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Hidden risks in property transactions

Photo:K.R. Deepak

Caution needed: Be wary of the traps in property transactions.

You are making an important decision on purchase of property. You have weighed the pros and cons. Finance is likely to be tied up. All steps have been taken for finalisation of the deal. You are in a mood to conclude the transaction. Then finally, you are asked to sign a document. The deal has come a long way since it was finalised. You have been told that the transaction is being made effective from a particular date, which has gone past. At the time of filling of the date in the document, you are told to backdate the document. You think that there is absolutely nothing wrong as in any event, both of you have agreed on the date of the transaction and by backdating the document, you are only giving effect to the actual intention of the parties. You are also smart enough to know that the other person has not travelled abroad that day because an actual meeting has taken place. Unwittingly, you have stepped into a danger zone.

While the intention of the parties to complete the transaction and the date from which the transaction is to be made effective are all very clear there could be a danger on backdating the document. In fact, backdating the document is different from making the transaction effective from a particular date.

For this purpose, it is always open to the parties to make a particular event or transaction effective from a particular past date by including a suitable clause in the document. Almost always this can be done. However, changing the date of execution will not solve this problem and may, in fact, create a set of fresh problems. If you find yourself in this situation, do not attempt to backdate the document. Try and achieve the same effect by having proper wordings in the document.

Let us look at another situation. You have entered into a particular deal relating to a property. You can be either the seller or the purchaser. There are certain inconvenient issues pertaining to the deal. There is an embarrassment or a problem in recording all the relevant factors relating to the transaction in the Agreement or document concerned. You do not know how to go about it. However, both parties feel that there is a need or pressure to complete the formalities relating to the transactions at the earliest. There is a well-meaning relative or a friend throughout. He gives a very workable idea of having two different agreements pertaining to the same transaction. One Agreement will cover all facts and issues. The other will only contain, according to the parties’ requirements, the clauses, which are considered to be necessary or sufficient. This is the document to be produced for public view or for any other official purposes. In other words, the document that does not reflect the actual terms of transaction is held out as the actual document by both the parties.

One tends to think that after all, the document is to be effective for a short period only, till the transaction actually happens. Then the real document in which all the issues have been duly recorded can be destroyed by mutual consent.

One further tends to think that there is an inbuilt safety in this kind of mechanism as the document is likely to be kept in a place where both the parties together can have access. You would have already sensed the issues that can arise when you read this objectively.

In such transactions, when one becomes a part of these types of transactions, objectivity is lost and the very safeguard mechanism which is worked out as an instrument to address certain difficulties and issues may loom large . Think about the necessity to enter into such double agreements. Think as to what can go wrong and if so, whether the process adopted by you would be helpful . Think of all the factors that may weigh against you before the Court or other authority. Think beyond the immediate circumstances and take proper decisions.

There is another type of transaction which may typically go wrong. Imagine you have located an apartment that you want to buy. It so happens that the project has been pre-approved by institutions and banks for giving various kinds of loans. All you need to do is to make payment of your margin money. There is, however, a small problem. Though, the amount to be paid is something, which you can make up, you do not have the full amount immediately. Given some time, you are confident that this issue can be resolved. You express your position to the builder.

Again there is a well-meaning friend or relative; or the builder himself may come with an idea. This idea is something like making a deliberate variation of the built up area and other specifications relating to your apartment in such a manner that it will be made to appear that you have paid your full margin money when you have not paid anything.

In other words, the amount to be provided as a loan by the bank or institution will cover the full and actual value of your purchase. You are delighted. All your immediate problems are solved, but you have sowed the seeds for a very likely future trouble.

There are potential inherent risks in every transaction. Luckily, most of these can be addressed by adopting a simple and cautious approach.

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