Real Estate 2019 Comparisons

Last Updated April 30, 2019

Contributed By J Sagar Associates

Law and Practice

Authors



J Sagar Associates has over 300 professionals operating out of eight offices located in Ahmedabad, Bangalore, Chennai, Gujarat International Finance Tec-City (GIFT), Gurgaon, Hyderabad, Mumbai and New Delhi. The real estate practice is led by a team of 20 partners and 90 other qualified lawyers. Its clients comprise, inter alia, Indian, international, institutional and private entities, including developers, real estate advisers, banks, non-banking finance companies, offshore and domestic real estate funds, REITs, high net worth investors, governments, major retailers, hotel owners and operators. JSA is involved in legal and regulatory issues for various types of real estate projects, including in relation to the construction and development of hotels, malls, residential and commercial complexes, warehouses, IT and industrial parks, and special economic zones. The key types of matters that the real estate team handles on a regular basis include conveyancing, leasing and licensing of real estate assets; investments, acquisitions, dispositions and joint ventures; real estate financing; construction and development; and real estate funds and REITs.

The legal system in India comprises of a mixture of civil law, customary and religious law, and common law. Consequently, real estate law in India consists of central and state legislations, personal/religious laws and judicial precedents. There are also subordinate legislations such as rules, regulations and by-laws made by local authorities such as municipal corporations, gram panchayats and other local administrative bodies. Laws relating to real estate in India can be categorised into the following:

  • laws applicable to the acquisition, transfer and registration of immovable properties such as the Transfer of Property Act, 1882, the Registration Act, 1908 and the stamp duty legislations enacted by the various states;
  • exchange control regulations where the investor is a foreign investor, such as the Foreign Exchange Management Act, 1999 and the rules and regulations framed thereunder (FEMA), including specifically the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000 (as amended from time to time);
  • corporate laws such as the Companies Act, 2013, where either of the parties to the transaction is a company, and the Limited Liability Partnership Act, 2008, where a limited liability partnership is involved; and
  • personal/religious laws that determine title where title has been acquired through inheritance or succession.

The real estate sector has seen a significant increase in investments in equity instruments, and investments from non-banking financial companies (typically in debt instruments) having reduced. As previously noted, with respect to investment by foreign portfolio investors in corporate bonds, given that the applicable corporate debt limits available for foreign investments have almost been fully utilised, there has been a slowdown in terms of investment in corporate bonds from foreign portfolio investors.

With regard to legislative trends, there has been continued emphasis on liberalising the Indian economy and a renewed focus on development of real estate in a transparent manner. Some of the significant legislative developments are listed below.

  • The Real Estate (Regulation and Development) Act, 2016 (RERA) – RERA was framed to regulate the real estate sector in India and to promote transparency, credibility and accountability in the sector. RERA coming into force was a significant development, welcomed by purchasers in real estate projects.
  • The goods and services tax (GST) – GST has subsumed central taxes like central sales tax and service tax, as well as state-level taxes such as value added tax (VAT) and state sales tax, and has eliminated the multiplicity of taxes and their cascading effects.
  • Liberalised foreign investment environment – there have been several steps taken to liberalise foreign investments in India, including in the real estate sector, which are dealt with separately.
  • Benami Transactions (Prohibition) Amendment Act, 2016 – the amendments empower the competent authorities to attach and confiscate ‘benami’ properties (ie, property held by or transferred to or for the benefit of a person and the consideration for which has been provided or paid by another person). The amendments are aimed at curbing the issues of black money and money laundering in India.

The various developments and proposals covered above are expected to transform the real estate sector significantly in the short and medium term. The obligations under RERA have put real estate developers under huge pressure to construct and complete real estate projects on a timely basis for which they would need to obtain additional funding to comply with RERA and the rules framed thereunder. The implementation of RERA has also been strict and this has led to increased compliance in the industry.

In terms of significant transactions, there have been a large number of investments into India, including various investments made by sovereign wealth funds. Large investments have been made into commercial real estate with the intention of moving the interest in real estate assets owned by large developers into REITs. As far as leasing is concerned, the documents involved in leasing arrangements have become significantly more sophisticated as compared to previous years and in several transactions, facilities in excess of 1,000,000 sq ft have been taken on lease.

Apart from the various changes mentioned above that were introduced over the last couple of years, the government also recently liberalised the regulations governing foreign direct investment (FDI) in single-brand retail trading and permitted 100% FDI under the automatic route. While there are no significant indications from the government at the moment, foreign investors are hopeful that the next progressive step would be in the multi-brand retail trading sphere. If the government takes the step to permit 100% FDI under the automatic route in multi-brand retail trading, this would not only open up avenues for large global players to set up full-scale operations in India, but also create a huge demand and investments in logistics and warehousing that would have a beneficial effect on the real estate sector.

The categories of property rights that can be acquired are the following.

Freehold Rights

A person acquires right, title and interest in relation to a property and becomes the absolute owner of the property, with the absolute right to deal with the property in the manner deemed fit by the owner. A freehold interest can also be in the form of undivided interest in land, as in the case of apartment ownership.

Tenancy (Lease) Rights

A person acquires interest and rights in relation to a property, with the right to occupy and deal with the property in the manner contractually agreed between the parties. The law also recognises the concept of a statutory tenant. A statutory tenant is a tenant protected under any applicable rent control statute and can be evicted only on the limited grounds mentioned in the concerned statute. The landlord’s rights for eviction are limited to a few instances such as destruction of the premises by the tenant or change of use, or non-use of the premises by the tenant for a continuous period of six months. Most modern developments that are leased to corporates are, however, not affected by the rent control statutes and are therefore of no concern to foreign investors.

Licences and Easements

The property can also be licensed, under which the licensee acquires only right to use the property. In licences, the use of the property is restricted to the terms of the contract entered into between the parties and there is no possession granted to the licensee. Separately, easements are also recognised in Indian law. An easement is a right that the owner of a property has to compel the owner of another property to allow something to be done or to refrain from doing something on the servient element for the benefit of the dominant tenement.

In terms of the Constitution of India, the legislative section is divided into three sections or lists; the Union List, State List and Concurrent List. Land, that is to say, rights in or over land, land tenures including the relation of landlord and tenant, and the collection of rents; transfer and alienation of agricultural land; land improvement and agricultural loans; and colonisation are contained in the State List, and accordingly the State legislatures have the powers to enact legislations in respect of such matters. Further transfer of property other than agricultural land, and registration of deeds and documents are matters included in the Concurrent List, which permits the central and state governments to legislate on such matters.

