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Realty Guide - Buy Commercial

BUDGETING
Given the varying property prices that exist within a city it becomes necessary to ascertain the quantum of funds that one would have to organize depending on the location and area requirement.

The obvious question now would be, how does one get to know the prevailing rates of properties at different locations. It is possible to get a rough estimate of the rates prevailing through weeklies like the Accommodation times, other real estate journals.

While arriving at a budget it is necessary to determine the space requirement. Premises in the major cities are generally sold on the basis of built up area and super built up area. Area is generally measured in terms of Square Foot (Sq. ft) or Square meters (Sq. Mts.). 1 Sq. Mt. = 10.764 Sq.ft. To assess the area requirement one needs to understand the following concepts of saleable area:

Carpet Area: Carpet area may be defined as the net useable area. Until two decades back flats were sold on this basis. Carpet area is the area from the inner sides of wall to wall. However this concept is rarely used today and as a result, flats today are generally sold on the basis of Built up area and super built up area.

Built up Area (BUA): BUA, over and above the carpet area, would include the space covered by the thickness of the inner and outer walls of the flat. The BUA thus would generally be around 15% more than the carpet area of the flat. Thus for a carpet area of 1000 Sq.ft. the BUA could work out to be 1150 Sq.ft approximately.

Super Built up Area: Super BUA, apart from the BUA, is said to include the proportionate common areas on the floor like the passage, staircase, etc. This would usually be around 25 to 35% of the Carpet area. However, there is a tendency of loading even the common areas of the building / project like the garden, open area, clubhouse and other recreational facilities.

It is to be noted that the above mentioned concepts are for the sake of information only and does not in anyway convey our concurrence to the practice of selling at the super built up area. Hence it would be incorrect to assume the above mentioned mark ups as a rule, since the information provided is solely with the purpose of educating people about these terms. At this point it would also be imperative to mention that there appears to be no regulatory control over the % loading of area over the carpet area for the purposes of sale on the basis of BUA/SBUA.
 
IDENTIFICATION OF A PROPERTY

While locating a commercial premises one would require to consider various issues like location of the premises in terms of its proximity to the Central Business District and availability of other significant infrastructure facilities like access roads, power, water supply, bus/train stations, etc.) to efficiently support that sectorial population.

Identifying a property has many a times been perceived as a major problem by many people. The wide range of properties that are offered with various attractive offers made to lure customers often mislead and confuse many people. When one sets out to identify a property one is obviously on the lookout for a reliable source. While assessing the reliability of a particular source one should check the following:

Details & visits to his past projects. If possible one should try and get information from the occupants in his previous projects where inquiries regarding timely possession, quality of construction, compliance with the agreement, providing the amenities mentioned, etc. could be made. For this purpose one could also get information from the financial institutions/ banks that the developer has had dealings with. Thus one can get a fair idea of his financials too.

If the seller were to be an individual/corporate then the credentials of that individual/corporate needs to be established.

Real Estate Agents could also be an alternative for identifying a property. However, caution needs to be exercised when it comes to selecting an agent.

In case of a resale property after the budget is ascertained, one could also approach a reliable real estate agent or look for a property through the newspapers. While identifying a property one should ensure that the building is technically sound and the title documents mentioned further in this guide are clear and marketable.
VALUATION

Once one has decided to sell a commercial property (office/ shop/ showroom) one would require to ascertain the value at which one wishes to sell the property. Some of these factors that would affect the valuation of a property are mentioned below –

Location of the building in which the premises is located with reference to its proximity to the Central Business District and other important infrastructure facilities available at the location and in the building.

Age of the building – As a normal market norm, new buildings would fetch higher capital values in comparison to older properties at a given location. However, this may not be the case everywhere.

Upkeep & maintenance of building – The upkeep and maintenance of the building would determine the marketability and the prevailing market value of the premises in which the building is situated. Needless to say, better and fairly well maintained buildings would fetch a better value and would enhance the marketability of the premises in comparison to poorer maintained buildings.

The profile of the other occupants in the commercial building would also help determine the premium on the price.

Market perception/grading of the commercial building would also play a significant role.

Smaller issues like number of elevators with waiting time, car parking spaces, etc could play a crucial role too.

