Smart Investments begins with Strong Due Diligence – From Compliance to Confidence
Project Investigation under RERA refers to the scrutiny and compliance verification of real estate projects to ensure that, they adhere to the rules and regulations set by the RERA Act, 2016. This process involves evaluating project approvals, financial records, construction progress, legal compliance, and grievances to protect home-buyers and investors from fraud or misrepresentation by developers.
The enactment of the Real Estate (Regulation and Development) Act, 2016 (RERA) has significantly altered the compliance landscape for real estate projects in India. For institutional lenders, investment funds, and non-resident investors, legal due diligence under RERA is not merely a procedural formality but a critical risk-mitigation exercise. The objective is to ascertain the legality, enforceability, and commercial viability of the project before financial exposure or investment.
Legal & Documentation Review
- Marketable Title: The verification and scrutinizing of ownership documents, title deeds, and chain of transfers to ensure the promoter has lawful possession and authority to develop and project approvals from municipal authorities.
- Encumbrances: Scrutiny of encumbrance certificates, mortgage records, and pending litigation to confirm the property is free from adverse claims.
- Land Use Compliance: Examination of conversion orders, zoning permissions, and master plan conformity.
Related Article: RERA as a Regulatory Risk Framework for Institutional Real Estate Investment.
Statutory & Regulatory Compliance
- RERA Registration: This confirms that the project and promoter are duly registered under RERA, with disclosure of sanctioned plans, approvals, and project timelines.
- Approvals: Verification of building plan sanctions, commencement certificates, fire safety clearances, and environmental approvals.
- Local Laws: Compliance with municipal bye-laws, development control regulations, and state-specific real estate rules.
Financial Due Diligence
- Escrow Account Compliance: Ensuring promoter adherence to the statutory requirement of depositing 70% of project funds into a designated escrow account for construction and land costs.
- Mortgage and Charges: Identification of existing charges in favour of banks or financial institutions.
- Promoter’s Financial Standing: Review of audited financials, pending insolvency proceedings, and litigation history.
Contractual Documentation
- Builder-Buyer Agreements: Examination of sale agreements to ensure conformity with RERA provisions, including possession timelines, penalty clauses, and refund obligations.
- Dispute Resolution: Assessment of arbitration clauses, jurisdictional provisions, and compliance with consumer protection norms.
- Third-Party Contracts: Review of contracts with contractors, architects, and suppliers to identify contingent liabilities.
Project Status and Delivery
- Construction Progress: Verification of stage-wise completion certificates and alignment with declared timelines.
- Occupancy and Completion Certificates: Ensuring statutory certificates are obtained prior to handover.
- Compliance with Disclosure Obligations: Cross-checking promoter’s quarterly updates filed with RERA Authorities.
Special Considerations for NRI Investors
- Repatriation of Funds: Compliance with FEMA and RBI guidelines for investment and repatriation.
- Tax Implications: Review of applicable withholding tax, capital gains tax, and double taxation avoidance agreements.
- Enforceability of Contracts: Ensuring agreements are legally enforceable against the promoter in case of default.
Why Conduct RERA Project Investigations?
Conducting thorough investigations into a RERA-registered project is not merely a procedural step but a critical safeguard for investors and financial stakeholders to determine the legal soundness of a project. Key aspects include:
- Validity of RERA Registration
- Validity of licence and approvals from the concerned Authority
- Verification of approved plans
- Previous pending cases
- Verification of ownership, land, etc.
Legal due diligence of RERA projects is a multi-dimensional exercise encompassing title verification, regulatory compliance, financial scrutiny, and contractual safeguards. For banks, funds, and NRI investors, a robust due diligence framework is indispensable to mitigate risks, ensure statutory compliance, and safeguard investment interests. In an increasingly regulated real estate landscape, informed diligence is not just prudent—it is essential.