Generally speaking, a person can acquire title to immovable property by:

  • act of parties – the Transfer of Property Act, 1882 deals with the transfer of property by act of parties by way of execution of documents to give effect to the transfers, such as sale, gift, exchange, lease and mortgage;
  • laws relating to succession – these are personal laws, in terms of which properties are inherited or bequeathed; and
  • allotment by government organisations/agencies – properties are allotted by instrumentalities of the state for development. These allotments are governed by the rules and regulations framed by the relevant government organisations/agencies and are generally provided for strategic development.

Certain states have laws that restrict transfer of agricultural land by way of sale or lease. These restrictions are mainly in relation to the total extent of land that can be held by a person and these laws also specify the criteria based on which a person can acquire agricultural land. For instance, certain states prohibit companies/firms from purchasing/leasing agricultural land and prohibit people who have more than a certain income or who are not already agriculturalists from purchasing agricultural land.

Documents under which transfers of immovable property are effected, as well as any documents that give a person rights to immovable property (such as mortgage deeds and development agreements) are registered before the jurisdictional Sub-Registrar of Assurances. Registrations are mandatory for instruments evidencing interest in immovable property of a value more than INR100. Once registered, the documents become a part of the public record and can be accessed by the general public. Such transfers also require payment of duties (such as stamp duty, registration fee and other cess applicable to each state) and are recorded by the revenue departments, which maintain a separate set of documents for each property.

In cases where the transfer is effected through succession, the revenue records are updated to reflect the inheritance, which, once recorded, will become publicly available.

Insurance companies in India do not provide title insurance as the title is often very complicated. There are measures being taken to simplify the manner in which title can be verified and the governments are taking steps to make such records electronic, although it will take more time before all the relevant documents are sorted methodically and are made available in electronic form.

Tracing of title to the property is sometimes complicated as the records are not centrally located and are maintained by different departments of the government. Each property is provided with an identification number by the revenue department. The revenue department maintains records on transfer of property through succession, details of the property taxes and details of the persons who are in possession of the property. The jurisdictional Sub-Registrar of Assurances maintains records and copies of documents transferred through registered documents. Antecedent documents in each state are often in the vernacular language. As part of the due diligence, searches are conducted in the offices of the revenue department, the jurisdictional Sub-Registrar of Assurances and the courts.

One may subsequently discover litigations, mortgages by deposit of title deeds and unregistered contracts (which do not require registration under the Registration Act) that have a bearing on the title of the property and therefore it is important to take detailed representations and warranties in this regard. Taking possession of original title deeds at the time of a sale is also very important as these can be used to mortgage/encumber a property. Where the original title deeds are not available, great care needs to be taken to ensure there has been no mortgage/encumbrance by deposit of title deeds by the seller or his predecessor in interest.

Representations and warranties vary depending on the nature of the transaction. In most transactions, the representations and warranties are very comprehensive. However, where properties are transferred on an ‘as is where is’ basis, the representations and warranties are more limited and the liability of the seller is limited to the purchase price or a portion thereof. It is common to back representations and warranties by indemnities and very often, there is no limitation of liability. That said, in India, only direct damages are awarded (ie, damages that naturally arose in the usual course of things from a breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it). Indian courts do not award indirect, consequential, special, exemplary or punitive damages to plaintiffs for breach of contract.

The important areas of law include:

  • laws applicable to the acquisition, transfer and registration of immovable property, which are referred to above;
  • where the investor is a foreign investor, the investor must ensure compliance with Indian exchange control laws, which are explained to some extent in the sections below;
  • corporate laws to the extent that the transferor/borrower/licensor is a company; and
  • certain personal laws, to determine title where the title has been acquired through inheritance.

The buyer will not be responsible for soil pollution or environmental contamination of a property if the buyer can prove that he was not responsible for such an act. Typically, appropriate representations and indemnities are recorded in the document between the seller and the buyer to protect the interest of the buyer against any action initiated by the government department for contamination of a property prior to its purchase. However, proceedings for environmental contamination are few and far between, although this may change as environmental issues are getting more recognition.

The buyer can ascertain the permitted uses of a property based on the zoning regulations formulated under the relevant town and country planning statutes. Government organisations/agencies also help developers to procure land for development of projects that are required in the public interest such as industrial, commercial or residential developments by entering into (i) concession agreements, (ii) development agreements and (iii) lease cum sale agreements whereunder only on compliance with the conditions set forth in the agreements, including implementation of the project, the property is conveyed in favour of the allottee.

State governments are authorised to acquire lands through their agencies for modernisation and growth of a city, and for other public purposes. The Constitution of India no longer recognises the right to hold property as a fundamental right. However, Article 300 (A) was included in the Constitution of India to affirm that no person would be deprived of his property except by authority of law. Therefore, the right to hold property as a fundamental right has now been diluted.

The land acquisition statute currently in place was enacted and brought into force in 2013, and has been enacted with a view to acquire land by providing just and fair compensation to the landowners from whom the lands have been acquired and to make adequate provisions for settlement and rehabilitation to the affected parties. The current land acquisition statute that is in force prescribes the procedure and the manner in which the land can be acquired. The principles laid down in the land acquisition statute are required to be followed by government bodies while acquiring land under the relevant state-specific statutes.

The compensation amounts paid under the repealed land acquisition statute were based on the prevailing market rates in the area but in effect resulted in land being acquired at a fraction of the market value. However, the current land acquisition act prescribes payment of compensation that is up to four times the market value in rural areas and twice the market value in urban areas, and stipulates adequate provisions for rehabilitation and resettlement of the affected parties. The current land acquisition statute involves participation of local government bodies to ensure multiple checks and balances prior to the acquisition of the land. The statute also provides safeguards for tribal communities and other disadvantaged groups, compensation for lost livelihood, caps on acquisition of multi-crop and agricultural land, and prescribes the return of unutilised land to the landowners.

The current land acquisition statute also prescribes the requirement of obtaining consent of the affected parties in relation to acquisition of land for public and private companies. However, where the acquired land is controlled by the government, the consent of the affected parties is not required. The land parcels acquired by the state governments vest with the state governments free of all encumbrances and any title defects. Accordingly, when clearing title of land acquired by the government, the complexity of conducting due diligence also reduces as the documents required to be reviewed will be limited to the period from the date of acquisition of the land by the state government.