Upkeep and condition of the premises – The condition and the internal maintenance of the premises would again play an important role in determining the marketability and the prevailing market value of the premises. However a good premises in a badly maintained building may not necessarily fetch a price. Another aspect to the premises would be the fact of it being bare/semi-furnished/fully furnished. A semi-furnished office may not have much of a change over an un-furnished premises. Fully furnished premises may at times fetch a better capital value if the purchaser were to think that the existing furnishing would suit their operational purpose. However, one has to keep in mind that the purchaser may take up a stand saying that they do not require the furnishings provided as it doesn't suit their requirement. This stand taken may be out of a genuine mismatch or may be used as a negotiating tool by the purchaser. The air-conditioning provided and the computer cabling provided , etc also would play an important role here.

Layout of premises – The layout of the premises in terms of optimum space utilisation in an efficient manner would help the premises score points. Issues like lesser columns, thereby providing for a large open space that may suit office planning, may play an important role. The number of toilets and vehicle parking spaces available with the premises would also play an important role in determining the value of the premises.

Ancillary costs of holding the premises – Ancillary recurring costs like society outgoing for maintenance of the building , municipal taxes, etc would determine the marketability of the premises.
LEGAL DOCUMENTATION
 
(Please note that the legal documents mentioned and described below are generally used documents. The description of these documents may not be a legally accurate description as the intention is to merely give an overview of the documents and hence it is suggested that one should approach a solicitor to verify the legalities. PMI undertakes no responsibility of determining the applicability of these documents in each case)
Prior to a property purchase, it is advisable to satisfy yourself by having your solicitor inspect the original title documents to that property. We give below a broad idea of the legal documents that would require perusal.
  1. LAND DOCUMENTS:
    Following are some of the essential documents that one would have to look at pertaining to the land:

    Chain of conveyance/sale/partition/gift deed or will, by which land was acquired Urban Land Ceiling & Regulation Act (ULC) Clearance Certificate, if applicable 7/12 extract (Property card extract), Index II issued by sub-registrar Title Certificate / search report by an advocate for the last 30 years Non agricultural permission (N.A) 37 I clearance under section 269 UL (3) of the Income Tax Act, 1961 Income Tax clearance of the seller under section 230 A of the Income Tax Act , 1961
    • Conveyance / Sale deed is a document by which the title of a property is conveyed by the seller to the purchaser. Conveyance is the act of transferring ownership of a property from a seller to the buyer.
    • ULC [Urban Land (Ceiling & Regulation) Act] - The ULC Act is a social legislation vide which the Government has set a limit on the maximum permissible vacant land holding by a single entity in an urban agglomeration. Depending on the location and zone classification, this maximum limit varies from 500 sq. Mts. to 1500 sq. Mts. This excess vacant land is liable for acquisition by the respective State Government. Any vacant land holding beyond this limit would require an exemption under various sections from the ULC authorities, which is governed by the Urban Development (U.D) department. The land may be exempted if the concerned authorities are convinced that by the acquisition of this vacant land there would be undue hardship caused to the owner or if the owner manages to convince the concerned authorities that this vacant land needs to be held in public interest. Other than these reasons, there may be various other reasons, which the authorities may consider to provide exemption to this land.
      When such vacant land is sought to be developed for housing schemes, the schemes have to be developed as per the norms and guidelines laid down by the concerned authorities and need to be necessarily sold to beneficiaries who fall under certain specified sections/categories mentioned in the permission.
    • 7/12 extract is a document, which shows the names of the owners of the property. It contains details such as the Survey numbers, area, date from which the current owner's names were registered as owners. The 7/12 extract is issued by the Tehsildar or the concerned land authorities. Along with this the corresponding record of rights in Form no.6 for last 30 years needs to be obtained
    • Index II - Index II is a document issued by the office of the Sub- Registrar of Assurances. It mainly mentions the names of the sellers & purchasers of a property for which the document is registered.
    • Search report & Title certificate - A Title certificate is issued by an advocate after conducting a search of the title of the property, which is intended to be purchased. The title certificate would state if the property is unencumbered and has a clear marketable title. This search report and title certificate can be obtained from one's own advocate or if the search has already been conducted by the current owner then one can have his/her advocate inspect these reports to ascertain the title of the property. This search on the title of the property is taken for a period of the last 30 years. It is It is mandatory for the developer to annex a copy of these reports in the "Agreement for Sale" with the intended purchaser of the flat. These documents would state whether the title to the property is clear, marketable and free from encumbrance. In other words, it would state whether or not there is any existing mortgage, litigation, condition or claim which is likely to affect the title of the buyer adversely.
    • Non Agricultural (N.A) permission - If the land under consideration is agricultural land and if one intends to develop the said land for residential/commercial/industrial use, then such agricultural land has to be converted to non-agricultural land and an N.A order has to be obtained from the Collector of the District where the property is located. Along with this, one needs to take the latest receipts evidencing the payment of N.A. tax. In cases where the conversion from agricultural use to N.A. use is not done within the stipulated period then, there should be an order from the concerned authority extending the period.
    • 37 (I) clearance [No objection certificate under section 269 UL (3) of the Income Tax Act, 1961] - Any immovable property in certain cities specified by the Appropriate Authority which is transacted above a certain value, needs to obtain a No Objection Certificate from the Appropriate Authority. A transaction would be incomplete and invalid if this clearance is not obtained. A statement in Form no.37 (I) needs to be jointly submitted by the seller and purchaser. The appropriate authority would issue a No objection certificate, if it feels that the property has not been undervalued. If the appropriate authority feels that the property is undervalued, then it would do pre-emptive purchase of this property and sell it subsequently through an auction/tender. Various transaction limits have been set for various cities.
      37(I) clearance needs to be obtained in the cities mentioned below provided the apparent consideration of the transaction is as specified below -
      City Apparent Consideration of Transaction :-
City
Apparent Consideration of Transaction
Greater Bombay
Rs 75 lacs and above
Delhi
Rs 50 lacs and above
Calcutta, Chennai, Bangalore, Ahmedabad & Pune
Rs 25 lacs and above
Baroda, Bhopal, Bhuvaneshwar, Chandigarh, Coimbatore, Cuttack, Faridabad,Gurgaon, Ghaziabad, Hyderabad, Indore,Jaipur, Kanpur, Kochi, Lucknow, Madurai, Nagpur, Noida, Patna, Surat, Trivandrum
Rs 20 lacs and above

