Due diligence checklist for commercial property in India

Due diligence means checking a property's documents before you commit to buy it. By the end of this checklist you will know which documents to ask for and what each one shows. You will also know which extra checks apply to industrial land.

Before you start

Ask the seller for copies of every document early, before you pay any advance (an upfront part-payment). Then have your lawyer check the originals and search the public records independently.

Document names and issuing offices differ from state to state. Use this list as a starting point, and ask your lawyer what applies where the property is.

Title and ownership

Title is the legal right to own the property. You need to be sure the seller has clear title and can pass it to you.

• Title chain: the sequence of sale deeds (registered documents that transfer ownership) and other papers showing how ownership passed to the seller. Your lawyer will advise how far back to check.
• Encumbrance certificate: a record of registered transactions affecting the property, such as sales and mortgages, issued through the sub-registrar's office.
• Land and municipal records: check that the seller is recorded as owner and that the area matches the deeds.
• Authority to sell: if a company is selling, check the board resolution (a formal decision of its directors) approving the sale.
• Power of attorney: a document letting one person act for another. If someone signs for the owner under one, check that it is valid.
• Existing loans: if the property is mortgaged, get the lender's written confirmation of how the loan will be closed.
• Pending litigation search: a search of court records for cases involving the property or the seller.

Approvals and certificates

Approvals show that the building was allowed to be built and is allowed to be used. Missing approvals can affect your ability to occupy the property, lease it out or borrow against it.

• Approved plans: the building plans sanctioned by the local planning authority. Compare them with what is actually built.
• Occupancy certificate: permission from the local authority to occupy the building, issued after it checks the building against the approved plans.
• Completion certificate: confirmation from the local authority that construction was completed in line with the approved plans.
• Fire NOC: a no objection certificate from the fire department confirming the building meets fire safety requirements. Check whether it must be renewed.
• Project registration: for a unit in a new project, check that the project is registered with the state Real Estate Regulatory Authority. Read its page on the Authority's website.

This check comes from the Real Estate (Regulation and Development) Act, 2016, often called RERA. A promoter (the developer) must register a project before advertising or selling units in it, subject to exemptions. The promoter must also publish the project details on the Authority's website.

Land use and zoning

Land use, or zoning, is the use the planning authority allows on a piece of land, such as residential, commercial or industrial. It is set out in the development plan or master plan, the official plan for how land in the area may be used.

Check that the permitted land use matches what you plan to do. An office in a residential zone, or a warehouse on agricultural land, can face action from the authorities.

If the land was converted from another use, ask for the conversion order, sometimes called a change of land use permission. Check any conditions attached to it.

Taxes, dues and association consent

Unpaid dues can hold up the transfer or become your problem as the new owner. Ask for proof that everything is paid up to the date of sale.

• Property tax: receipts from the municipal body for recent years, and a statement that no arrears (unpaid past dues) are owed, if one is available.
• Utility bills: electricity and water bills paid to date.
• Society or association NOC: a no objection certificate from the building's society or owners' association. It confirms that dues are paid and that the society or association does not object to the sale.
• Maintenance dues: a statement from the association or facility manager showing no outstanding charges.
• Existing leases: if the property is let, copies of every lease and details of the security deposits held.

Industrial land and allotment terms

Industrial plots are often allotted by a state industrial development corporation, a state agency that develops and allots industrial land. Many are allotted on a long lease rather than sold outright. In that case you buy the lease rights, and the allotment terms will usually still apply to you.

• The allotment letter and the lease deed (the lease document signed with the corporation).
• Permitted use: the industries or activities allowed on the plot.
• Building deadlines: any time limit to build and start operations, and whether it was met.
• Transfer conditions: whether the corporation must approve the sale, and any transfer charges it levies.
• Subletting rules: whether you may lease the plot or its buildings to others.
• Dues to the corporation: lease rent, maintenance and service charges paid to date.

Ask the corporation's office to confirm in writing that there are no pending dues or notices against the plot.

The checklist at a glance

Use this table to track what you have received and checked. The usual source of each document is a guide only, since offices differ between states.