property to their family member under the family settlement. Such transfers are executed through GPA. In other scenarios, the landowner requests the buyer to transfer the money to a family member. The reason for such scenarios is “Inheritance”. The land is inherited and in most of the cases, I observed that Joint Development Agreement is signed by 15 to 20 people including kids of under 10 years age. In such cases, either one of the landowners is GPA holder of all the stakeholders or there is some family settlement agreement among landowners to authorize one person through GPA to dispose of the property. In many instances, I observed that the landowners were Benami Property holders. Therefore, the buyer has to be extra cautious.
Please note that all these cases are a bit complex and as a buyer, you should only interact only with the landowner authorized under the Joint Development Agreement. In many cases, the indirect beneficiary of such deals i.e. signatory of GPA/Family Settlement Agreement directly approaches the buyers to close the deal. The probability of cheating/fraud is high in such cases. Therefore any agreement should be direct with the landowner whose name is mentioned in the JDA. Lastly, you should also check & go through the copy of GPA or Family Settlement agreement for more clarity.
5. Home Loan Approval:
Last but not the least, please note that banks like SBI etc don’t provide a home loan if the JDA is not registered in sub registrar office. There can be other reasons also. Builder promises Home Loan from 2nd rung Housing Finance Companies. In certain cases, the home loan approval is conditional. Recently, one of the banks sent a communication to buyers of Project A in Pune to close the home loan within 60 days. The reason being a dispute among the landowners. Unfortunately, Joint Development Agreement is not registered and one of the landowners fraudulently mortgaged the land.
In another instance, one of the clients paid token money but after that, he came to know that none of the banks is offering loan on the said project. The reason being a defect in Joint Development Agreement. Though it was registered but only the count of flats was mentioned. It is mandatory to mention the flat no’s else there can be a dispute in future on specific flats allocated to landowners under Joint Development Agreement.
To be very honest, personally, I am not comfortable buying a property with incomplete documentation. If you are buying a property from landowners share then first you should be assured of Home Loan from a bank. If builder/landowner is offering Home Loan only from Housing Finance Company then be assured something is missing. Always remember that it is your hard earned money and there should not be any compromise on the legal compliance part.
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