 

  1. DOCUMENTS OF THE PROJECT/BUILDING:
    Apart from the land documents mentioned above it is necessary to check the following documents pertaining to the project where one intends purchasing the flat:

    Development agreement with the landowner if the developer is not the owner of the property & the Power of Attorney executed by the landowner in favour of their developer.
    • Approved building plans
    • Commencement certificate
    • Completion /Occupation certificate
Development Agreement is entered into by the builder with the landowner. It contains details regarding the terms and conditions on which the landowner has permitted development of his property. This is where the landowner engages a third party (i.e. the developer) to develop and build on their plot of land. This agreement is generally accompanied by a Power of Attorney in favour of the developer
Approved building plans need to be checked necessarily. The plans must be approved by the Municipal Corporation/ Town Planning authority or other concerned authorities like CIDCO, MHADA, HUDCO, Gram Panchayat, etc. as applicable depending on the location of the project.
Commencement certificate is given by the Municipal Corporation permitting the developer to begin construction. This is done once the plans have been approved.
Completion/occupation certificate is given by the concerned authorities to the developer once the said building is complete in all respects and fit for occupation.

DOCUMENTS PERTAINING TO THE PREMISES:
A promoter who intends to construct a commercial building would enter into a written Agreement for Sale with the purchaser and the agreement should contain the particulars and also annex to such agreement the prescribed documents or the copies thereof. In case of a building, which is yet to be constructed, the agreement should contain the particulars regarding the liability of the promoter to construct it according to the plans and specifications approved by the local authority. The other particulars which the agreement should contain are possession date, price to be paid by the purchaser and the intervals at which the instalments for the full payment are to be made specifying stage of construction, details regarding the common areas and facilities specifying the percentage of undivided interest in the common areas and facilities appertaining to the premises agreed to be sold, a statement of the use for which the premises is intended. The copies of the title certificate issued (as specified earlier in this manual) and a copy of the approved plans and specification a list of fixtures and amenities including provisions for lifts to be provided/provided for the flat to be sold should be attached to the agreement. A promoter, while he is in possession, and where he collects from persons who have taken over premises or are to take over premises, sums for payment of out goings even thereafter, has to pay all out goings until he transfers the property. The out goings would include ground rent, municipal and other local taxes, taxes on income, water charges, electricity charges, revenue assessment and interest on any mortgage or other encumbrances, if any. One should also ensure that the area of the premises has been mentioned in the agreement. It is also mandatory for the developer/promoter to convey the land in favour of the society/association of premises owners/condominium/Company.
In the sale agreement there should be a declaration /representation by the promoter/seller that he has not encumbered the property in any manner whatsoever and entered into any other agreement to sell/lease/license with any other party. It needs to be specified whether the property is vacant or in possession of any other party other than the seller.
Stamp Duty & Registration:
Payments of Stamp duty followed by the registration of the agreement are two important acts when one enters into an agreement with a developer/seller. Both, the developer/seller and the purchaser need to be present at the sub-registrars office for registering the agreement.
Stamp Duty: Stamp duty is a State subject and hence would vary from state to state. The stamp duty in many states is paid as per the True market value as assessed by the Stamp Office. When an agreement is to be stamped, it needs to be unsigned and undated and after the Stamp Office affixes stamps on the agreement, one may execute the agreement. The Stamp Duty payable in various states could be ascertained from the Stamp Duty Calculator provided