As regards an asset deal, any transfer of property requires payment of duties levied by the government, such as stamp duty and cess (which differ state to state), and registration fees. In an asset deal, the duties are generally paid by the buyer, unless otherwise agreed to be shared between the buyer and the seller. Most stamp acts provide that where there is no agreement to the contrary, on a sale, the stamp duty will be paid by the purchaser and on a lease, the stamp duty will be paid by the lessee.

As regards transactions involving transfer of shares in physical form, stamp duty calculated at the rate of 0.25% of the value of/consideration for the shares is also payable on the transfer of shares of a company. Where the shares/securities are in dematerialised form, there is no stamp duty payable on a transfer of shares, although there may be some transaction charges (which would in any event be significantly lower than the stamp duty).

Stamp taxes under the head of conveyance need not be paid if property is contributed into a partnership firm. However, any exit from the partnership by the original contributor will attract payment of stamp duty as if the same is a conveyance. The rate of stamp duty payable will vary from state to state for the same, as well.

Exemptions on payment of stamp duty and certain tax benefits are available to entities operating out of free trade zones known as ‘special economic zones’.

A person resident outside India can acquire property in India only in accordance with FEMA, which prescribes limited circumstances in which a person resident outside India can acquire immovable property in India.

With regard to investments, foreign exchange regulations prohibit foreign investment into companies that are engaged purely in 'real estate business', which is defined as dealing in land and immovable property with a view to earning profit therefrom and does not include development of townships, construction of residential/commercial premises, roads or bridges and REITs registered and regulated under the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations 2014. Further, earning of rent/income on lease of the property, not amounting to transfer, will not amount to real estate business. Accordingly, FDI up to 100% is permitted under the automatic route, in companies engaged in the development of real estate and infrastructure, subject to certain limited conditions. Foreign investment into the real estate construction and development sector has been liberalised significantly. A significant restriction in relation to foreign investment in the construction and development of real estate is that the investment has to be locked in for three years, calculated with reference to each tranche of investment, except in cases where construction of ‘trunk infrastructure’ is completed. The aforesaid lock is also not applicable to construction of hotels and tourist resorts, hospitals, special economic zones, educational institutions and old-age homes. In respect of completed projects, FDI is only permitted in specified projects such as operation and management of townships, malls/shopping complexes and business centres with a lock-in of three years (calculated with reference to each tranche of investment) being applicable in investments in such completed projects.

Real estate being a capital-intensive sector, entities engaged in the sector are frequently in need of funds. RERA was introduced to regulate and promote transparency in the real estate sector, as noted above. One of the major implications of the RERA Act is the obligation cast on the developer to deposit 70% of proceeds received from a project into an account that is exclusively earmarked for the project. Further, the developer is restricted from selling any units in the project unless the project complies with the guidelines prescribed under RERA and is registered with the regulation authority formed under RERA to ensure transparency and protection of the homebuyer’s rights. A direct result of such regulations is that the developer cannot raise the initial capital for the initial stages of a project due to the sale of units being forbidden on account of these statutory restrictions. As a result, the developers are compelled to rely on other avenues to raise the initial capital for their projects, namely debt financing, equity financing, and a mix of debt and equity financing.

Set out below are the key means of fund-raising for companies engaged in the real estate sector.

FDI

The key regulations governing foreign investments in India are FEMA, including the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 (TISPROI 2017). The regulatory position governing acquisition and transfer of immovable property in India and repatriation of sale proceeds by a non-resident, inter alia, have been clarified recently under the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018. In terms of TISPROI 2017, while FDI in real estate business is prohibited in India, FDI is permitted in construction development projects and development of industrial parks. 'Real estate business' is defined as dealing in land and immovable property with a view to earning profit therefrom and does not include development of townships, construction of residential/commercial premises, roads or bridges and REITs registered and regulated under the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations 2014. Further, earning of rent/income on lease of the property, not amounting to transfer, will not amount to real estate business. Accordingly, FDI of up to 100% is permitted under the automatic route, for companies engaged in these sectors, subject to certain limited conditions. The laws applicable to the construction development sector have been liberalised significantly in the past few years and several restrictions that were previously prescribed have been removed/relaxed. It has also been clarified that entities engaged in real estate broking services are also permitted to receive up to 100% FDI under the automatic route. Foreign investments are permitted under the FDI route, through subscription to equity shares and instruments that are compulsorily convertible into equity, issued by companies engaged in this sector. FDI transactions in India are required to comply with pricing guidelines prescribed by the Reserve Bank of India (RBI). As per the provisions of TISPROI 2017, each phase of the construction development project would be considered as a separate project and thus, an investor can potentially exit before completion of the entire project subject to a lock-in period of three years calculated with reference to each phase of the project, having been completed even if trunk infrastructure is not completed.

REITs

The Securities and Exchange Board of India (SEBI) (Real Estate Investment Trusts) Regulations, 2014 (REIT Regulations) lay down the framework for REITs. This is a relatively new mode of fund-raising and is yet to be tested fully in India, although several developers and investors are looking into REITs as an attractive means of fund-raising or (in the case of investors) liquidating investments and exiting. It may be apposite to note that per TISPROI 2017, investment in units of REITs (registered and regulated by the REIT Regulations) will not be considered as being 'real estate business'. REITs in India will be private trusts set up under the Indian Trusts Act, 1882 and will need to be compulsorily registered with SEBI. The set-up of REITs would include the sponsor (who sets up the REIT), the manager (who manages the REIT’s assets and investment, and operations) and the trustee (a SEBI-registered debenture trustee who is not an associate of the sponsor or manager, and who holds the REIT assets in trust for the benefit of the unitholders/investors). Further, the REIT Regulations have been modified to permit, inter alia, REITs to issue debt securities for raising funds.

Alternative Investment Funds (AIFs)

AIFs are regulated by the SEBI (Alternative Investment Funds) Regulations, 2012 (AIF Regulations). AIFs are privately pooled investment vehicles that collect funds from investors (Indian or foreign) for making investments in this sector. AIFs have to be compulsorily registered with the SEBI. AIFs may invest as private equity or debt funds, or both. There are, however, certain restrictions that AIFs have to comply with, pursuant to the AIF Regulations, including in connection with raising funds from investors.

Debt Financing

As mentioned at the outset, the most common means of fund-raising for real estate developers is by the issuance of NCDs to non-banking finance companies, banks, financial institutions and other private lenders. Debt investments by banks are subject to certain prudential norms relating, inter alia,to the exposure of banks to such investments, as stipulated by the RBI. While this has motivated several developers to seek investments from non-banking finance companies, financial institutions and other private lenders, which can provide typical loans as well as other structured lending solutions, market conditions have impacted investments by non-banking finance companies in recent times.