Registration of an agreement: The agreement should be registered with the Sub-registrar of assurances under the provisions of the Indian Registration Act. Stamp duty should be paid prior to the Registration.

Documents pertaining to a resale flat:
4.      For premises being purchased in a registered co-operative society:
Share certificate of the society bearing the name of the seller Previous chain of conveyance/sale deeds, Sub - Registrar's receipt 37 (I) clearance if applicable 230 A certificate from the Income Tax authorities (to be obtained by seller) Original stamped receipts of payment made to previous sellers No objection certificate from the society for transfer and sale of premises Last receipt for the out goings bill paid to the society and electricity bill Set of society transfer forms for transfer of ownership Certificate of Title from an advocate

When one sets out to purchase a premises in a registered co-operative society the documents that need to be checked initially are -
      1. The share certificate issued by that society in favour of the owner. This would ensure that the owner is recognised by the society.
      2. Previous chain of original conveyance/sale deeds. If the deed has been lodged for registration, then one should ask for the certified true copies of such conveyance, sale deeds, etc along with the original receipt of the Sub - Registrar where the document has been lodged for registration.
      3. Original stamped receipts for payments made to the previous sellers.

Once these documents are vetted by the purchaser's advocate and the purchaser decides to go ahead with the transaction then intending purchaser could ask the seller to apply to the society to issue a no objection certificate indicating that the society has no objection to transfer the share certificate in favour of the intended purchaser and admitting the purchaser as a member of that society. The certificate should also mention that the seller has no default/outstanding payments to be made to the society as of date. Once such a certificate is obtained one could proceed the Agreement for sale and filing the 37-I form with the Income Tax (if applicable), preparing the sale/conveyance deed /agreement. Apart from obtaining the 37 - I clearance, the buyer should ask for the 230 A tax clearance certificate of the seller which requires to be obtained by the seller from the concerned tax authority. It is also necessary to check the latest payment receipt made by the seller to the society for the out goings to ascertain and ascertain if the seller has paid all the dues to the society. One also should ask for a copy of the last electricity bill paid by the seller. There also should be a mention in the agreement that the said property is not mortgaged to anyone and if there happens to be a mortgage then on or before the date of execution of the sale/conveyance deed, the seller should ensure that the mortgage account is clear.
Prior to the execution of the sale/conveyance deed of the property the purchaser should ask the seller to produce a 230 A certificate issued by the Income Tax authorities. For this the necessary application has to be filed in Form no. 34A. This certificate would indicate that the seller has no dues/outstanding in terms of the income tax payable him. As per the Income Tax Act, 1961, this certificate is a mandatory requirement for a property transaction where the value of the transaction is in excess of Rs 5.00 lacs.
Set of society transfer forms, etc for transfer of ownership needs to be duly filled and signed by the seller and purchaser and should be submitted to the concerned Society.
    • If the premises is purchased in resale where
Society has not been registered

originally allotted by Development authority
In the above mentioned cases the following documents would be required to be checked
Previous chain of agreements with past owners in original with original receipt of registration (if any)/ Original letter of allotment issued to the first owner by the development authority. In case the latest agreement is pending registration the original receipt issued by the sub-registrar acknowledging the pending registration needs to be taken along with a certified true copy of that agreement.