External Commercial Borrowings (ECBs)

The RBI has recently eased the definition of beneficiaries eligible for ECBs to include all entities that can receive FDI. Funds borrowed under ECB cannot be used, inter alia, for real estate activities (except when used for affordable housing, construction and development of industrial parks/integrated townships) and the restrictions on ECBs for funding real estate transactions broadly remain the same under the new framework. In lieu of the existing sector-wise limits, all eligible borrowers are now permitted to raise up to USD750 million or equivalent per financial year under the automatic route.

FDI in Indian companies cannot be secured and must be treated as equity investments wherein the investors take the risks that are typical to equity investments. Accordingly, for instance, foreign investors investing under the FDI route are not permitted to have assured returns at the time of exit by the RBI. However, debt investments in this sector can be secured by securities such as:

  • mortgages;
  • hypothecation of project receivables (subject to compliance with RERA);
  • escrow of project receivables and cash flows (subject to compliance with RERA);
  • pledge of the shares of the company engaged in the development of the project and/or its parent, and/or associate entities; and/or
  • provision of corporate and personal guarantees, which security is typically created in favour of a security/debenture trustee acting for the benefit of the lender.

Where the security is in the form of a mortgage, the mortgage deed would have to be registered with the jurisdictional Sub-Registrar of Assurances. Where the mortgage is an equitable mortgage created by deposit of title deeds, the recording of the same may need to be registered in certain states in India. Other charges on the assets of a company engaged in real estate development need to be intimated to the Registrar of Companies in India, by the filing of certain forms electronically. In addition to this, secured lenders are required to register their security interest created on such assets (whether tangible or intangible) with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), which is a central database for all security interests created that was established for the purpose of checking and identifying fraudulent activity, when loans are advanced against security interest in assets.

As noted above, investors using the FDI route would not be able to secure their investments. Where investments are made in NCDs, the NCDs can be (and are typically) secured, including where the NCDs are issued to permitted foreign investors. Security in such cases is typically created in favour of a security/debenture trustee. It is worth noting that a pledge over shares of an Indian company in favour of a foreign lender requires prior RBI approval and is not typically forthcoming. The creation of charge over assets situated in India in favour of a foreign lender will be subject to compliance with TISPROI 2017 and approval of the authorised dealer bank (AD Bank). Further, any borrowing and repayment made by a resident in foreign exchange will be subject to the extant ECB guidelines issued by RBI.

This firm has not seen practical instances of the reach of the Committee on Foreign Investment in the United States (CFIUS) pursuant to the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) impacting the domain of real estate finance in India.

All contracts and documents, including financing agreements, need to be stamped in order for the same to be enforceable in India. The stamp duty rates vary across the various states in India and would depend on the place where the agreement is proposed to be executed and enforced, the type of security being provided thereunder and the amounts sought to be secured. In particular, where the security for a financing transaction is by the creation of a mortgage (which is not structured as a mortgage by deposit of title deeds, the recording of which would have to be registered in certain states of India), the mortgage deed has to be stamped as well as registered pursuant to the provisions of the Registration Act, 1908. For such registration, the applicable registration fees also have to be paid.

Certain documents, such as powers of attorney, are required to be notarised (and even registered depending on their terms), for which the notarisation fee may not be significant. However, the stamp duty implications may vary depending on the terms of such documents and the amounts sought to be secured, and may in certain cases be high.

There are certain restrictions under company law provisions in India, in relation to the provision of security by a corporate borrower. The borrower will have to pass necessary resolutions to avail the borrowing, issue its securities to the lender/investor and/or provide assets as securities for the same. Further, where a company incorporated in India creates charges on its assets to secure financing, the company will need to make such filings with the jurisdictional Registrar of Companies. In case of non-compliance with the requirement of completing the necessary filings with the jurisdictional Registrar of Companies, such security interest would be held as void against the liquidator and the other creditors of the company in the event of a winding-up of the company, although the obligation for repayment of money secured by the charge will continue to subsist.

Certain restrictions also need to be borne in mind depending on the structuring of the security. For instance, where the security provider is a related party, or a director of the borrower is also the director of a security provider, there are restrictions on the ability of the security provider to provide the same.

It is also worth noting that pursuant to the enactment of RERA, there are some restrictions on the ability of companies and real estate developers to secure their borrowings (for instance, on the ability to hypothecate project receivables). Procedural compliance prescribed under the Companies Act, 2013 for creation of security on the assets, such as passing necessary corporate resolutions for creation of security and authorising relevant persons to make filings with the governmental authorities, would also need to be borne in mind.

Where the borrower in default is solvent and the facility is secured by mortgages, hypothecation or other security documents, it is not particularly difficult for a lender to seek to enforce the securities so long as the security has been created and perfected in accordance with applicable law, including payment of stamp duty, registration of the security documents, completion of necessary filings with the jurisdictional Registrar of Companies, etc. Non-compliance with the registration requirements under the Registration Act, 1908 would result in the document not affecting any immovable property comprised therein and being inadmissible in evidence. Additionally, if a document is insufficiently stamped then it may be impounded and not be admissible as evidence in a court in India till such time as the applicable penalty along with adequate stamp duty has been paid. Where there is non-compliance with the requirement of completing the necessary filings with the jurisdictional Registrar of Companies, such security interest would be held as void against the liquidator and the other creditors of the company in the event of a winding-up of the company, although the obligation for repayment of money secured by the charge shall continue to subsist.

Please see the sections below regarding the ability of a lender to enforce security where a borrower is insolvent or unable to repay its dues, pursuant to the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC). Separately, where banks and financial institutions have lent monies to a borrower, they would be entitled to enforce their security interest without the intervention of a court/tribunal subject to strict compliance with conditions stipulated under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

As a general rule, where the priority of security is not contractually agreed between the parties involved, security that is created prior in time will rank in priority to security that is created subsequently. A first ranking charge will have priority over a second ranking charge at the time of enforcement of security. However, it is possible for the existing secured debt to become subordinated to newly credited debt when a contractual subordination agreement is signed by the parties. Alternatively, creditors can enter into an intercreditor agreement setting out the ranking of debt. Typically, in Indian lending transactions, shareholder/promoter loans are unsecured and subordinated. Where a borrower entity goes into liquidation, the IBC also contains provisions regarding the manner in which secured debt will be prioritised and discharged.