Original stamped receipts of payments issued to the previous and present owners by the builder/Development authority/society.

Transfer permission from the respective authority i.e. Development Authority/Society

Copy of Approved Plan & Occupation certificate issued by competent authority (like the Municipal Corporation) specifying the user permission of the premises.
PROCEDURE OF PURCHASE

Once the project is identified and the necessary due diligence is observed, one would need to identify a particular premises as per one's need and preference. Normally, in a project, which is under construction, the developer may expect 15% on booking. An allotment letter is then issued to the purchaser. The developer would then get the agreement stamped by paying the relevant stamp duty, which is normally borne by the purchaser. Subsequent to this the agreement would be signed. The developer would then organise for the registration of this agreement immediately or in a month's time from signing the agreement. An agreement is registered to give it legal sanctity. The seller and the purchaser would have to go to the sub-registrar's office to sign the register and lodge the agreement for registration.
TECHNICAL ASPECTS PERTAINING TO CONSTRUCTION


The normal time taken for construction of an average Stilt + 7 storied building would range between 15 to 20 months. It is possible that the construction period may go up to 30 months if the building has more number of floors. It needs to be ensured that for buildings under construction the payment schedule should be linked to the progress in construction and that the payment should not be solely time bound. Normally a developer would ask for 15 to 20% on booking and the other instalments would follow as per the progress in construction. Following are some of the technical terms that one should be familiar with:
Foundation:
This is the portion of the building, which is below the ground level. Base of foundation spreads the load of the building on the soil/rocks below, on which the structure would rest.
Plinth:
The ground floor level is normally about 3 feet above the level of the ground level. This portion of the structure is formed by a network of beams and filled in with stones, gravel, etc. This portion is called the plinth.
RCC:
This acronym stands for Reinforced Cement Concrete. Normally most of the buildings being constructed these days would be RCC. The RCC framework would comprise of the columns, beams, slabs, staircase all of which would be reinforced with steel. The frames are essentially formed of columns and beams, the columns are bounded by beams, which are connected, to each other by cross beams. A framed structure is better resistant to earthquakes/vibrations. Columns are vertical pillars made of RCC, which are connected horizontally by beams also of RCC. If any internal modifications have to be carried out in a flat one needs take the services of an architect, which would then ascertain the column and beam positions. The columns and beams have to remain untouched during subsequent internal modifications if any, because they form and hold the entire structure of the building in place.

Slabs
are horizontal RCC platforms, which form the ceiling/floor of the flat. The payment schedules of the developers are usually connected to the casting of slabs. Each slab is cast with RCC and the casting of the next slab would usually follow in a period of 45 to 60 days.
Plumbing & Wiring:
Plumbing and electrical wiring these days is usually concealed i.e. it is covered by the internal plaster and hence the pipes and wires are not visible from outside except for the electric points and plumbing outlets. Concealed plumbing and wiring would normally precede internal plastering. If the plumbing and wiring is not concealed it would succeed the internal plastering.
Walls:
Walls are either made of bricks or concrete blocks. In an RCC framed structure the outer walls would normally be 9 inches or more and inner walls would be four and a half inches or more. The walls are normally constructed over the beams, which transmit the load of these walls to the foundation through the columns. The walls would be plastered externally and internally.
Flooring:
The flooring is usually done subsequent to internal plastering. Flooring would include lining up the internal side of the walls with 4 to 6 inch tiles and this process is called skirting. The toilet floors would usually be of ceramic tiles with the internal walls of a bathroom being lined up with the same ceramic tiles up to a height of approximately 6 feet (i.e. dado) if the wall is not tiled to its complete height. The water closet (W/C) similarly would usually be lined up to 3 to 4 feet on the sides with ceramic tiles apart from the flooring.

POSSESSION


Taking possession of the premises would involve ensuring the following:
Developer should have obtained Occupation Certificate from the Municipal Corporation Inspect the flat thoroughly before taking possession
Take a letter from the seller confirming that the seller is handing over vacant and peaceful possession of the premises
Ensure that there is municipal water connection and electric supply.
  1. Generally the last 10% of the consideration is payable on possession.
  2. Ascertain that all the original documents are handed over to you
  3. Ensure that you put your own lock to the premises.
By vayaM CS