The lender will not ordinarily incur liability under Indian environmental laws simply by holding security interest over the asset. If the lender takes over the management and control of the borrower company in the case of enforcement of the security, it may be possible for a lender to incur liability as the person in possession of the polluting premises, or as a person responsible for the conduct of the borrower company’s business. Equity investors/FDI investors who hold a significant portion of the developer entity’s share capital and/or control the board of the developer entity and/or control the day-to-day business activities of the developer entity face a higher risk (as compared to lenders) of being considered as the person in possession of the polluting premises, or as a person responsible for the conduct of the borrower company’s business and be held liable for such matters. However, care must be taken when drafting investment documents to mitigate such risks.

Where a borrower entity goes into liquidation, the IBC contains provisions regarding the manner in which secured debt will be discharged. The IBC contains detailed stipulations on the procedures and manner in which such a borrower’s assets are dealt with, and liabilities discharged under a waterfall mechanism. Typically, workmen’s dues are prioritised over dues to lenders who have relinquished their security interest to the liquidation process. Similarly, wages and dues owing to employees (other than workmen) are ranked pari passu with such lenders who have relinquished their security to the liquidation estate. Separately, if the charge that is required to be registered with the jurisdictional Registrar of Companies is not registered within a period as prescribed under the Companies Act, 2013, although the lender may reserve its rights to enforce the debt, the charge created is void against the liquidator appointed in respect of the borrower’s assets and any creditor of the borrower, in the winding-up of the borrower under the IBC.

Until very recently, regulations placed by the RBI had restricted the utilisation of foreign currency borrowings for the purpose of real estate finance. Accordingly, the exposure of the real estate industry in India to foreign currency borrowings per se has been negligible and the expiry of the London Interbank Offered Rate (LIBOR) index in 2021 may need to be analysed given the recent liberalisation of the ECB regime in India. While it is understood that there have been representations to the RBI from the Loan Market Association (LMA) and the Asia Pacific Loan Market Association (APLMA) inter alia to adopt an alternate mechanism, the matter remains unsettled.

Each state has formulated statutes (the town and country planning statute or the municipal act, of the relevant state), which govern the planning and development of the state or part thereof. These plans are generally called the master plan or comprehensive development plan. The master plan, inter alia, consists of a series of maps and documents indicating the manner in which the development and improvement of the entire planning area is proposed and includes zoning of land use (residential, commercial, industrial, agricultural, public and semi-public, etc) and other purposes together with the zoning regulations; a complete street pattern, indicating major and minor roads, highways for meeting immediate and future requirements with proposals for improvements; areas reserved for parks, playgrounds and other recreational uses, public open spaces, public buildings/heritage buildings as may be required for new civic developments; and reservation of land for the central government, state government, planning authority or public utility undertaking, or any other authority.

Planning authorities are constituted under the statutes for implementation and governing of zoning regulations for orderly development of a state. Considering the changing dynamics of a city, every state facilitates the updating and revising of an existing master plan at least once in every ten years by carrying out a fresh survey of the area within its jurisdiction with a view to revising the existing master plan, indicating the manner in which the development and improvement of the entire planning area is proposed.

Certain states facilitate acquisition of lands by government organisations or agencies for industrial and residential developments. The developments in such areas are mainly governed by the rules and regulations framed by such government organisations/agencies.

Any change in the zoning regulations will require the prior consent of the state government, which process is time consuming and, in most cases, not forthcoming.

Construction of new buildings and refurbishments in any state is governed by the National Building Code, the applicable town and country planning statute, and the municipal law applicable, including the building by-laws framed by the respective planning authorities. The building regulations bear out that various approvals are required to be obtained from different authorities for construction or for refurbishment of buildings. The development is also required to be in compliance with the zoning regulations and building by-laws. Building by-laws, inter alia, provide the guidelines for set-backs required to be provided for a building and height restrictions of the building depending upon the location of the development. Consents from the pollution control board, environmental department, fire department, water supply and sewerage board, and electricity board are also required to be obtained.

The zoning regulations sometimes have provisions for protection and reservation of properties that are identified as heritage properties.

An application is required to be made to the jurisdictional planning authority along with all the relevant title documents in the name of the applicant bearing out that the applicant has the authority to deal with the property. The application should also be accompanied with the plans/designs/drawings of the development, in principal approvals, inter alia, from the pollution control board/clearance from the environmental department, clearance from the fire department, clearance from the water supply and sewerage board, clearance from the electricity board and clearance from the airport authority for the height of the building, as applicable. Once the planning authority is satisfied that the building, when constructed, would comply with the building by-laws and is satisfied that all the relevant documents have been submitted, the planning authority provides its consent for the development of the property. A certificate is also often issued by the planning authority after the pillars are constructed, subject to the authority being satisfied that the construction has commenced in compliance with the sanctioned plan. Pursuant to completion of the development of certain buildings in compliance with the sanctioned plan, the planning authority also issues a certificate confirming that the building is fit to be occupied. Although minor deviations are compounded by collecting a fee, any major deviations in the development may deprive the project of being issued a completion certificate.

The applicable town and country planning/municipal statutes prescribes timelines within which the planning authorities are required to grant or reject approval of the plan for development of buildings. Where a plan submitted for approval to the authority/official at the first instance has been rejected or not expressly approved within the time period prescribed under the statute, the statute provides the applicant the right to prefer an appeal to a higher authority constituted under the relevant statute. Such higher authority would be required to grant or reject the application within a prescribed time period and where no response is received from such higher authority, the plan is deemed to have been approved. In the event of any arbitrary action initiated by the planning authority, such party will have the right to approach the High Courts invoking their high prerogative writ jurisdiction.

Government organisations/agencies also enable parties to procure land for development of strategic projects – whether industrial, commercial or residential – by entering into (i) concession agreements, (ii) development agreements whereunder the developer is required to develop the property and entitled to lease/sell built-up spaces in favour of third parties, and (iii) lease-cum-sale agreements whereunder only on compliance with the conditions set forth in the agreements, including implementation of the project, the property is conveyed in favour of the allottee.

Such arrangements are common and are entered into mainly with the intention of ensuring that properties allotted by government organisations/agencies are used for the purpose for which they were granted and not used for making quick profits. Transactions of this nature are intended to facilitate employment opportunities and the economic growth of the state.

Where land is allotted by the government organisations/agencies, the process of obtaining approvals for implementation of the project is generally faster as the government organisation/agencies generally act as a single window agency to facilitate speedy approvals.

In some large developments the developer may be required to lease/relinquish a small portion of the property in favour of the electricity supply company for setting up of a sub-station for supply of power to the development.

The applicable town and country planning statute and the municipal laws provide a mechanism for enforcement of regulations for any development. In the process of enforcement, the parties are given sufficient notice and an opportunity of being heard prior to initiating any action against the developer or the development. The affected parties will have the right to approach the High Courts invoking their high prerogative writ jurisdiction in the event of any arbitrary action initiated by the planning authority.

Real estate assets can be owned/held by private limited companies, public limited companies and limited liability partnership firms (foreign investment into limited liability firms that engage in construction development activities would require regulatory approval). In addition, general partnerships can also hold lands; however, foreign investment in general partnerships would require regulatory approval. In addition, REITs are increasingly being considered by investors, although there are several practical challenges in relation to the establishment of REITs and listing of REIT units. Typically, investors prefer private limited companies, while domestic investors prefer partnerships and limited liability partnerships for smaller holdings.

Private and public limited companies are required to be incorporated under the Companies Act, 2013 and are required to comply with the same. While private limited companies require at least two shareholders and at least two directors, public limited companies require at least seven shareholders and at least three directors. Both entities are required to adopt articles of association and a memorandum of association, which would regulate the operations of the entity.

A limited liability partnership is incorporated under the Limited Liability Partnership Act, 2008. As mentioned above, foreign investment in such an entity, if the entity engages in construction development, requires regulatory approval.

REITs are set up and operated in accordance with applicable regulations notified by SEBI and are explained in more detail above.

There are no minimum capital norms applicable to public limited companies, private limited companies, limited liability partnerships or general partnerships. REITs are required to comply with regulations relating to asset size and minimum offer, as prescribed under the REIT Regulations.

A private limited company is required to have a board of directors comprised of at least two directors. A public limited company is required to have a board of directors comprised of at least three directors. Public companies also have to comply with additional requirements such as maintaining a certain proportion of independent directors on their board of directors.

Limited liability partnerships and general partnerships are required to have at least two partners.

Separately, every listed company and certain other unlisted companies that have a paid-up capital over a prescribed threshold are also required to appoint a company secretary.

The costs for entity maintenance vary based on the type of entity involved. Annual compliance costs for a private limited company would typically be around GBP10,000 and similar or lower costs can be anticipated for compliance by limited liability partnerships.

The law recognises the concepts of leases and licences that permit a person, company or other organisation to occupy and use real estate for a limited period without acquiring the title to the said real estate.

The Transfer of Property Act, 1882 defines a lease of immovable property as a transfer of a right to enjoy such property made for a certain time in consideration for a price paid or promised.

Licence is defined under the Indian Easements Act, 1882, where one person grants to another a right upon certain immovable property, which in the absence of such right would be unlawful, and such right does not amount to an easement or an interest in the property.

The simple difference between a lease and a licence is that a lease is the transfer of a right to enjoy the premises; whereas a licence is a privilege to do something on the premises that otherwise would be unlawful. The transaction is a lease if it grants an interest in the land; it is a license if it gives a right with no interest in the land.

The law does not differentiate between different types of commercial leases. Most commercial leases are based on a fixed rental and fixed term concept. While there are some leases that fall within the category of triple net leases where the tenant bears the cost of the property tax, insurance of the real estate and maintenance, and profit-sharing leases where the rent is based on a percentage of the lessee’s revenue, the same are not as common and popular as the typical leases referred to above.

Other than a few states in India where some properties are regulated by a rent control statute and where the tenant will be a statutory tenant deriving the rights from the said statute, rent or lease terms are freely negotiable between the parties. The rents and the lease terms largely depend on the city, location of the building and the present market rents payable for similar buildings.

Leases for a term in excess of twelve months and in certain states all leases (where the lease is less than twelve months) are required to be registered in terms of the Registration Act, 1908. Although licences are not normally required to be registered, in certain states licences are also required to be registered in terms of the Registration Act, 1908. A lease deed having a term in excess of twelve months that is unregistered is treated as a month-to-month lease that can be terminated by either party by providing specific prior written notice of 15 days to the counterparty. The provisions of an unregistered lease deed having a term in excess of twelve months would not be admissible in evidence before a court of law.

Most of the matters listed below are typically contractually agreed between the parties.

Length of Lease Term

The initial term of a lease is generally between three and five years. There are also cases where the tenant opts for a longer lease of ten years. The lease term is sometimes determined based on the stamp duty payable on the lease deed. It is common to have an agreement to lease for a longer period (paying nominal stamp duty) and to execute lease deeds thereunder where such arrangements result in lower payment of stamp duty. Stamp duty and the determination thereof differ from state to state.

Maintenance and Repair of the Real Estate Actually Occupied by the Tenant

Maintenance and repair of the actual premises occupied by the tenant is generally the tenant’s responsibility. In most cases, major or structural repairs (that are not attributable to the tenant) are excluded from the tenant’s scope.

Frequency of Rent Payments

In most commercial leases, rents are payable on a monthly basis in advance. In cases of retail leases, malls, hotels, etc, the lease rent or a portion thereof can be based on the turnover of the lessee’s revenue at the establishment. Where a furnished space is provided, rent may be payable on the furniture and fittings only till the cost of such furniture and fittings has been fully depreciated.

In most commercial leases, the rent escalates during the lease term based on an agreed percentage of escalation. In a typical commercial lease in India, the rent will escalate every three years and the rate of escalation is generally between 10% and 15%.

The concept of a rent review and escalation of rent based on market rent is not common in Indian leases. Where a rent review is agreed to in a long-term lease, the prevailing market rent is determined by an independent expert. The determination of the rent is typically subject to certain exclusions, including disregarding (i) any goodwill attached to the premises by reason of the tenant’s business or occupation of the premises and (ii) the effect of any improvements made by the tenant at the premises.

Tax on the lease rent is deducted at source in terms of the Income Tax Act, 1961 by the tenant prior to making payment of the rent to the landlord. GST is generally borne by the tenant and the tenant can claim the benefit of input tax credit.

In most commercial leases in India, the tenant is required to pay the landlord an interest-free refundable security deposit. The deposit is held by the landlord as security for the tenant’s obligations during the lease term. The quantum of the deposit is commercially agreed but the practice differs from state to state and can start at three months’ rent and go up to twelve months’ rent.

In addition to the rent, the tenant generally pays a fixed parking fee based on the number of parking spaces exclusively provided to the tenant and maintenance charges in respect of the maintenance services provided by the landlord or a maintenance agency for the common areas of the project.

The landlord (or a third party nominated by the landlord) generally takes the responsibility for the maintenance and repair of the common areas and the same is charged back to the tenants. The maintenance charges are payable on a fixed-cost basis (with an agreed escalation) or on an actual cost-plus basis, with the landlord receiving a management fee of 15% to 20% of the cost incurred in providing the services.

Utilities (including power, back-up power, water, etc) are paid by each tenant of the building based on actuals consumed. In relation to power, a sub-meter is installed for each unit and the tenant pays the cost based on actual power consumed and sometimes also for transmission losses. For utilities where no sub-meter is available, each tenant pays based on the area occupied by such tenant.

Title insurance is not available in India. However, the insurance in relation of the building is generally obtained by the landlord. The policy obtained is in most instances a fire and perils policy covering loss of property. The cost of insurance is at times charged back to the tenants as part of the maintenance charges.

The usage of a project/building is dependent on the zoning of the land and any conditions running with the land. At times, land is allotted to a landlord for a determined purpose, like for biotechnology or IT-related uses, and accordingly the landlord would impose the same restrictions on the tenants under the lease. Non-compliance with the usage provision could result in a termination of the lease.

Generally, a tenant is only permitted to perform non-structural alterations at the premises (including fit-outs). Structural alterations are only permitted with prior consent of the landlord. The landlord may impose conditions such as requiring the landlord’s consent on the contractors to be used, materials to be used, etc. The landlord may also require the tenant to reinstate the premises to the condition prior to the alteration at the expiry or termination of the lease. Where a tenant takes on lease land for a long period, the tenant would, subject to applicable law, have the right to develop the land in the manner that the tenant requires. On the expiry or termination of the lease, the development on the land would revert to the landlord, at no cost or an agreed cost, based on the contractual understanding. Under Indian law, the owner of the land and the owner of the building constructed thereon can be different people.

The law relating to leases does not differentiate between residential, industrial, commercial or retail leases. The commercial treatment of such leases may differ from market to market but there are no specific regulations regarding the same.

In most cases, a tenant’s insolvency will result in a termination of the lease as the tenant would not be able to comply with its obligations under the lease. In certain cases, a tenant’s insolvency is agreed as an event of default and results in termination under the lease deed. As per the Transfer of Property Act, 1882, a lease is forfeited where (i) the tenant is adjudicated as insolvent, (ii) the lease specifically provides that the landlord may re-enter the premises on the happening of such an event and (iii) the landlord gives notice in writing to the tenant to terminate the lease.

Payment of a refundable security deposit is the most common security provided to the landlord. At times, the landlord may require the tenant to provide a bank guarantee for securing certain payment obligations.

If contractually agreed, the tenant may have the right to continue to occupy the premises as a monthly tenant after the expiry or termination of the lease or in the specific instance where the landlord does not refund the security deposit paid by the tenant in time. In all other cases, the tenant would have to leave the premises on the date of expiry or termination of the lease. Where the tenant does not vacate the premises, the landlord would have to approach the court to evict the tenant, who will have the status of a trespasser. The landlord would also have the right to claim mesne profits from the tenant for such unauthorised occupation.

Events of default and termination rights are contractually agreed between the parties. They include breach of the terms of the lease by either party, breach of the representations, insolvency, non-payment of rent, etc. The parties generally agree on a cure period following an event of default before the termination rights arise.

Where a tenant is in breach of the terms of the lease, the landlord would have to follow the procedure set out in the lease deed to require the tenant to leave the premises. This would include provision of a cure period. Even where the landlord issues a notice of termination, the tenant may dispute the landlord’s claim and the matter may be submitted to arbitration or courts (based on the contractual understanding) for resolution. Where a tenant has defaulted on the terms of the lease and the landlord initiates eviction proceedings, the process for eviction of the tenant may take between three and seven years but the landlord can also seek mesne profits from the tenant for unauthorised occupation. Where termination is during the lock-in period, the landlord may be able to seek lease rent for the balance of the lock-in period.

While a lease cannot be directly terminated by a third party, in the event that the land and building are acquired by any governmental authority, the lease would automatically terminate as a result of such acquisition. Compensation would be paid for the value of the property acquired and will be shared by the landlord and tenant in the manner commercially agreed.

The construction industry in India uses a range of contract structures for various projects. These structures range from lump-sum turnkey fixed-price contracts to bill of quantities-based contracts (item-rate contracts) to work package-based contracts.

The type of contact used varies based on the cost of the project and the sector. For projects where a detailed bill of quantities is possible, owners opt for an item-rate contract, which gives them greater control of the contract price. For large infrastructure sector construction projects, lump-sum turnkey construction contracts are common.

In India, fixed-price contracts prove problematic since the price of raw materials fluctuates quite significantly. The same are dependent on the rate of inflation, which in India is in the region of 4% to 7%.

For large and critical projects, the construction contract stipulates a design and build lump-sum price with appropriate triggers (such as ‘change in law’ or ‘change in taxes’) for price increases as per a pre-agreed formula to address any increase in the cost of selected raw materials/input commodities. The price increase in relation to selected commodities is often linked to relevant indices/exchanges (eg, steel prices for large rolling stock are linked to the London Metal Exchange).

Split structure, and design and build structure are commonly used for risk allocation and rewards for construction projects.

For split structure, the owner appoints an architect who is responsible for the design of a project and the contractor is responsible for the construction of the project in accordance with such design. This contract structure is prevalent for the construction of real estate or manufacturing units.

For design and build structure, the owner enters into a lump-sum turnkey contract with a qualified entity who is responsible for the entire project, including for the design and engineering thereof; this may be a single contract or split between various contracts with the same entity or its affiliates. This will entail managing, supervising and co-ordinating all the other contractors/subcontractors to ensure that the work is carried out in a safe manner, in compliance with the demands of the project schedule and to a quality that meets the standards required by the owner.

In all the structures, it is common for the owner to have the right to review and certify the contractor’s compliance with its obligations. The contractor is often responsible for the work done even after completion, and during the agreed defects liability period and latent defects liability period.

It is common to penalise delays in performance of work by requiring the contractor to pay damages or deduct liquidated damages from payments due. The penalties are generally subject to a cap, which could be in the region of 10%.

While the maximum liability of a contractor with respect to liquidated damages on account of delay may be capped to 10% of the total contract value, the overall liability of a contractor under a construction contract may extend up to 100% of the total contract value.

Additionally, the owner may, at the contractor’s cost, have the contract performed through a third party or its own agency in instances of breach due to non-performance by the contractor. This right has been bolstered with the Specific Relief (Amendment) Act, 2018 coming into force.

Standard indemnity provisions are prevalent in construction contracts and the limitation of liability usually varies between 50% and 100% of the contract price.

Furthermore, in addition to damages for quality and timely performance, in select large construction contracts, the contractor is required to provide the owner a corporate guarantee or fund-based performance guarantee.

Retention of payments is also commonly seen and such guarantees/retention amount is released after the completion of the defects liability period.

Warranties as to workmanship and quality, fit-for-purpose warranties, adherence to technical specifications, and adherence to prudent industry practice are generally undertaken by the contractors subject to industry-specific and technical exceptions.

Lastly, the construction contract usually requires the contractor to obtain and maintain adequate insurance to cover any risks during construction (including erection all risks insurance, fire insurance, etc).

Payments are typically made on the completion of certain milestones and the contractor is penalised where the contractor is unable to achieve the milestones, including reduction of the payments where the delay is beyond an agreed period. If the project schedule is not adhered to, delay liquidated damages are triggered. Contractors tend to take advantage of contractual clauses allowing extension of time (eg, owner-caused delay and force majeure provisions) to justify the delay as these clauses are generally broadly worded. Typically, these lead to disputes between the owner and the contractor, and an overall delay in the project.

Another mechanism to minimise schedule-related risks is the inclusion of provisions related to ‘provisional completion’ of the construction works whereby the contractor is issued a ‘provisional completion certificate’ with identified ‘punch list items’ that are pending completion.

It is common for the owner to require the contractor to provide bank guarantees (both on advance payment and for guaranteeing performance) as security for the performance of the contractor’s obligations. In most cases, the owner also retains a portion from every payment due to the contractor as a retention amount, which amount is only released to the contractor after the expiry of the defects liability period.

Usually, an ‘advance payment bank guarantee’ (ABG) is required to be furnished by the contractor upon payment of the ‘mobilisation advance’ by the owner. In most cases, the ABG is valid till the completion of construction.

In addition to the ABG, a ‘performance bank guarantee’ (PBG) is also sought by owners to secure performance of the work/construction commissioned by the contractor. Such a PBG would be required to be furnished on the effective date of the contract along with the ABG and is usually valid till the expiry of the defects liability period.

Lastly, it is relevant to note that such guarantees are ordinarily unconditional and irrevocable in nature.

Unless contractually agreed, the contractor is not permitted to create a lien on the property. Such a right is rarely agreed to be provided by the owner in favour of the contractor. Unless the contract entered into between the owner and the contractor specifically provides that any amounts due to the contractor would give rise to a lien on the property, the contractor will not have any charge on the property and any monies due will only be a money claim against the owner.

It is not common in India to provide any right to a construction contractor to create any charge, security or encumbrance on the property. Typically interest on delayed payment is levied by the contractors. If the owner defaults in making payments for prolonged periods, suspension and termination clauses protect the contactors. Also, construction contracts for certain large infrastructure projects provide that upon project completion and full payments being made, the contractor is required to issue a certificate releasing the owner from all payment obligations and confirming that the contractor/its subcontractors do not have any claims or lien on the project.

A building comprising more than a prescribed number of floors can only be occupied after obtaining an occupancy certificate from the concerned planning authority. The occupancy certificate is issued by the planning authority after it is satisfied that the building has been constructed in accordance with the sanctioned plan and, in certain cases, subject to the fire department confirming that all the safety norms have been installed in the building. While the requirement of an occupancy certificate is a must, many small developers deviate from the sanctioned plan and do not obtain the occupancy certificate.

GST is applicable on supply of goods and services. Accordingly, GST is to be paid on services comprised in value of under construction property and is payable at the rate of 8% of the entire sale consideration in the case of properties meeting the affordable housing criterion (small houses) and at the rate of 12% in the case of other properties. However, GST is not applicable on the sale of constructed property.

Stamp taxes can be reduced by contributing a property to a partnership firm. The partnership firm can thereafter even be converted into a company. By such transfers, the property owned by an individual can ultimately be transferred and owned by a company without payment of stamp duty and registration fee.

Municipal taxes are generally calculated based on the location, size, age and occupation of the property (self-occupied or tenanted). In some cases, the taxes are based on rents received. There are no exemptions for payment of property taxes except for properties used for charitable purposes/religious institutions.

Any income of a non-resident from property situated in India is subject to tax in India and withholding tax applies. Income of a foreign company is usually taxed at the rate of 40%. However, gain on sale of a real estate held as investment is taxed at the rate of 20% or 40% depending on the period of holding. If property was purchased by bringing in foreign currency in India, gains on disposal are computed so as to adjust for change in the rate of currency.

Tax on non-residents may, however, be reduced if favourable tax treaty provisions apply.

Rental income also qualifies for the following deduction/rebates: (i) deduction equal to 30% of rental income (for allowance towards repairs and maintenance) and (ii) interest paid on loans availed to purchase the property.

Loss incurred by renting out of house property is allowed to be set-off up to a sum of INR250,000 per annum. Balance loss is allowed to be carried forward and set-off in seven ensuing years.

Depreciation and other business expenses may be claimed as deductions only if the taxpayer is in the business of commercially letting out properties or where property, plant and machinery inseparable from the property are let out together.

J. Sagar Associates

Level 3, Prestige Obelisk,
No. 3, Kasturba Road,
Bangalore – 560 001,
Karnataka, India

+91 80 435 03600

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vivek.k.chandy@jsalaw.com www.jsalaw.com
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Law and Practice

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J Sagar Associates has over 300 professionals operating out of eight offices located in Ahmedabad, Bangalore, Chennai, Gujarat International Finance Tec-City (GIFT), Gurgaon, Hyderabad, Mumbai and New Delhi. The real estate practice is led by a team of 20 partners and 90 other qualified lawyers. Its clients comprise, inter alia, Indian, international, institutional and private entities, including developers, real estate advisers, banks, non-banking finance companies, offshore and domestic real estate funds, REITs, high net worth investors, governments, major retailers, hotel owners and operators. JSA is involved in legal and regulatory issues for various types of real estate projects, including in relation to the construction and development of hotels, malls, residential and commercial complexes, warehouses, IT and industrial parks, and special economic zones. The key types of matters that the real estate team handles on a regular basis include conveyancing, leasing and licensing of real estate assets; investments, acquisitions, dispositions and joint ventures; real estate financing; construction and development; and real estate funds and REITs.

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